10-Q 1 pen2_20020630-10qdoc.txt JUNE 20, 2002 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended Commission File Number June 30, 2002 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 |_| Page 1 of 10 I.R.E. Pension Investors, Ltd. - II Index to Financial Statements PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Balance Sheets as of December 31, 2001 and June 30, 2002 - Unaudited Statements of Operations for the Six and Three Month Periods Ended June 30, 2001 and 2002 - Unaudited Statement of Partners' Capital (Deficit) for the Six Months Ended June 30, 2002 - Unaudited Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2002 - Unaudited Notes to Unaudited Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K SIGNATURES Page 2 of 10 I.R.E. Pension Investors, Ltd. - II (A Florida Limited Partnership) Balance Sheets December 31, 2001 and June 30, 2002 (Unaudited)

See accompanying notes to unaudited financial statements. Page 3 of 10 I.R.E. Pension Investors, Ltd. - II (A Florida Limited Partnership) Statements of Operations For the Six and Three Month Periods Ended June 30, 2001 and 2002 (Unaudited)

See accompanying notes to unaudited financial statements. Page 4 of 10 I.R.E. Pension Investors, Ltd. - II (A Florida Limited Partnership) Statement of Partners' Capital (Deficit) For the Six Months Ended June 30, 2002 (Unaudited)

See accompanying notes to unaudited financial statements. Page 5 of 10 I.R.E. Pension Investors, Ltd. - II (A Florida Limited Partnership) Statements of Cash Flows For the Six Months Ended June 30, 2001 and 2002 (Unaudited)

See accompanying notes to unaudited financial statements. Page 6 of 10 I.R.E. Pension Investors, Ltd. - II (A Florida Limited Partnership) Notes to Unaudited Financial Statements June 30, 2002 Note 1 - General The accompanying financial statements have been prepared by the Partnership in accordance with the accounting policies described in its 2001 Annual Report and should be read in conjunction with the notes to financial statements which appear in that report. Note 2 - Real Estate On December 31, 1986, the Partnership purchased the Galleria Professional Building, a six story office building containing 60,965 square feet of net leaseable area in Fort Lauderdale, Florida. Following is summarized financial information with respect to operations at the Galleria Professional Building:

When the Partnership acquired the property, it executed a net lease leasing the Property on a totally net basis. The lessee has exercised an option that has extended the expiration date from 2016 until 2046. The exercise of this option effectively reduces the current value of the Galleria Professional Building to the Partnership because it extends by thirty years the date on which the Partnership can sell the property free of the lease. With the exercise of the option, the buy/sell provision in the lease for this property will not occur until 2032. An appraisal received in December 2001 indicated a market value of $2.5 million for the Galleria Professional Building. Based upon that appraisal and distributions during the current year, the ERISA value of the Partnership is $55.00 per unit. The lessee of the Galleria Professional Building has indicated a desire to purchase the building at its appraised value and the Managing General Partner of the Partnership intends to pursue the possible sale of the building. Upon the sale, the Board of Directors of the Managing General Partner will consider the possible liquidation of the Partnership. Page 7 of 10 Note 3 - Compensation or Reimbursements to General Partners and Affiliates During the six and three month periods ended June 30, 2001 and 2002, compensation to general partners and affiliates was as follows: Six Months Ended Three Months Ended June 30, June 30, -------- -------- 2001 2002 2001 2002 ------- ------ ------- ------- Reimbursement for administrative and accounting services $17,855 18,037 8,772 9,252 Property management fees (a) 1,254 1,084 627 542 ------- ------ ----- ----- Total $19,109 19,121 9,399 9,794 ======= ====== ===== ===== (a) Property management fees are computed as 1% of rental income. Note 4 - Management Representation In the opinion of management, the accompanying financial statements contain such adjustments as are necessary to present fairly the Partnership's unaudited balance sheets at December 31, 2001 and June 30, 2002, the unaudited statements of operations for the six and three month periods ended June 30, 2001 and 2002, the unaudited statement of partners' capital (deficit) for the six months ended June 30, 2002 and the unaudited statements of cash flows for the six months ended June 30, 2001 and 2002. Such adjustments consisted only of normal recurring items. The unaudited financial statements and related notes are presented as permitted by Form 10-Q and should be read in conjunction with the notes to financial statements appearing in the Partnership's Annual Report on Form 10K for the year ended December 31, 2001. Page 8 of 10 I.R.E. Pension Investors, Ltd. - II (A Florida Limited Partnership) Management's Discussion and Analysis of Financial Condition and Results of Operations June 30, 2002 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 area 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 factors identified in 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. The Partnership's investment property during 2001 and 2002 is the Galleria Professional Building, a 61,000 square foot office building located in Fort Lauderdale, Florida. When the Partnership acquired the Galleria Professional Building, it executed a net lease leasing the Property on a totally net basis. The lessee has exercised an option that has extended the expiration date from 2016 until 2046. The exercise of this option effectively reduces the current value of the Galleria Professional Building to the Partnership because it extends by thirty years the date on which the Partnership can sell the property free of the lease. An appraisal received in December 2001 indicated a market value of $2.5 million for the Galleria Professional Building. The current net book value of the Galleria Professional Building is less than the current value calculated after the exercise of the option. With the exercise of the option, the buy/sell provision in the lease for this property will not occur until 2032. Based upon that appraisal and distributions during the current year, the ERISA value of the Partnership is $55.00 per unit. Management evaluates the Galleria Professional Building annually by obtaining appraisals. Rental income decreased approximately $16,900 and $8,500 for the six and three month periods ended June 30, 2002 as compared to the same periods in 2001 due to the unearned rental income recognized through 2001. This arose from the Galleria lease non-level payments being recognized ratably over the period from lease inception through 2001 (the date of the buy/sell option not considering the option to extend the lease). Interest income decreased approximately $6,300 and $2,500 for the six and three month periods ended June 30, 2002 as compared to the comparable periods in 2001 primarily due to a decrease in average yields and less investable funds. At June 30, 2002, the Partnership had approximately $243,000 of cash and cash equivalents. Since the fourth quarter of 1990, the Partnership has annually been paying distributions of $5.00 per $1,000 of original capital ($1.25 quarterly). Based upon current cash of the Partnership and anticipated rental proceeds from the net lease on the Partnership's property, the Partnership anticipates continuing distributions at the current level. The lessee of the Galleria Professional Building has indicated a desire to purchase the building at its appraised value and the Managing General Partner of the Partnership intends to pursue the possible sale of the building. Upon the sale, the Board of Directors of the Managing General Partner will consider the possible liquidation of the Partnership. The Partnership's long-term prospects will be primarily affected by future net income at the Galleria Professional Building. Due to the uncertainties involving the real estate market, management cannot reasonably determine the Partnership's long-term liquidity position. However, management believes the Partnership currently has sufficient liquidity for operations and to meet its obligations and commitments for the foreseeable future. Page 9 of 10 Part II - Other Information June 30, 2002 Item 1 through 5 Not applicable. Item 6 - Exhibits and Reports on Form 8-K a. Exhibits: 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. b. Reports on Form 8-K None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant 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 of Registrant Date: August 9, 2002 By: /s/ Alan B. Levan --------------------------- Alan B. Levan, President Date: August 9, 2002 By: /s/ Glen R. Gilbert --------------------------- Glen R. Gilbert, Executive Vice President and Chief Financial Officer Page 10 of 10

IRE PENSION INVESTORS LTD-II 10-Q