<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, 1997
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,
1997 December 31,
(Unaudited) 1996
<S> <C> <C>
Assets
Rental properties, net $ 9,676,309 9,964,683
Temporary investments, at cost which
approximates market value-
Money market fund 968,288 926,892
Cash 58,930 46,204
Cash and cash equivalents 1,027,218 973,096
Accounts receivable 34,695 72,175
Deferred charges, at amortized cost, and other
assets 369,918 386,325
$ 11,108,140 11,396,279
Liabilities and Partners' Equity
Accounts payable, including amounts due to
affiliates of $29,605 and $27,907 $ 46,346 83,582
Accrued expenses and other liabilities 88,746 35,634
Security deposits 66,616 66,616
Total liabilities 201,708 185,832
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 91,191 89,818
Cumulative distributions (188,804) (184,391)
(96,613) (93,573)
Limited Partners (54,610 units):
Capital contributions, net of offering costs 25,666,700 25,666,700
Cumulative net income 9,027,930 8,892,025
Cumulative distributions (23,691,585) (23,254,705)
11,003,045 11,304,020
Total Partners' equity 10,906,432 11,210,447
$ 11,108,140 11,396,279
</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, June 30,
1997 1996
<S> <C> <C>
Income
Rental income $ 376,922 413,490
Interest income 13,455 13,244
Total income 390,377 426,734
Expenses
Direct expenses, $25,138 and $26,370 to
affiliate (note 1) 131,686 135,782
Depreciation 146,177 140,437
General and administrative, $31,893 and
$35,589 to affiliates (note 1) 61,140 66,117
Management fee to affiliate (note 1) 15,906 13,371
Total expenses 354,909 355,707
Net income $ 35,468 71,027
Net income per limited partnership unit $ 0.64 1.29
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
1997 1996
<S> <C> <C>
Income
Rental income $ 847,899 805,571
Interest from mortgage loan from affiliate -- 52,124
Interest income 26,397 61,290
Total income 874,296 918,985
Expenses
Direct expenses, $58,921 and $57,456 to
affiliate (note 1) 270,563 266,094
Depreciation 292,420 281,801
General and administrative, $74,046 and
$71,990 to affiliates (note 1) 138,006 152,264
Management fee to affiliate (note 1) 36,029 35,159
Total expenses 737,018 735,318
Net income $ 137,278 183,667
Net income per limited partnership unit $ 2.49 3.33
</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, 1997 and 1996
(Unaudited)
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash $ 137,278 183,667
provided by operating activities:
Depreciation 292,420 281,801
Amortization 22,723 22,209
Decrease in accounts receivable 37,480 21,249
Increase in deferred charges and other assets (6,316) (24,302)
Increase in accounts payable, accrued expenses
and other liabilities 15,876 89,990
Cash provided by operating activities 499,461 574,614
Cash flows from investing activities:
Additions to rental properties (4,046) (9,031)
Proceeds from mortgage loan receivable -- 5,440,000
Cash provided by (used in) investing activities (4,046) 5,430,969
Cash flows used in financing activities-
Distributions to Partners (441,293) (5,330,955)
Net increase in cash and cash equivalents 54,122 674,628
Cash and cash equivalents at beginning of period 973,096 366,837
Cash and cash equivalents at end of period $ 1,027,218 1,041,465
</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, 1997
(Unaudited)
1. Transactions with Affiliates
A summary of transactions with affiliates follows for the
six-month period ended June 30, 1997:
Quorum
USAA Real Estate
Real Estate Services
Company Corporation
Reimbursement
of expenses (a) $ 63,921 31,907
Management fees 36,029 27,014
Lease commissions -- 10,125
Total $ 99,950 69,046
(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, 1996 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 that may
occur for the remaining six months of 1997 or any other future
period.
The financial information included in this interim report as
of June 30, 1997 and for the three-month and six-month periods
ended June 30, 1997 and 1996 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.
Certain 1996 balances have been reclassified to conform to the
1997 presentation.
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, 1997, the Partnership had cash of $58,930 and
temporary investments of $968,288. These funds were held in the
working capital reserve for the payment of obligations of the
Partnership. Accounts receivable consisted of amounts due from
tenants at both of the Partnership properties. 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 and to third parties for expenses incurred
for operations. Accrued expenses and other liabilities consisted
of property tax accruals, security deposits and prepaid revenue
from tenants.
During the quarter ended June 30, 1997, the Partnership
distributed $218,440 to Limited Partners and $2,207 to the
General Partner for a total of $220,647. Management evaluates
reserves and the availability of funds for distribution to the
Partners on a continuing basis based on anticipated leasing
activity and cash flows available from the Partnership
investments. As a result of this analysis, quarterly
distributions were increased from $3.00 to $4.00 per limited
partnership unit in the fourth quarter of 1996.
Due to the change in tenancy, the name of the Systech building
was changed to 10505 Sorrento Valley Road. The balance of
approximately $22,000 of the Partnership's commitment for the
final phase of tenant improvements at this property was expended
in January 1997. The funding of these improvements was from the
working capital reserve of the Partnership.
On June 10, 1997, the Partnership signed a letter of intent with
American Industrial Properties REIT [NYSE: IND] (the "Trust")
contemplating the merger of four real estate limited
partnerships, including the Partnership, into the Trust. The
four real estate limited partnerships are USAA Real Estate Income
Investments I Limited Partnership, USAA Real Estate Income
Investments II Limited Partnership, USAA Income Properties III
Limited Partnership and USAA Income Properties IV Limited
Partnership (collectively, the "RELPs"). Each of the RELPs is
affiliated with USAA Real Estate Company, which currently owns
approximately 31.8% of the outstanding shares of the Trust.
