-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LRbF21wGvJ8GcYckWAqkszm90swpRhTM2R5mQi03h+eK3g41cKHjo/7sZ4qBKcCs COhD1OlWg/04WX8bc5+ozg== 0000315858-97-000005.txt : 19970327 0000315858-97-000005.hdr.sgml : 19970327 ACCESSION NUMBER: 0000315858-97-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970326 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: IRE PENSION INVESTORS LTD-II CENTRAL INDEX KEY: 0000775440 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 592582239 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14188 FILM NUMBER: 97563897 BUSINESS ADDRESS: STREET 1: 1750 E SUNRISE BLVD CITY: FT LAUDERDALE STATE: FL ZIP: 33304 BUSINESS PHONE: 3057605200 MAIL ADDRESS: STREET 1: PO BOX 5403 CITY: FORT LAUDERDALE STATE: FL ZIP: 33310-5403 10-K 1 ANNUAL REPORT ON FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended Commission File Number December 31, 1996 0-14188 I.R.E. PENSION INVESTORS, LTD. - II (Exact Name of Registrant as Specified in its Certificate of Limited Partnership) Florida 59-2582239 (State of Organization) (I.R.S. Employer Identification Number) 1750 E. Sunrise Boulevard Fort Lauderdale, Florida 33304 (Address of Principal Executive Office) (Zip Code) Registrant's telephone number, including area code: (954) 760-5200 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Units, $250 Per Unit 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 amendments to this Form 10-K. [X] Documents Incorporated by Reference Portions of the Prospectus of the Registrant, dated October 4, 1985, are incorporated by reference into Part IV. PART I ITEM 1. BUSINESS I.R.E. PENSION INVESTORS, LTD.-II, a limited partnership organized under the laws of the State of Florida as of September 30, 1985, is primarily engaged in the business of operating and holding for investment, income producing real properties. Registrant did not utilize borrowings in connection with the purchase of its properties. The Partnership commenced a public offering of its units of limited partnership interest in October 1985. The required escrow relative to Registrant was reached and subscription funds were transferred to Registrant on December 26, 1985 ("Inception"). The Registrant closed the offering in October 1987, having raised $12,373,750 in capital and issued 49,491 units of limited partnership interest at $250 per unit. Galleria Professional Building and a minority interest in One West Nine Mile Joint Venture were acquired during 1986 and the Federal Express Distribution Center was acquired during 1987. During December 1991, the One West Nine Mile Joint Venture was sold. No properties were purchased or sold during 1996. Uninvested cash of Registrant is deposited in demand accounts with commercial banks and may be invested temporarily in U.S. Treasury Bills, certificates of deposit or other interest bearing accounts or investments. Alan B. Levan and I.R.E. Pension Advisors II, Corp. are the general partners of Registrant. I.R.E. Pension Advisors II, Corp., as Managing General Partner, manages and controls Registrant's affairs and has general responsibility and the ultimate authority in all matters affecting Registrant's business. Affiliates of the general partners of Registrant also own and operate their own improved real estate and may have investment objectives and policies similar to those of Registrant. Registrant may be in competition with other limited partnerships served by affiliates of the Managing General Partner or by other companies wherein the individual general partner is a controlling stockholder. On December 31, 1996, Registrant had no employees. The balance of information required in Item 1 is either inapplicable or not material to an understanding of the Registrant's business. ITEM 2. PROPERTIES The properties listed below are not utilized by Registrant but are held for investment. All are zoned for their current uses. Galleria Professional Office Building 60,965 square owned Fort Lauderdale, FL feet leasable Federal Express Distribution Center 37,500 square owned Jacksonville, FL feet leasable ITEM 3. LEGAL PROCEEDINGS Kugler, et al., (formerly Martha Hess, et al.) on behalf of themselves and all others similarly situated, v. Gordon, Boula, Financial Concepts, Ltd., KFB Securities, Inc., et al. In the Circuit Court of Cook County, Illinois. On or about May 20, 1988, an individual investor filed the above referenced action against two individual defendants, who allegedly sold securities without being registered as securities brokers, two corporations organized and controlled by such individuals, and against approximately sixteen publicly offered limited partnerships, including Registrant, interests in which were sold by the individual and corporate defendants. Plaintiff alleged that the sale of limited partnership interests in the Partnership (among other affiliated and unaffiliated partnerships) by persons and corporations not registered as securities brokers under the Illinois Securities Act constitutes a violation of such Act, and that the Plaintiff, and all others who purchased securities through the individual or corporate defendants, should be permitted to rescind their purchases and recover their principal plus 10% interest per year, less any amounts received. The Partnership's securities were properly registered in Illinois and the basis of the action relates solely to the alleged failure of the Broker Dealer to be properly registered. This matter has been in the Courts since 1988 and in October 1996, funds were placed in escrow to rescind sales of 271 Partnership units. Approximately $113,000 was placed in escrow representing $67,750 for the rescission of units and $45,250 for interest through October 1996. During the quarter ended September 30, 1996, partners' capital, units outstanding, per unit information, including income per unit amounts, were adjusted for the rescission of units. