<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
or
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number: 0-13227
USAA Real Estate Income Investments I Limited Partnership
(Exact name of registrant as specified in its charter)
California 74-2325025
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8000 Robert F. McDermott Fwy., IH 10 West, Suite 600,
San Antonio, Texas 78230-3884
(Address of principal executive offices) (Zip Code)
(210) 498-7391
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed
since last report.)
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.
[X] Yes [ ] No
<PAGE>
PART I
Item 1. Financial Statements
<TABLE>
USAA REAL ESTATE INCOME INVESTMENTS I LIMITED PARTNERSHIP
Condensed Balance Sheets
<CAPTION>
June 30,
1996 December 31,
(Unaudited) 1995
<S> <C> <C>
Assets
Rental properties, net $ 10,165,808 10,438,578
Mortgage loan receivable from affiliate -- 5,440,000
Temporary investments, at cost which
approximates market value-
Money market fund 1,021,124 343,834
Cash 20,341 23,003
Cash and cash equivalents 1,041,465 366,837
Accounts receivable 23,952 45,201
Deferred charges, at amortized cost, and other
assets 412,824 410,731
$ 11,644,049 16,701,347
Liabilities and Partners' Equity
Accounts payable, including amounts due to
affiliates of $43,041 and $45,090 $ 74,052 55,379
Accrued expenses and other liabilities 74,306 8,510
Security deposits 71,517 65,996
Total liabilities 219,875 129,885
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 88,093 86,257
Cumulative distributions (180,529) (177,220)
(91,436) (89,963)
Limited Partners (54,610 units):
Capital contributions, net of offering costs 25,666,700 25,666,700
Cumulative net income 8,721,345 8,539,514
Cumulative distributions (22,872,435) (17,544,789)
11,515,610 16,661,425
Total Partners' equity 11,424,174 16,571,462
$ 11,644,049 16,701,347
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE>
<TABLE>
USAA REAL ESTATE INCOME INVESTMENTS I LIMITED PARTNERSHIP
Condensed Statements of Income
(Unaudited)
<CAPTION>
Three Months Three Months
Ended Ended
June 30, 1996 June 30, 1995
<S> <C> <C>
Income
Rental income $ 357,859 282,468
Interest from mortgage loan (note 1) -- 152,759
Less direct expenses, including depreciation
of $140,437 and $144,898 (220,588) (236,873)
Net operating income 137,271 198,354
Interest income 13,244 6,334
Total income 150,515 204,688
Expenses
General and administrative (note 1) 66,117 68,818
Management fee (note 1) 13,371 18,585
Total expenses 79,488 87,403
Net income $ 71,027 117,285
Net income per limited partnership unit $ 1.29 2.13
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1996 June 30, 1995
<S> <C> <C>
Income
Rental income $ 696,399 597,609
Interest from mortgage loan (note 1) 52,124 303,482
Less direct expenses, including depreciation
of $281,801 and $261,431 (438,723) (431,560)
Net operating income 309,800 469,531
Interest income 61,290 15,169
Total income 371,090 484,700
Expenses
General and administrative (note 1) 152,264 147,139
Management fee (note 1) 35,159 40,329
Total expenses 187,423 187,468
Net income $ 183,667 297,232
Net income per limited partnership unit $ 3.33 5.39
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
<TABLE>
USAA REAL ESTATE INCOME INVESTMENTS I LIMITED PARTNERSHIP
Condensed Statements of Cash Flows
Six months ended June 30, 1996 and 1995
(Unaudited)
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 183,667 297,232
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 281,801 261,430
Amortization 22,209 12,249
Decrease in accounts receivable 21,249 4,498
Increase in deferred charges and other assets (24,302) (115,236)
Increase in accounts payable, accrued expenses
and other liabilities 89,990 92,330
Cash provided by operating activities 574,614 552,503
Cash flows from investing activities:
Additions to rental properties (9,031) (579,090)
Proceeds from mortgage loan receivable 5,440,000 --
Cash provided by (used in) investing activities 5,430,969 (579,090)
Cash flows used in financing activities-
Distributions to partners (5,330,955) (441,293)
Net increase (decrease) in cash and cash equivalents 674,628 (467,880)
Cash and cash equivalents at beginning of year 366,837 795,676
Cash and cash equivalents at end of year $ 1,041,465 327,796
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE>
USAA REAL ESTATE INCOME INVESTMENTS I LIMITED PARTNERSHIP
Notes to Condensed Financial Statements
June 30, 1996
(Unaudited)
1.Transactions with Affiliates
A summary of transactions with affiliates follows for the six-month period
ended June 30, 1996:
Quorum
USAA Real Estate
Real Estate Services
Company Corporation
Reimbursement
of expenses (a) $ 62,070 33,002
Management fees 35,158 24,454
Lease commissions -- 8,805
Mortgage servicing fees 1,115 --
Interest income (52,124) --
Total $ 46,219 66,261
(a) Reimbursement of expenses represents amounts paid or
accrued as reimbursement of expenses incurred on behalf of
the Partnership at actual cost and does not include any
mark-up or items normally considered as overhead.