6
<PAGE>
On July 7, 1997, the Trust signed definitive merger agreements
with the RELPs pursuant to which the RELPs will be merged into
the Trust (the "Merger"). The Trust will issue an aggregate of
22,064,147 shares of beneficial interest at $2.625 per share (for
a total value of $57,918,385) in exchange for the limited
partnership interests in the RELPs. The number of Shares to be
issued to each RELP will be equal to the net asset value for each
RELP (as agreed by the Trust and each RELP) divided by $2.625.
The number of Shares to be received by a Limited Partner in each
RELP will be computed in accordance with such partner's
percentage interest in the RELP. The general partner of each RELP
has waived any right it may have to receive Shares to which it
may be entitled in exchange for its general partnership interest.
The Merger, which has been approved by the Trust's Board of Trust
Managers and the Board of Directors of each of the general
partners of the RELPs, is subject to due diligence by both
parties and certain other conditions, including approval by the
shareholders of the Trust and the limited partners of each of the
RELPs. Accordingly, there can be no assurance that definitive
merger agreements will be reached or that the mergers will
ultimately be consummated. The Merger is a taxable transaction
to the partners in the RELPs and will be subject to the
completion of a joint proxy statement/prospectus filed on Form S-
4 with the Securities and Exchange Commission. No date has been
scheduled for the shareholder meeting for the Trust or limited
partner meetings for each of the RELPs to vote on the proposed
transaction. Prudential Securities Inc., on behalf of the Trust,
and Houlihan Lokey Howard & Zukin on behalf of the RELPs, have
rendered opinions to their respective parties that the
transaction is fair from a financial point of view.
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, 1997 and
1996, income was generated from rental income from the income
producing properties and interest earned on the funds invested in
temporary investments. Interest income and participation income
earned on the mortgage loan prior to the January 31, 1996 payoff
of the mortgage loan receivable is also included in income for
the six-month period ended June 30, 1996. 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.
7
<PAGE>
The decrease in rental properties from December 31, 1996 to June
30, 1997 was primarily attributable to depreciation on the
Partnership properties. The decrease in accounts receivable
during the same time period reflects the collection of rents and
reimbursable operating expenses from tenants at both of the
Partnership properties. Amortization of lease commissions caused
the decrease in deferred charges. The decrease in accounts
payable reflected timing in payment of tenant improvements at
10505 Sorrento Valley Road and the reissue of stale dated
distribution checks to Limited Partners. Accrued property taxes
for Volusia Point accounted for the increase in accrued expenses
and other liabilities.
Rental income decreased at both of the Partnership properties
from the three-month period ended June 30, 1996 to the same three-
month period in 1997. Approximately $33,000 of the $36,000
decrease was attributable to an adjustment for prior month and
prior year operating expense reimbursements from tenants at 10505
Sorrento Valley Road. Conversely, rental income increased at both
of the Partnership properties from the six-month period ended
June 30, 1996 to the same six-month period in 1997. The increase
at Volusia Point of approximately $22,000 was due to an increase
in percentage rent and operating expense reimbursements from
tenants. The increase at 10505 Sorrento Valley Road of
approximately $20,000 resulted from the increase in physical
occupancy and utility reimbursements from tenants. The decrease
in interest income from the mortgage loan for the six-month
period ended June 30, 1997 was the result of the January 31, 1996
payoff of the receivable. Interest income was higher for the six-
month period in 1996 as a result of the increase in cash and cash
equivalents temporarily held by the Partnership after the payoff
of the mortgage loan receivable and prior to distribution of
those proceeds to Limited Partners.
The increase in depreciation during the three-month and six-month
periods ended June 30, 1997 over the same periods ended June 30,
1996 was due to the addition of tenant improvements at 10505
Sorrento Valley Road, and was partially offset by a decrease in
depreciation at Volusia Point as some tenant improvements were
fully depreciated in 1996.
General and administrative expenses were higher during the three-
month and six-month periods ended June 30, 1996 than during the
same periods in 1997. Legal fees were higher during the three-
month period in 1996 due to the lease restructuring that occurred
at 10505 Sorrento Valley Road. Savings on audit fees and a
decrease in legal fees accounted for the decrease in general and
administrative expenses from the six-month period ended June 30,
1996 to the six-month period ended June 30, 1997. 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) A Current Report on Form 8-K was filed June 13, 1997
regarding the agreement signed between the Partnership and
American Industrial Properties REIT (the "Trust") comtemplating a
merger of the Partnership into the Trust.
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, 1997 BY: /s/Edward B. Kelley
Edward B. Kelley
Chairman, President and
Chief Executive Officer
August 12, 1997 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-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,027,218
<SECURITIES> 0
<RECEIVABLES> 34,695
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9,676,309
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,108,140
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 10,906,432
<TOTAL-LIABILITY-AND-EQUITY> 11,108,140
<SALES> 0
<TOTAL-REVENUES> 847,899
<CGS> 0
<TOTAL-COSTS> 562,893
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 137,278
<INCOME-TAX> 0
<INCOME-CONTINUING> 137,278
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 137,278
<EPS-PRIMARY> 2.49
<EPS-DILUTED> 0
</TABLE>