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP INTEREST AND RELATED SECURITY HOLDER MATTERS a) There is no established public trading market for Registrant's units of limited partnership interest. b) There are approximately 1,904 holders of units of limited partnership interest as of December 31, 1996. c) See Item 6.-Selected Financial Data regarding Registrant's distributions, incorporated herein by reference as if set forth herein. I.R.E. Pension Investors, Ltd.-II (A Florida Limited Partnership) ITEM 6. SELECTED FINANCIAL DATA For the five years ended December 31, 1996. 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- Revenues $ 520,980 524,908 543,753 588,142 595,779 ========== ========== ========== ========== ========== Net income (loss) $ (32,453) 2,237 (656,016) 93,716 (6,107) ========== ========== ========== ========== ========== Net income (loss) per weighted average limited partnership unit outstanding $ (.65) .04 (13.17) 1.88 (.12) ========== ========== ========== ========== ========== Total assets $ 7,615,420 7,321,582 6,364,252 6,230,003 5,818,603 ========== ========== ========== ========== ========== Partners' capital $ 7,231,845 6,987,522 6,084,946 5,932,102 5,612,362 ========== ========== ========== ========== ========== Distributions per weighted average limited partnership unit outstanding $ 11.25 5.00 5.00 5.00 5.00 ========== ========== ========== ========== ========== ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF I.R.E. PENSION INVESTORS, LTD. - II A description of the Partnership's investment properties follows: * Galleria Professional Building ("Galleria") - A 61,000 square foot office building located in Fort Lauderdale, Florida. * Federal Express Distribution Center ("Federal Express") - A 38,000 square foot warehouse building located in Jacksonville, Florida. The Partnership was organized in September 1985 and is engaged in the business of operating and holding for investment, income producing real properties. In December 1986, the Partnership acquired Galleria and in December 1987, the Partnership acquired Federal Express. Both of the above properties are net leased to their tenants. Rental income increased for the year ended December 31, 1996 as compared to the comparable period in 1995 and 1994 as a result of a scheduled rental increase at Federal Express, effective July 1995. Interest income increased for the year ended December 31, 1995 as compared to the comparable period in 1994 primarily due to increases in funds available for investment and yields on those investments. Other income decreased for the year ended December 31, 1995 as compared to the same period in 1994 due principally to decreased fees from investor transfers of partnership units. During 1996, the carrying value of Federal Express was reduced approximately $100,000 to its estimated fair value. During 1994, the carrying value of Galleria was reduced approximately $686,000 to its estimated fair value. This was based upon the existing lease terms as indicated in note 2 of Notes to Financial Statements and independent appraisals performed on the Partnership's properties . General and administrative expense to affiliates decreased for the year ended December 31, 1995 as compared to the 1994 comparable period primarily due to decreased costs associated with administrative and accounting service reimbursements. These cost reimbursements are associated with filing requirements to regulatory agencies, tax return preparation, general accounting services and monitoring of pending litigation. Other general and administrative expenses increased for the year ended December 31, 1996 as compared to the same period in 1995 primarily due to legal fees and costs associated with the litigation discussed in Item 3. "Legal Proceedings" Kugler, et.al. v. Gordon, Boula, et.al. Also contributing to the increase were legal fees incurred for the preparation of a sale contract on Federal Express. Such costs were written off when the contract was terminated. Other general and administrative expenses decreased for the year ended December 31, 1995 as compared to the comparable period in 1994 primarily due to a reduction in auditing fees and bank charges associated with the partners' distribution account. The lease on Federal Express expires on June 30, 1997. Federal Express has expressed their intention to relocate to a larger facility and has requested an extension of their lease through March 1998. It is anticipated that the extension will be granted and the Partnership has begun the search for either a replacement tenant or a buyer for the property. When the Partnership acquired the Galleria Professional Building in 1986, it executed a net lease with the seller, leasing the property back to the seller on a totally net basis. The lease requires a minimum annual rental of $217,000 per annum plus 10% of the property income, as defined, between $217,000 and $467,000 and 50% of the property income in excess of $467,000. Based on operations of the property, reflected in information provided by the tenant, no percentage rent is to be paid for 1996. At December 31, 1996, the Partnership had approximately $333,000 of cash and cash equivalents and approximately $1.6 million in Treasury Bills included in securities available for sale. The Partnership has been paying distributions of 2% per annum