-----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, F1c+b+WxMSCpjIyhatxYCIvLchGoEGwBP/trU9Ypht0MmiK2flMwgdXa86Tc6FON XJTr+aWs3zZB8+9LND4wjw== 0000315858-99-000002.txt : 19990312 0000315858-99-000002.hdr.sgml : 19990312 ACCESSION NUMBER: 0000315858-99-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990311 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: SEC FILE NUMBER: 000-14188 FILM NUMBER: 99563366 BUSINESS ADDRESS: STREET 1: 1750 E SUNRISE BLVD CITY: FT LAUDERDALE STATE: FL ZIP: 33304 BUSINESS PHONE: 9547605200 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, 1998 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. 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 Partnership's expectations and are subject to a number of risks and uncertainties, including but not limited to, economic matters (both as a general matter and in particular in the areas where the Partnership owns real estate), competitive and other factors affecting the Partnership's operations, markets, property values and other factors including factors associated with the continued ownership and operation of real estate and the leasing or sale of the Federal Express Distribution Center discussed elsewhere in this report and the documents filed by the Partnership with the Securities and Exchange Commission. Many of these factors are beyond the Partnership's control. Actual results could differ materially from these forward-looking statements. In light of these risks and uncertainties, there is no assurance that the results discussed in such forward-looking statements contained in this report will, in fact, occur. The Partnership does not undertake any obligation to publicly release the results of any revisions to these forward-looking statements to reflect future events or circumstances. 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 have been purchased or sold since 1991. 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, 1998, 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 None. 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 1,658 holders of units of limited partnership interest as of February 22, 1999. 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, 1998. 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- Revenues $ 543,753 588,142 595,779 611,804 476,576 ========== ========= ========= ========= ========== Net income (loss) $ (656,016) 93,716 (6,107) 123,200 (73,884) ========== ========= ========= ========= ========== Net income (loss) per weighted average limited partnership unit outstanding $ (13.17) 1.88 (.12) 2.49 (1.49) ========== ========= ========= ========= ========== Total assets $ 6,364,252 6,230,003 5,818,603 5,676,601 5,295,139 ========== ========= ========= ========= ========== Partners' capital $ 6,084,946 5,932,102 5,612,362 5,490,357 5,171,268 ========== ========= ========= ========= ========== Distributions per weighted average limited partnership unit outstanding $ 5.00 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. The Galleria Professional Building is net leased to a tenant. The Federal Express Distribution Center was occupied solely by Federal Express Corporation pursuant to a lease that expired May 31, 1998. Federal Express vacated the property on that date and the Partnership is not currently receiving rent on this property. The Partnership is seeking either a replacement tenant or a buyer for the property. Rental income decreased for the year ended December 31, 1998 as compared to the 1997 period primarily due to the vacancy of the Federal Express building, effective May 31, 1998. Rental income increased for the year ended December 31, 1997 as compared to the comparable period in 1996 as a result of a rental increase at Federal Express, effective July 1997. Interest income increased for the year ended December 31, 1998 as compared to the comparable period in 1997 and 1996 primarily due to increases in funds available for investments and yields on those investments. During 1996 and 1998 the carrying value of Federal Express was reduced approximately $100,000 and $38,000, respectively, to its estimated fair value. Other property operations increased for the year ended December 31, 1998 as compared to the comparable period in 1997 primarily due to increases in insurance, real estate taxes and maintenance as a result of the vacancy at Federal Express. Other general and administrative expenses increased for the year ended December 31, 1998 as compared to the same period in 1997 primarily due to the appraisal fees paid in 1998 for Galleria and Federal Express. Other general and administrative expenses decreased for the year ended December 31, 1997 as compared to the same period in 1996 primarily due to the interest accrued on the rescission of partnership units and cost incurred in 1996 pertaining to litigation and legal fees associated with the preparation of a sale contract on the Federal Express Distribution Center in 1996 which was subsequently cancelled. The Federal Express lease expired May 31, 1998. Federal Express vacated the property on that date and the Partnership is not currently receiving rent on this property. The Partnership is seeking either a replacement tenant or a buyer for the property. If a replacement tenant is not found, rental income for 1999 is expected to decrease by approximately $112,000 from the amount recognized in 1998. Additionally, the Partnership would incur real estate taxes, insurance expense and other property maintenance expenses for which Federal Express previously paid pursuant to the terms of its lease. The property has been listed with an auction company and is scheduled to be presented at an auction in April 1999. 