FORM 10-QSB.--QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(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
[ ] 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 2-95502
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES III
(Exact name of small business issuer as specified in its charter)
New York 13-3251176
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza
Greenville, South Carolina 29602
(Address of principal executive offices)
(864)239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES III
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, 1997
Assets
Cash and cash equivalents:
Unrestricted $ 3,620,296
Restricted--tenant security deposits 18,536
Accounts receivable 276,120
Prepaid expenses 105,850
Deferred charges 215,822
Deferred rent receivable 73,963
Escrows and other assets 217,839
Real and personal property:
Land and improvements $ 9,102,865
Buildings and improvements 24,106,915
33,209,780
Less accumulated depreciation (14,679,207) 18,530,573
$23,058,999
Liabilities and Partners' Equity (Deficit)
Liabilities
Accounts payable $ 318,832
Accrued liabilities:
Interest $ 71,727
Real estate taxes 281,247
Professional fees 38,088
Other 181,335 572,397
Demand note payable - related party 25,000
Deposits and other liabilities 68,254
Mortgages payable, including $7,750,000
in default (Note 5) 15,595,362
Total liabilities 16,579,845
Partners' Equity (Deficit)
General partner $ (114,057)
Limited partners (60,095 units issued
and 59,905 units outstanding) 6,593,211 6,479,154
$23,058,999
See Notes to Consolidated Financial Statements
b) DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES III
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Hotel operations $ 1,841,716 $ 1,807,125 $ 4,447,280 $ 4,259,566
Rental operations 418,778 386,189 884,251 831,633
Other income 46,148 43,145 83,844 70,536
Total revenues 2,306,642 2,236,459 5,415,375 5,161,735
Expenses:
Hotel operations 1,525,242 1,525,639 3,198,704 3,067,965
Rental operations 122,434 134,826 244,074 253,371
Depreciation and amortization 311,452 336,070 623,174 632,546
Mortgage interest 371,253 363,278 743,227 723,952
General and administrative 43,508 33,193 73,685 62,490
Total expenses 2,373,889 2,393,006 4,882,864 4,740,324
Net (loss) income $ (67,247) $ (156,547) $ 532,511 $ 421,411
Net (loss) income allocated to
general partner (1%) $ (672) $ (1,565) $ 5,325 $ 4,214
Net (loss) income allocated to
limited partners (99%) (66,575) (154,982) 527,186 417,197
$ (67,247) $ (156,547) $ 532,511 $ 421,411
Net (loss) income per limited
unit (based on 59,905 units
outstanding) $ (1.11) $ (2.59) $ 8.80 $ 6.96
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
c) DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES III
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
(Unaudited)
General Limited
Partner Partners Total
Partners' (deficit) equity at
December 31, 1996 $ (119,382) $6,066,025 $5,946,643
Net income for the six months
ended June 30, 1997 5,325 527,186 532,511
Partners' (deficit) equity at
June 30, 1997 $ (114,057) $6,593,211 $6,479,154
See Notes to Consolidated Financial Statements
d) DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 532,511 $ 421,411
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 623,174 632,546
Change in accounts:
Restricted cash 1,446 --
Accrued interest receivable -- (8,258)
Accounts receivable 15,318 (21,108)
Prepaid expenses (22,063) 59,310
Deferred charges (31,929) (9,043)
Deferred rent receivable 10,917 1,975
Escrows and other assets (70,961) (165,061)
Accounts payable (80,797) 66,011
Accrued liabilities 78,465 40,603
Deposits and other liabilities (7,543) (8,468)
Net cash provided by operating activities 1,048,538 1,009,918
Cash flows from investing activities:
Property improvements and replacements (146,281) (172,115)
Purchases of certificates of deposit -- (20,614)
Net cash used in investing activities (146,281) (192,729)
Cash flows from financing activities:
Payments of mortgages payable (129,659) (49,693)
Distributions paid to partners (599,050) (599,050)
Net cash used in financing activities (728,709) (648,743)
Net increase in unrestricted cash and cash equivalents 173,548 168,446
Unrestricted cash and cash equivalents at beginning
of period 3,446,748 1,829,631
Unrestricted cash and cash equivalents at end of period $ 3,620,296 $ 1,998,077
Supplemental disclosure of cash flow information:
Cash paid for interest $ 743,259 $ 724,072
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
e) DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES III
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Drexel Burnham
Lambert Real Estate Associates III (the "Partnership") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of DBL Properties Corporation ("DBL" or
the "General Partner"), all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and six month periods ended June 30, 1997, are
not necessarily indicative of the results that may be expected for the fiscal
year ending December 31, 1997. For further information, refer to the financial
statements and footnotes thereto included in the Partnership's annual report on
Form 10-KSB for the fiscal year ended December 31, 1996.