of original capital on a quarterly basis since the fourth quarter of 1990. In addition to the items discussed above, the Partnership's long term prospects will be primarily affected by future net income at Galleria and finding a replacement for or sale of the Federal Express building. Due to the uncertainties involving the real estate market and the status of the Federal Express building, management cannot reasonably determine the Partnership's long term liquidity position. Except for historical information contained herein, the matters discussed in this report are forward-looking statements made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. These forward-looking statements are based largely on the Company's expectations and are subject to a number of risks and uncertainties, including but not limited to, economic, competitive and other factors affecting the Company's operations, markets, property values and other factors discussed elsewhere in this report and the documents filed by the Company with the Securities and Exchange Commission. Many of these factors are beyond the Company's control. Actual results could differ materially from these forward-looking statements. In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this report will, in fact, occur. I.R.E. Pension Investors, Ltd.-II (A Florida Limited Partnership) ITEM 8. INDEX TO FINANCIAL STATEMENTS Independent Auditors' Report Financial Statements: Balance Sheets - December 31, 1995 and 1996 Statements of Operations - For each of the Years in the Three Year Period ended December 31, 1996 Statements of Partners' Capital - For each of the Years in the Three Year Period ended December 31, 1996 Statements of Cash Flows - For each of the Years in the Three Year Period ended December 31, 1996 Notes to Financial Statements ITEM 14. FINANCIAL STATEMENT SCHEDULES III. Properties and Accumulated Depreciation - December 31, 1996. All other schedules are omitted as the required information is either not applicable or is presented in the financial statements and related notes. INDEPENDENT AUDITORS' REPORT The Partners I.R.E. Pension Investors, Ltd. - II: We have audited the financial statements of I.R.E. Pension Investors, Ltd. - II (a Florida Limited Partnership), as listed in the accompanying index. In connection with our audits of the financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These financial statements and financial statement schedule are the responsibility of I.R.E. Pension Investors, Ltd. - II's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule 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 I.R.E. Pension Investors, Ltd. - - II, at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /S/ KPMG PEAT MARWICK LLP KPMG PEAT MARWICK LLP Fort Lauderdale, Florida March 21, 1997 I.R.E. Pension Investors, Ltd.-II (A Florida Limited Partnership) Balance Sheets December 31, 1995 and 1996 Assets 1995 1996 ---- ---- Cash and cash equivalents $ 470,925 332,701 Securities available for sale 1,350,087 1,590,253 Investments in real estate: Office building 5,782,761 5,782,761 Warehouse building 2,247,267 2,147,267 --------- --------- 8,030,028 7,930,028 Less accumulated depreciation (3,624,114) (4,036,716) --------- ----------- 4,405,914 3,893,312 Other assets, net 3,077 2,337 --------- ---------- $ 6,230,003 5,818,603 ========= ========= Liabilities and Partners' Capital Accrued expenses 45,366 6,787 Accounts payable 27,160 27,424 Other liabilities 223,988 169,105 Due to affiliates 1,387 2,925 --------- --------- Total liabilities 297,901 206,241 Partners' capital: 49,041 limited partnership units issued and outstanding for 1996 and 49,312 limited partnership units issued and outstanding for 1995 5,932,102 5,612,362 --------- --------- $ 6,230,003 5,818,603 ========= ========= See accompanying notes to financial statements. I.R.E. Pension Investors, Ltd.-II (A Florida Limited Partnership) Statements of Operations For each of the Years in the Three Year Period ended December 31, 1996 1994 1995 1996 ---- ---- ---- Revenues: Rental income $ 489,147 496,290 503,440 Interest income 53,276 91,562 91,599 Other income 1,330 290 740 ---------- -------- -------- Total revenues 543,753 588,142 595,779 --------- -------- -------- Costs and expenses: Depreciation 412,602 412,602 412,602 Provision to state real estate at fair value 686,000 - 100,000 Property operations: Property management fees to affiliate 4,891 4,963 5,034 Other 8,651 7,235 5,353 General and administrative: To affiliates 39,989 32,113 32,878 Other 47,636 37,513 46,019 ---------- -------- -------- Total costs and expenses 1,199,769 494,426 601,886 --------- -------- -------- Net income (loss) $ (656,016) 93,716 (6,107) ========= ======== ======== Net income (loss) per weighted average limited partnership unit outstanding $ (13.17) 1.88 (.12) ======== ====== ======== See accompanying notes to financial statements. I.R.E. Pension Investors, Ltd.-II (A Florida Limited Partnership) Statements of Partners' Capital For each of the Years in the Three Year Period ended December 31, 1996 Limited General Partners Partners Total -------- -------- ----- Balance at December 31, 1993 $ 6,983,989 3,533 6,987,522 Limited partner distributions (246,560) - (246,560) Net (loss) (649,456) (6,560) (656,016) ---------- ------ ---------- Balance at December 31, 1994 6,087,973 (3,027) 6,084,946 Limited partner distributions (246,560) - (246,560) Net income 92,779 937 93,716 --------- ------ --------- Balance at December 31, 1995 5,934,192 (2,090) 5,932,102 Limited partner distributions (245,883) - (245,883) Rescission of limited partner units (67,750) - (67,750) Net loss (5,496) (611) (6,107) --------- ------- --------- Balance at December 31, 1996 $ 5,615,063 (2,701) 5,612,362 ========= ====== ========= See accompanying notes to financial statements. I.R.E. Pension Investors, Ltd.