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 1998. At December 31, 1998, the Partnership had approximately $235,000 of cash and cash equivalents and approximately $2.0 million in Treasury Bills included in securities available for sale. The Partnership has annually been paying distributions of $5.00 per $1,000 of original capital ($1.25 quarterly) since the fourth quarter of 1990. In addition to the items discussed above, the Partnership's long term prospects will primarily be affected by future net income at Galleria and finding a replacement tenant 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. The Partnership's computer system is composed of seven personal computers running on a Windows NT network. The Partnership's primary in-house computer applications consist of general ledger, accounts payable, property management, spreadsheet and database applications. The personal computers have been checked and found to be year 2000 compliant. The vendor of the general ledger, accounts payable and property management packages have indicated that their software is also year 2000 compliant. The spreadsheet and database applications utilized are the most recent versions available from Microsoft. Accordingly, the Partnership does not expect to expend material amounts to remediate any year 2000 problems. Should any of the Partnership's systems fail, the Partnership believes it would be able to process its data and monitor its accounts through manual systems or other alternative means. Additionally, the Partnership does not anticipate that it will have any material expenditure associated with year 2000 issues with respect to real estate owned by the Partnership. 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, 1997 and 1998 Statements of Operations - For each of the Years in the Three Year Period ended December 31, 1998 Statements of Partners' Capital - For each of the Years in the Three Year Period ended December 31, 1998 Statements of Cash Flows - For each of the Years in the Three Year Period ended December 31, 1998 Notes to Financial Statements ITEM 14. FINANCIAL STATEMENT SCHEDULES III. Properties and Accumulated Depreciation - December 31, 1998. 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, 1998 and 1997, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1998, 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. KPMG LLP Fort Lauderdale, Florida March 2, 1999 I.R.E. Pension Investors, Ltd.-II (A Florida Limited Partnership) Balance Sheets December 31, 1997 and 1998 Assets 1997 1998 ---- ---- Cash and cash equivalents $ 519,678 234,761 Securities available for sale 1,673,707 2,000,507 Investments in real estate: Office building 5,782,761 5,782,761 Warehouse building 2,147,267 2,109,267 ----------- ---------- 7,930,028 7,892,028 Less accumulated depreciation (4,449,318) (4,861,920) ----------- ---------- 3,480,710 3,030,108 Other assets, net 2,506 29,763 $ 5,676,601 5,295,139 =========== ========== Liabilities and Partners' Capital Accounts payable 25,382 18,931 Other liabilities 157,589 101,449 Due to affiliates 3,273 3,491 ----------- ---------- Total liabilities 186,244 123,871 Partners' capital: 49,041 limited partnership units issued and outstanding 5,490,357 5,171,268 ----------- ---------- $ 5,676,601 5,295,139 =========== ========== 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, 1998 1996 1997 1998 ---- ---- ---- Revenues: Rental income $ 503,440 511,018 362,398 Interest income 91,599 99,493 113,558 Other income 740 1,293 620 --------- ------- -------- Total revenues 595,779 611,804 476,576 --------- ------- -------- Costs and expenses: Depreciation 412,602 412,602 412,602 Impairment loss on real estate 100,000 -- 38,000 Property operations: Property management fees to affiliate 5,034 5,110 3,624 Other 5,353 4,432 17,640 General and administrative: To affiliates 32,878 30,544 32,490 Other 46,019 35,916 46,104 --------- ------- -------- Total costs and expenses 601,886 488,604 550,460 --------- ------- -------- Net income (loss) $ (6,107) 123,200 (73,884) ========= ======= ======== Net income (loss) per weighted average limited partnership unit outstanding $ (.12) 2.49 (1.49) ========= ======= ======== 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, 1998 Limited General Partners Partners Total -------- -------- ----- 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 Limited partner distributions (245,205) -- (245,205) Net income 121,968 1,232 123,200 ----------- ------ ---------- Balance at December 31, 1997 5,491,826 (1,469) 5,490,357 Limited partner distributions (245,205) -- (245,205) Net loss (73,145) (739) (73,884) ----------- ------ ---------- Balance at December 31, 1998 $ 5,173,476 (2,208) 5,171,268 =========== ====== ========== 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, 1998 1996 1997 1998 ---------- ---------- ----------- Operating Activities: Net income (loss) $ (6,107) 123,200 (73,884) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 412,602 412,602 412,602 Impairment loss on real estate 100,000 -- 38,000 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 (57,832) 13,831 (28,545) Decrease (increase) in other assets, net 740 (169) (27,257) ---------- ---------- ----------- Net cash provided by operating activities 415,575 515,636 287,088 ---------- ---------- ----------- Investing Activities: Redemption and sale of securities available for sale 6,209,829 6,451,355 11,714,710 Purchase of securities available for sale (6,449,995) (6,534,809) (12,041,510) ---------- ---------- ----------- Net cash used in investing activities (240,166) (83,454) (326,800) ---------- ---------- ----------- Financing Activities: Rescission of limited partner units (67,750) -- -- Limited partner distributions (245,883) (245,205) (245,205) ---------- ---------- ----------- Net cash used by financing activities (313,633) (245,205) (245,205) ---------- ---------- ----------- Increase (decrease) in cash and cash equivalents (138,224) 186,977 (284,917) Cash and cash equivalents at beginning of year 470,925 332,701 519,678 ---------- ---------- ----------- Cash and cash equivalents at end of year $ 332,701 519,678 234,761 ========== ========== =========== 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 impairment loss on real estate. Compensation or Reimbursements to General Partners and Affiliates The General Partners and/or their affiliates are entitled to receive compensation or reimbursements 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. These securities are carried at fair value, with any related unrealized appreciation or depreciation reported as a separate component of partners capital. At December 31, 1997, the Partnership owned one treasury bill that matured in February 1998 in which cost approximated fair value. At December 31, 1998, the Partnership owned two treasury bills that both mature in January 1999 in which cost approximated fair value. Properties The properties are assets to be held and used and are stated at cost in the accompanying statements of financial condition. The office building and distribution center are depreciated using the straight-line method over an estimated useful life of 20 years. Long-lived assets to be held and used by the Partnership are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. In performing the review for recoverability, the Partnership estimates 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 and the property's cost basis is reduced. Measurement of an impairment loss for long-lived assets that the Partnership expects to hold and use is based on the fair value of the asset. 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. (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 land. 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 in 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 to sell 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, 1998, the Galleria Professional Building was 98% percent occupied, with an average leasing rate of approximately $16.32 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. 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, ------------------------ 1996 1997 1998 ---- ---- ---- (Unaudited) Rental income 968,191 1,028,522 1,000,104 Other income 7,405 11,630 7,766 --------- --------- --------- 975,596 1,036,288 1,011,734 --------- --------- --------- Property operating expenses 579,803 667,712 696,798 Ground rent 37,692 37,368 37,365 --------- --------- --------- 617,495 705,080 734,163 --------- --------- --------- Operating income 358,101 331,208 277,571 ========= ========= ========= 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 was occupied solely by Federal Express Corporation pursuant to a lease which expired May 31, 1998. Federal Express vacated the property on that date and the Partnership is not currently receiving rent on this property. The Partnership is seeking either a replacement tenant or a buyer for the property. If a replacement tenant is not found, rental income for 1999 will decrease by approximately $112,000as compared to rental income received in 1998. The property has been listed with an auction company and is scheduled to be presented at auction in April 1999. Additionally, the Partnership would incur real estate taxes, insurance expense and other property maintenance expenses for which Federal Express was responsible. During 1996 and 1998, the carrying value of this property was reduced by approximately $100,000 and $38,000, respectively, to its estimated fair value. Leases The aggregate sum of the minimum lease rental payments to be received for the Galleria Professional Building over the five succeeding years is approximately as follows: Year ending December 31, ------------------------ 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- $ 217,000 217,000 217,000 217,000 217,000 ======= ======= ======= ======= ======= (3) COMPENSATION OR REIMBURSEMENTS TO GENERAL PARTNERS AND AFFILIATES During the year ended December 31, 1996, 1997 and 1998 compensation to general partners and affiliates was as follows: 1996 1997 1998 ---- ---- ---- Reimbursement for administrative and accounting services $32,878 30,544 32,490 Property management fees (a) 5,034 5,110 3,624 ------- ------- ------- Total $37,912 35,654 36,114 ======= ======= ======= (a) Property management fees are computed as 1% of rental income. (4) RECONCILIATION OF NET INCOME (LOSS) 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. 