2. Other
Reference is made to the financial statements in the Annual
Report filed as part of the Form 10-K for the year ended
December 31, 1995 with respect to significant accounting and
financial reporting policies as well as to other pertinent
information concerning the Partnership. Information furnished
in this report reflects all normal recurring adjustments which
are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented.
Further, the operating results presented for these interim
periods are not necessarily indicative of the results which may
occur for the remaining six months of 1996 or any other future
period.
The financial information included in this interim report as of
June 30, 1996 and for the three-month and six-month periods
ended June 30, 1996 and 1995 has been prepared by management
without audit by independent certified public accountants who do
not express an opinion thereon. The Partnership's annual report
includes audited financial statements.
5
<PAGE>
PART I
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
At June 30, 1996, the Partnership had cash of $20,341 and temporary
investments of $1,021,124. These funds were held in the working
capital reserve for the payment of obligations of the Partnership.
Accounts receivable consisted primarily of amounts due from tenants
at Volusia Point. Deferred charges and other assets consisted of
deferred rent that resulted from recognition of income as required
by generally accepted accounting principles and lease commissions.
Accounts payable included amounts due to affiliates for management
fees and reimbursable expenses. Accrued expenses and other
liabilities consisted primarily of property tax accruals and
prepaid revenue from tenants.
On January 31, 1996, the maturity date of the Plaza on the Lake
mortgage loan receivable, the Partnership received $5,440,000 from
USAA Real Estate Company, the borrower, in full payment of the
loan. Approximately $5,000,000 of the proceeds from the loan
payoff, or $91.56 per Limited Partnership unit, was distributed to
the Limited Partners during the quarter ended March 31, 1996. The
balance of the proceeds of approximately $440,000 was held by the
Partnership for future operating requirements.
During the quarter ended June 30, 1996, the Partnership distributed
$163,830 to Limited Partners and $1,655 to the General Partner for
a total of $165,485. Quarterly distributions were decreased
beginning in the first quarter of 1996 due to the reduced cash flow
that occurred subsequent to the repayment of the mortgage loan
receivable and the resulting loss of interest income to the
Partnership. During the ten-year term of the mortgage loan
receivable, the Partnership recorded interest income on the
mortgage loan receivable, including participation income, averaging
approximately $590,000 per year.
A 42-month lease was executed on July 2, 1996 between the
Partnership and a new tenant after a change in Systech Computer
Corporation's business requirements. The new tenant is Integrated
Systems, Inc. ("ISI"). Effective August 15, 1996, ISI will lease
24,191 square feet of the Systech building. ISI will move into an
additional 4,712 square feet in December 1996, and into 13,201
square feet in April 1998. This new lease also provides ISI with
the right of first refusal for any additional space which may
become available on the fourth floor of the building as a result of
the early termination of the lease with Systech Computer
Corporation. The rental rate for ISI begins at $10.13 per square
foot per year and increases to $12.57 per square foot per year over
the term of the lease. In addition to rent, ISI will pay their
prorata share of property operating expenses which exceed those of
1995, the base year.
6
<PAGE>
The lease between the Partnership and Systech Computer Corporation
was amended in July 1996 to allow for a gradual decrease of leased
square footage and early termination. By mid August 1996, Systech
Computer Corporation will move out of the first two floors of the
four story office building to accommodate occupancy by ISI.
Further reductions of leased space will occur in December 1996 and
March 1998, and will be followed by the increase in space occupied
by ISI. Per the amended lease terms, the current rental rate per
square foot per year for this tenant has decreased from $13.68 to
$11.52, and will increase to $12.96 over the remaining term of the
lease. As with the original lease, Systech Computer Corporation
will continue to pay their prorata share of property operating
expenses in excess of their base year of 1995.