-II (A Florida Limited Partnership) Statements of Cash Flows For each of the Years in the Three Year Period Ended December 31, 1996 1994 1995 1996 ---- ---- ---- Operating Activities: Net income (loss) $ (656,016) 93,716 (6,107) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 412,602 412,602 412,602 Provision to state real estate at fair value 686,000 - 100,000 Non-cash portion of rental income (33,828) (33,828) (33,828) Changes in operating assets and liabilities Increase (decrease) in accrued expenses, accounts payable, other liabilities and due to affiliates (20,926) 52,423 (57,832) Decrease (increase) in other assets, net (9,660) 600 740 -------- -------- -------- Net cash provided by operating activities 378,172 525,513 415,575 -------- -------- -------- Investing Activities: Redemption and sale of securities available for sale - 2,567,409 6,209,829 Purchase of securities available for sale (1,265,073) (2,643,243) (6,449,995) ---------- ---------- ---------- Net cash used in investing activities (1,265,073) (75,834) (240,166) ---------- ---------- --------- Financing Activities: Rescisson of limited partner units - - (67,750) Limited partner distributions (246,560) (246,560) (245,883) ---------- --------- --------- Net cash used by financing activities (246,560) (246,560) (313,633) -------- -------- -------- Increase (decrease) in cash and cash equivalents (1,133,461) 203,119 (138,224) Cash and cash equivalents at beginning of year 1,401,267 267,806 470,925 --------- --------- --------- Cash and cash equivalents at end of year $ 267,806 470,925 332,701 ========= ========= ========= See accompanying notes to financial statements. I.R.E. Pension Investors, Ltd.-II (A Florida Limited Partnership) Notes to Financial Statements (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General I.R.E. Pension Investors, Ltd. - II (the "Partnership") was organized on September 30, 1985 in accordance with the provisions of the Florida Uniform Limited Partnership Act to invest in, hold and manage income producing real estate. A sufficient amount of capital was raised to allow funds to be released from escrow to the Partnership on December 26, 1985. The Partnership closed its offering of limited partnership units in October 1987 after having raised $12,373,750. The Managing General Partner has complete authority in the management and control of the Partnership. I.R.E. Pension Advisors II, Corp. is the Managing General Partner and Alan B. Levan is the individual General Partner of the Partnership. The General Partners may serve in the same capacity for other entities having similar investment objectives. Should any conflicts of interest arise among these entities, the management of the managing general partners will, at their sole discretion, resolve such conflicts. Basis of Financial Statement Presentation - The financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP"). In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition and income and expenses for the periods presented. Actual results could differ significantly from those estimates. A material estimate that is susceptible to significant change in the next year relates to the determination of the allowance to state real estate at fair value. Compensation to General Partners and Affiliates The General Partners and/or their affiliates are entitled to receive compensation only as specified by the Partnership Agreement. The determination of amount and timing of payment is subject to certain limitations and to cash distribution preferences of limited partners. Following is a brief description of such compensation and the services to be rendered: Underwriting Commissions: Due upon the sale of Partnership units of interest. Non-recurring Acquisition Fees: Principally for evaluating and selecting real property for potential purchase by the Partnership. Property Management Fee: Due for services in connection with the continuing professional property management of the Partnership properties. Partnership Management Fee: Due for services rendered in evaluating and selecting properties for the Partnership, reviewing cash requirements including the determination of the amount and timing of distributions, if any, making decisions as to the nature and terms of the acquisition and disposition of such properties, selecting, retaining and supervising consultants, contractors, architects, engineers, lenders, borrowers, agents and others and otherwise generally managing the day-to-day operations of the Partnership. Subordinated Real Estate Commissions: Related to sales of Partnership properties. Interest in Cash from Sales or Financing: Due also for services as listed under "Partnership Management Fee". Interest in Net Income and Net Loss as Determined for Federal Income Tax Purposes: 1% of net losses and the greater of (a) 1% of net income or (b) an amount of such net income which is in proportion to the percentage of cash distributed to the General Partners as a Partnership Management Fee or for their Interest in Cash From Sales or Financing. Cash and cash equivalents Cash equivalents include liquid investments with a maturity of three months or less. Securities Available for Sale The Partnership's securities are classified as available for sale. In accordance with Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities ("FAS 115") issued in May 1993 by the Financial