1996 1997 1998 ---- ---- ---- Net income (loss): Amount reported for financial statement purposes $ (6,107) 123,200 (73,884) Difference in financial statement/tax depreciation expense 202,719 202,722 202,722 Difference between accrual basis of accounting used for financial statements and the method used for income tax purposes (71,365) (18,178) (55,900) Adjustment due to fair value considerations in the carrying value of real estate for financial statement purposes 100,000 -- 38,000 ----------- ----------- ---------- Amount reported for income tax purposes $ 225,247 307,744 110,938 =========== =========== ========== 1996 1997 1998 ---- ---- ---- Partners' capital: Amount reported for financial statement purposes $ 5,612,362 5,490,357 5,171,268 Difference in financial statement/tax depreciation expense 1,991,158 2,193,880 2,396,602 Difference between accrual basis of accounting used for financial statements and the method used for income tax purposes 175,542 157,364 101,464 Difference due to fair value considerations in the carrying value of real estate for financial statement and income tax purposes 786,000 786,000 824,000 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 $10,066,550 10,129,089 9,994,822 =========== =========== ========== (5) OTHER LIABILITIES Other liabilities at December 31, 1997 and 1998 consisted 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. SCHEDULE III I.R.E. Pension Investors, Ltd.-II Properties and Accumulated Depreciation December 31, 1998 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) (138,000) (824,000) ----------- ----------- ----------- (686,000) (138,000) (824,000) ----------- ----------- ----------- Gross Amount: Land -- 471,926 471,926 Building and Improvements 5,782,761 1,637,341 7,420,102 ----------- ----------- ----------- Total 5,782,761 2,109,267 7,892,028 =========== =========== =========== Accumulated Depreciation $ 3,878,095 983,825 4,861,920 =========== =========== =========== 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, 1998 1996 1997 1998 ---- ---- ---- Cost: Balance at beginning of period $ 8,030,028 7,930,028 7,930,028 Allowance to state real estate at fair value (100,000) -- (38,000) ----------- ----------- ----------- Balance at end of period $ 7,930,028 7,930,028 7,892,028 =========== =========== =========== Accumulated Depreciation: Balance at beginning of period $ 3,624,114 4,036,716 4,449,318 Additions: Depreciation 412,602 412,602 412,602 ----------- ----------- ----------- Balance at end of period $ 4,036,716 4,449,318 4,861,920 =========== =========== =========== 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, 1998. 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 54 Director since 1985 Earl Pertnoy 72 Director since 1985 Carl E. B. McKenry, Jr. 69 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 54 President since 1985 Glen R. Gilbert 54 Executive Vice President since July 1997, Senior Vice President from 1985 to July 1997; 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 unitary 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. GLEN R. GILBERT has been Executive Vice President of BFC Financial Corporation since July 1997, Chief Financial Officer since 1987 and Secretary since 1988. From 1985 through July 1997 he served in the position of Senior Vice President of BFC Financial Corporation. 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 partner of Registrant. 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. 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. 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 1998, 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, 1998, 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 $ 32,490 Partners Property management fees $ 3,624 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 1998 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 2, 1999 - ------------------------------------------------------- Alan B. Levan, Director and Principal Executive Officer /S/ Earl Pertnoy March 2, 1999 - ------------------------------------------------------- Earl Pertnoy, Director /S/ Carl E.B. McKenry, Jr. March 2, 1999 - ------------------------------------------------------- Carl E. B. McKenry Jr., Director EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1998 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 234,761 2,000,507 0 0 0 0 7,892,028 (4,761,920) 5,295,139 0 0 0 0 0 5,171,268 5,295,139 0 476,576 0 550,460 0 0 0 (73,884) 0 0 0 0 0 (73,884) (1.49) (1.49)
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