To compensate the Partnership for the potential vacancy of
approximately 8,300 square feet on the fourth floor of the Systech
building, and the rental rate for ISI which is lower than that
currently paid by Systech Computer Corporation, the amendment to
the lease requires that the tenant forfeit their security deposit
of approximately $36,400, pay a $10,000 buy-out fee upon execution
of the amendment and pay additional monthly rent totaling
approximately $26,000 between July 1996 and March 1998. In
addition, the amendment to the lease specifies that Systech
Computer Corporation is responsible for the payment of brokerage
fees associated with this lease restructuring process.
The Partnership's commitment of $84,400 for the final phase of
tenant improvements at the Systech building is expected to be paid
during the last half of 1996. The funding of these improvements
will be from the working capital reserve.
Future liquidity is expected to result from cash generated from
operations of the properties, interest on temporary investments and
ultimately through the sale of the properties.
Results of Operations
For the three-month and six-month periods ended June 30, 1996 and
1995, income was generated from rental income from the income
producing properties, interest income and participation income
earned on the mortgage loan and interest income earned on the funds
invested in temporary investments. As there was no lease in force
at the Systech building from August 1993 through February 1995, no
income was generated by that property during that period.
Subsequent to January 31, 1996, the date of the payoff of the
mortgage loan receivable, no interest was earned on that
investment. Expenses incurred during the same periods were
associated with operations of the Partnership's properties and
various other costs required for administration of the Partnership.
The decrease in rental properties from December 31, 1995 to June
30, 1996 was attributable to depreciation on the Partnership
properties. Cash and cash equivalents increased during the same
period primarily due to the reserve held by the Partnership from
the proceeds of the mortgage loan. Accrued property taxes at
Volusia Point accounted for the increase in accrued expenses for
this six-month period.
7
<PAGE>
The increase in rental income for the three-month and six-month
periods ended June 30, 1996 over the same periods in 1995 was
primarily attributable to the March 1, 1995 commencement of the
single tenant lease at the Systech building. The decrease in
interest income from the mortgage loan for the three-month and six-month
periods ended June 30, 1996 was the result of the January 31,
1996 payoff of the receivable. Interest income on cash held by the
Partnership increased during the three-month and six-month periods
in 1996 as a result of the increase in cash and cash equivalents.
General and administrative expenses increased from the six-month
period ended June 30, 1995 to the six-month period ended June 30,
1996 due to amortization of lease commissions for Systech. The
portfolio management fee is based on cash flow from operations of
the Partnership, adjusted for cash reserves, and fluctuated
accordingly.
8
<PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit.
Sequentially
Exhibit Numbered
No. Description Page
4 Restated Certificate and Agreement of Limited
Partnership dated as of October 18, 1984,
incorporated as Exhibit A to the Partnership's
Prospectus dated November 16, 1984, filed
pursuant to Rule 424(b), Regis. No. 2-92845
and incorporated herein by this reference. __
27 Financial Data Schedule 11
(b) During the quarter ended June 30, 1996, there were no Current
Reports on Form 8-K filed.
9
<PAGE>
FORM 10-Q
SIGNATURES
USAA REAL ESTATE INCOME INVESTMENTS I LIMITED PARTNERSHIP
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
USAA REAL ESTATE INCOME INVESTMENTS I
LIMITED PARTNERSHIP (Registrant)
BY: USAA INVESTORS I, INC.,
General Partner
August 12, 1996 BY: /s/Edward B. Kelley
Edward B. Kelley
Chairman, President and
Chief Executive Officer
August 12, 1996 BY: /s/Martha J. Barrow
Martha J. Barrow
Vice President -
Administration and
Finance/Treasurer
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,041,465
<SECURITIES> 0
<RECEIVABLES> 23,952
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 10,165,808
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,644,049
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 11,424,174
<TOTAL-LIABILITY-AND-EQUITY> 11,644,049
<SALES> 0
<TOTAL-REVENUES> 748,523
<CGS> 0
<TOTAL-COSTS> 438,723
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 183,667
<INCOME-TAX> 0
<INCOME-CONTINUING> 183,667
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 183,667
<EPS-PRIMARY> 3.33
<EPS-DILUTED> 0
</TABLE>