Accounting Standards Board ("FASB"), these securities are carried at fair value, with any related unrealized appreciation or and depreciation reported as a separate component of partners capital. At December 31, 1995, the Partnership owned one treasury bill that matured in February 1996 in which cost approximated fair value. At December 31, 1996, the Partnership owned one treasury bill that matures in February 1997 in which cost approximated fair value. Properties The properties are stated at the lower of cost or fair value in the accompanying statements of financial condition. An allowance is provided, by property, in the event the carrying value of the property is greater than its fair value. The office building and distribution center are depreciated using the straight-line method over an estimated useful life of 20 years. Income Taxes The payment of income taxes is the obligation of the individual partners; therefore, there is no provision for income taxes in the accompanying financial statements. The Partnership's tax returns have not been examined by Federal or state taxing authorities. Net income or loss reported for income tax purposes involves, among other things, various determinations relating to properties purchased. Although management of the Partnership believes that such determinations are appropriate, there can be no assurance that the Internal Revenue Service will not contest the Partnership's tax treatment of various items or, if contested, such treatment will be sustained by the Courts. Further, there is a possibility that the Treasury will amend existing regulations or promulgate new regulations, and such action may be retroactive. Accordingly, the tax status of the Partnership and the availability of prior and future income tax benefits to limited partners may be adversely affected. Financial Reporting The Partnership maintains its accounting records on a modified cash basis. The accompanying financial statements are presented on an accrual basis. Rental Income Rental income is recognized under the operating method whereby aggregate rentals are reported as income over the life of the lease and the costs and expenses are charged against such revenue. Rental income, from leases with non-level payments, is recognized ratably over the term of the lease. New Accounting Standards In 1995, the FASB issued Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." ("FAS 121"). FAS 121 requires that long-lived assets, assets held for sale and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the entity should estimate the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized. Measurement of an impairment loss for long-lived assets and identifiable intangibles that an entity expects to hold and use should be based on the fair value of the asset. FAS 121 was effective for financial statements for fiscal years beginning after December 15, 1995. Earlier application was encouraged. Management is of the opinion that adoption of FAS 121 did not have a material effect on financial position or results of operations, upon adoption on January 1, 1996. (2) PROPERTIES Following is a brief description of the property investments made by the Partnership. Galleria Professional Building On December 31, 1986, the Partnership purchased a six story office building containing 60,965 square feet of net leasable area in Fort Lauderdale, Florida. The Partnership owns a leasehold interest in a long-term ground lease for two parcels of land which encompass the building site and parking areas. The lease commenced in 1955 and expires in 2054. Ground rent is approximately $13,000 annually. Every 20 years the ground rent is adjusted to be equal to five percent of the then current appraised value of the ground. The Partnership also purchased the rights to the parking agreement with the Galleria Mall. The agreement requires rental payments and common area maintenance charges which currently aggregate approximately $25,000 annually. The parking agreement and ground lease have concurrent terms. Simultaneous with the acquisition of the property, the Partnership executed a net lease with the seller, leasing the Property back to the Seller on a totally net basis. The terms of the lease require a minimum annual rental of $217,000 per annum plus 10% of the property income, as defined, between $217,000 and $467,000 and 50% of the property income in excess of $467,000. In accordance with generally accepted accounting principles, the rental income will be recognized ratably over the term of the lease. The ratable minimum rent through 2001 (the date of the buy/sell option discussed below) after the modification of the lease on September 1990 is $250,824 per year and such amount is recognized annually for financial statement purposes. The seller, as lessee, is responsible for any and all costs associated with the property, including but not limited to operating expenses, insurance, taxes, the ground lease and parking agreement payments. Commencing 2002, the Partnership and the tenant have a buy/sell option for this property, which may be exercised by either the Partnership or the tenant. In essence, this option gives the tenant the right to purchase the property at its then fair market value or allows the Partnership to terminate the tenant lease. As part of this option, $6,000,000 plus the excess between approximately $100,000 per month and actual rent paid during the lease term (less certain defined offsets) can constitute the Partnership's offer under the option. In such event, if the tenant fails to purchase the property at such price, the lease would be terminated and the Partnership would have no obligation to pay any part of the offering price to the tenant. At December 31, 1996, the Galleria Professional Building was 100% percent occupied, with an average leasing rate of approximately $15.85 per square foot. As indicated above, the lessee is responsible for any and all costs associated with the property. Galleria Professional Building is located in Fort Lauderdale Florida on the Middle River Waterway. There are several mid-rise office buildings in the area. Galleria Mall, a large regional shopping center, is located east of this property. Rental rates of the mid-rise office buildings in close proximity to the Galleria Professional Building were similar to those being charged by the Galleria Professional Building. During the fourth quarter of 1994, the carrying value of Galleria was reduced approximately $686,000 to its estimated fair value, based upon the existing lease terms as indicated above and an independent appraisal performed on the property. Following is summarized financial information with respect to operations at the Galleria office building. The following information is unaudited because the Partnership has no contractual right to require the lessee of the property to provide audited information. Years ended December 31, ------------ 1995 1996 ---- ---- (Unaudited) ----------- Rental income 927,387 968,191 Other income 10,354 7,405 -------- -------- 937,741 975,596 Property operating expenses 550,597 579,803 Ground rent 37,697 37,692 -------- -------- 588,294 617,495 -------- -------- Operating income 349,447 358,101 ======== ======== Federal Express Distribution Center On December 15, 1987, the Partnership purchased, from an unaffiliated seller, a one story 37,500 square foot office/warehouse building in Jacksonville, Florida. The building was designed for and is occupied solely by Federal Express Corporation pursuant to a ten year lease which commenced June 8, 1987 and expires June 30, 1997. Federal Express has expressed their intention to relocate to a larger facility and has requested an extension of their lease through March 1998. It is anticipated that the extension will be granted, however, no formal agreement has yet been reached. The Partnership has begun the search for either a replacement tenant or a buyer for the property. The lease requires minimum annual rental payments as follows: Term Amount ---- ------ Through June 1992 $216,660 July 1992 to June 1995 $238,320 July 1995 to June 1997 $252,612 The lease further requires the tenant to pay all expenses associated with the property including repairs and maintenance, real estate taxes, insurance and utilities. During 1996, the carrying value of Federal Express was reduced by approximately $100,000 to its estimated fair value. Leases The aggregate sum of the minimum lease rental payments to be received for the Galleria Professional Building and the Federal Express Distribution Center over the five succeeding years is approximately as follows: Year ending December 31, ------------------------ 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- $ 343,000 217,000 217,000 217,000 217,000 ======= ======= ======= ======= ======= The above table does not consider exercise of renewal options by existing tenants or renewal of leases expiring during above periods and does not assume any extension on the Federal Express lease past June 30, 1997. (3) COMPENSATION TO GENERAL PARTNERS AND AFFILIATES During the year ending December 31, 1994, 1995 and 1996 compensation to general partners and affiliates were as follows: 1994 1995 1996 ---- ---- ---- Reimbursement for administrative and accounting services $ 39,989 32,113 32,878 Property management fees 4,891 4,963 5,034 ------ ------ ------ Total $ 44,880 37,076 37,912 ====== ====== ====== (4) RECONCILIATION OF NET INCOME AND PARTNERS' CAPITAL The following reconciliation provides details of the nature and amount of differences between net income (loss) and partners' capital per the accompanying financial statements and the Partnership tax return. 1994 1995 1996 ---- ---- ---- Net income (loss): Amount reported for financial statement purposes $ (656,016) 93,716 (6,107) Difference in financial statement/tax depreciation expense 202,719 202,719 202,719 Difference between accrual basis of accounting used for financial statements and the method used for income tax purposes (29,472) (31,444) (71,365) Adjustment due to fair value considerations in the carrying value of real estate for financial statement purposes 686,000 - 100,000 -------- ----------- ------- Amount reported for income tax purposes $ 203,231 264,991 225,247 ======== ======= ======= 1994 1995 1996 ---- ---- ---- Partners' capital: Amount reported for financial statement purposes $ 6,084,946 5,932,102 5,612,362 Difference in financial statement/tax depreciation expense 1,585,720 1,788,439 1,991,158 Difference between accrual basis of accounting used for financial statements and the method used for income tax purposes 278,351 246,907 175,542 Difference due to fair value considerations in the carrying value of real estate for financial statement and income tax purposes 686,000 686,000 786,000 Cost of raising capital, deducted from partners' capital for financial statements and included in other assets for income tax purposes 1,501,488 1,501,488 1,501,488 ---------- ---------- ---------- Amount reported for income tax purposes $ 10,136,505 10,154,936 10,066,550 ========== ========== ========== (5) OTHER LIABILITIES Other liabilities at December 31, 1995 and 1996 consists primarily of unearned rental income, which, as stated in the Summary of Significant Accounting Policies (note 1), arises from leases with non-level payments being recognized ratably over the term of the lease. (6) LITIGATION During May 1988, an individual investor filed an action against two individual defendants, who allegedly sold securities without being registered as securities brokers, two corporations organized and controlled by such individuals, and against approximately sixteen publicly offered limited partnerships, including Registrant, interests in which were sold by the individual and corporate defendants. Plaintiff alleged that the sale of limited partnership interests in the Partnership (among other affiliated and unaffiliated partnerships) by persons and corporations not registered as securities brokers under the Illinois Securities Act constitutes a violation of such Act, and that the Plaintiff, and all others who purchased securities through the individual or corporate defendants, should be permitted to rescind their purchases and recover their principal plus 10% interest per year, less any amounts received. The Partnership's securities were properly registered in Illinois and the basis of the action relates solely to the alleged failure of the Broker Dealer to be properly registered. This matter has been in the Courts since 1988 and in October 1996, funds were placed in escrow to rescind sales of 271 Partnership units. Approximately $113,000 was placed in escrow representing $67,750 for the rescission of units and $45,250 for interest through October 1996. During the quarter ended September 30, 1996, partners' capital, units outstanding, per unit information, including income per unit amounts, were adjusted for the rescission of units. SCHEDULE III I.R.E. Pension Investors, Ltd.-II Properties and Accumulated Depreciation December 31, 1996 Galleria Federal Express Professional Distribution Office Bldg. Center Ft. Lauderdale Jacksonville Florida Florida Total Acquisition Date 12/86 12/87 Encumbrances $ - - - ========= ========= ========= Initial Costs: Land $ - 470,981 470,981 Building and Improvements 6,285,472 1,771,786 8,057,258 --------- --------- --------- 6,285,472 2,242,767 8,528,239 --------- --------- --------- Improvements: Costs capitalized subsequent to acquisition: Land - 945 945 Building and Improvements 183,289 3,555 186,844 --------- --------- --------- 183,289 4,500 187,789 --------- --------- --------- Allowance to state real estate at fair value (686,000) (100,000) (786,000) --------- --------- --------- (686,000) (100,000) (786,000) --------- --------- --------- Gross Amount: Land - 471,926 471,926 Building and Improvements 5,782,761 1,675,341 7,458,102 --------- --------- --------- Total 5,782,761 2,147,267 7,930,028 ========= ========= ========= Accumulated Depreciation $ 3,230,428 806,288 4,036,716 ========= =========== ========= Life on which depreciation is computed 20 years 20 years SCHEDULE III Continued I.R.E. Pension Investors, Ltd.-II Reconciliation of Cost and Accumulated Depreciation For each of the Years in the Three Year Period ended December 31, 1996 1994 1995 1996 -------- ------ ------ Cost: Balance at beginning of period $ 8,716,028 8,030,028 8,030,028 Allowance to state real estate at fair value (686,000) - (100,000) --------- ---------- ---------- Balance at end of period $ 8,030,028 8,030,028 7,930,028 ========= ========= ========= Accumulated Depreciation: Balance at beginning of period $ 2,798,910 3,211,512 3,624,114 Additions: Depreciation 412,602 412,602 412,602 --------- ---------- ---------- Balance at end of period $ 3,211,512 3,624,114 4,036,716 ========= ========= ========== The aggregate basis for Federal income tax purposes (not reduced by accumulated depreciation) of the above properties was approximately $8,716,000 at December 31, 1996. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Registrant has no directors or officers. a) Directors. Listed below are the directors of I.R.E. Pension Advisors II, Corp., Managing General Partner of Registrant, all of whom are to serve until the election and qualification of their respective successors unless sooner removed from office: NAME AGE POSITIONS HELD ---- --- -------------- Alan B. Levan 52 Director since 1985 Earl Pertnoy 70 Director since 1985 Carl E. B. McKenry, Jr. 67 Director since 1985 b) Executive Officers. Listed below are the executive officers of I.R.E. Pension Advisors II, Corp., all of whom are to serve until they resign or are replaced by the Board of Directors: NAME AGE POSITIONS HELD ---- --- -------------- Alan B. Levan 52 President since 1985 Glen R. Gilbert 52 Senior Vice President since 1985; Chief Financial Officer since 1987; Secretary since 1988 c) Certain Significant Employees. Not applicable. d) Family Relationships. Not applicable. e) Business Experience. ALAN B. LEVAN formed the I.R.E. Group in 1972. Since 1978, he has been the Chairman of the Board, President, and Chief Executive Officer of BFC Financial Corporation (or its predecessor companies), a financial services and savings bank holding company. He is also Chairman of the Board and President of I.R.E. Realty Advisors, Inc., I.R.E. Properties, Inc., I.R.E. Realty Advisory Group, Inc., U.S. Capital Securities, Inc., and Florida Partners Corporation. Mr. Levan is also Chairman of the Board and Chief Executive Officer of BankAtlantic Bancorp, Inc. Mr. Levan is also an individual general partner and an officer and a director of the corporate general partner of Registrant and of various entities which were the corporate general partners of public limited partnerships which have now been liquidated, all of which are affiliated with BFC Financial Corporation. GLEN R. GILBERT has been Senior Vice President of BFC Financial Corporation since 1984, Chief Financial Officer since 1987 and Secretary since 1988. Mr. Gilbert has been a certified public accountant since 1970. Mr. Gilbert serves as an officer of Florida Partners Corporation and of the corporate general of Registrant and of various entities which were the corporate general partners of public limited partnerships which have now been liquidated, all of which are affiliated with BFC Financial Corporation. EARL PERTNOY has been for more than the past five years a real estate investor and developer. He has been a director of BFC Financial Corporation and its predecessor companies since 1978. He is a director of the corporate general partner of Registrant and of various entities which were the corporate general partners of public limited partnerships which have now been liquidated, all of which are affiliated with BFC Financial Corporation. CARL E. B. McKENRY, JR. is the Director of the Small Business Institute at the University of Miami in Coral Gables, Florida. He has been associated in various capacities with the University since 1955. He has been a director of BFC Financial Corporation since 1981 and is a director of the corporate general partner of Registrant and of various entities which were the corporate general partners of public limited partnerships which have now been liquidated, all of which are affiliated with BFC Financial Corporation. f) Certain Legal Proceedings. None. ITEM 11. EXECUTIVE COMPENSATION a) Cash Compensation. The Registrant has no officers or directors. The Registrant did not pay salaries or expenses of the officers and directors of the general partner of the Registrant in 1996, except for travel and other expenses directly related to activities of the Registrant. b) Compensation Pursuant to Plans. Registrant has no annuity, pension or retirement plan for any director, officer or employee. c) Other Compensation. Not applicable. d) Compensation of Directors. Registrant has no directors. e) Termination of Employment and Change of Control Arrangement. Not applicable. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT a) No person owns 5% or more of Registrant's voting securities. b) Registrant has no officers or directors. The following information is provided with respect to units owned by directors and officers of the managing general partner. (3) Amount and (2) Nature of (4) (1) Name And Address Of Beneficial Percent Title Of Class Beneficial Owner Ownership Of Class -------------- ---------------- --------- -------- (i) Units of Limited Alan B. Levan 20 Direct 0%(approx) Partnership 1750 E. Sunrise Blvd. Interest Fort Lauderdale, FL 33304 All other directors and officers of the Managing General Partner as a group 0 Direct .0% --------- --- TOTAL 20 Direct .0%(approx) ========= === - ---------- (i) Alan B. Levan is a general partner of Registrant and is President and Director of the Managing General Partner. c) Registrant knows of no contract or other arrangement that could result in a change in control of registrant. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS a) & b) During the year ending December 31, 1996, the following entities received the fees and payments indicated for services rendered with respect to the Registrant: NAME AND RELATIONSHIP TO REGISTRANT TRANSACTION AMOUNT BFC Financial Corporation Reimbursement for or subsidiaries, administrative and Affiliates of the General accounting services $ 32,878 Partners Property management fees $ 5,034 c) Indebtedness of Management. None. d) Transactions with Promoters. Not applicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K A-1. See Item 8. Financial Statements and Supplementary Data. A-2. See Item 8. Financial Statements and Supplementary Data. A-3. Exhibits: Exhibit 3 Articles of incorporation and by-laws. Limited Partnership Agreement set forth as Exhibit A to the Prospectus of the Partnership dated October 4, 1985, as filed with the Commission pursuant to Rule 424(c), is hereby incorporated herein by reference. Exhibit 27 Financial data schedule - Included as Exhibit 27. B. REPORTS ON FORM 8-K No reports on Form 8-K have been filed during the last quarter of the period covered by this report. No annual report or proxy material for the year 1996 has been sent to the Partners of the Partnership. An annual report will be sent to the Partners subsequent to this filing. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. I.R.E. PENSION INVESTORS, LTD. - II Registrant By: I.R.E. Pension Advisors-II, Corp., Managing General Partner By: /S/ Alan B. Levan Alan B. Levan, President 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 Managing General Partner on behalf of the Registrant and in the capacities and on the dates indicated. /S/ Alan B. Levan March 21, 1997 - ------------------------------------------------------- Alan B. Levan, Director and Principal Executive Officer /S/ Earl Pertnoy March 21, 1997 - ------------------------------------------------------- Earl Pertnoy, Director /S/ Carl E.B. McKenry, Jr. March 21, 1997 - ------------------------------------------------------- Carl E. B. McKenry Jr., Director EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1996 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000775440 I.R.E Pension Investors, Ltd. - II year Dec-31-1996 Jan-01-1996 Dec-31-1996 332,701 1,590,253 0 0 0 0 7,930,028 4,036,716 5,818,603 0 0 0 0 0 5,612,362 5,818,603 0 595,779 0 601,886 0 0 0 (6,107) 0 0 0 0 0 (6,107) (0.12) (0.12)
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