NOTE 2 - BASIS OF ACCOUNTING
The consolidated financial statements include the accounts of the Partnership
and its 90% general partnership interest in DBL Airport Valley Limited
Partnership ("DBLAV") which owns and operates two hotels in Tucson and Green
Valley, Arizona, and its 90% general partnership interest in Shallowford
Associates, Ltd. ("Shallowford"), which owns and operates a shopping center in
Roswell, Georgia. All material intercompany transactions and balances have been
eliminated in consolidation.
In addition, the consolidated financial statements include the accounts and
operations of the Partnership's operating division, Perimeter Square Shopping
Center ("Perimeter Square"), which operates a shopping center complex located in
Tulsa, Oklahoma.
Certain reclassifications have been made to the 1996 information to conform to
the 1997 presentation.
NOTE 3 - RELATED PARTY TRANSACTIONS
On June 24, 1997, Insignia Financial Group, Inc., a Delaware corporation
("Insignia"), and IFGP Corporation, a Delaware corporation ("IFGP")
(collectively, the "Buyer"), entered into a Stock Purchase Agreement (the
"Agreement") with The Wynnewood Company, Inc., a New York corporation
("Seller"), DBL, a New York corporation, and William Clements, an individual and
the owner of 100% of the capital stock of Seller ("Clements"). The closing of
the transactions contemplated by the Agreement occurred on June 24, 1997 (the
"Closing"). At the Closing, pursuant to the terms and conditions of the
Agreement, the Buyer acquired all of the issued and outstanding stock of DBL.
Upon the Closing, the officers and directors of DBL resigned and Insignia caused
new officers and directors of this entity to be elected.
For the six month periods ended June 30, 1997 and 1996, the Partnership paid
property management fees to related parties as follows:
1997 1996
The Wynnewood Company, Inc. $ 107,227 $ 71,538
Paragon Group 22,538 18,922
Capstar Hotels 97,175 124,361
$ 226,940 $ 214,821
After June 24, 1997, The Wynnewood Company, Inc. and Capstar Hotels were not
considered to be related parties (see discussion above).
The following transactions with affiliates of Insignia were incurred during the
six months ended June 30, 1997 and 1996: property management fees (included in
operating expenses) of $9,112 and $7,746, respectively; partnership
administration fees (included in general and administrative expenses) of $21,000
in both periods; and registrar and transfer services fees (included in general
and administrative expenses) of $5,586 in both periods. Insignia became an
affiliate as of June 24, 1997 (see discussion above).
NOTE 4 - DISTRIBUTION TO LIMITED PARTNERS
In December 1996, the Partnership declared a cash distribution to the limited
partners in the amount of $599,050 ($10.00 per limited partnership interest).
The distribution was accrued at December 1996 and paid in March 1997.
NOTE 5 - MORTGAGE NOTE PAYABLE IN DEFAULT
The mortgage encumbering Shallowford Corners Shopping Center is currently in
default due to the failure to make the balloon payment of $7,750,000 at the
April 15, 1997, maturity. The General Partner is in negotiations with the
current lender to refinance this indebtedness; however, there can be no
assurance that these negotiations will be successful.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership's investment properties consist of two shopping centers and two
hotels. The following table sets forth the average occupancy of the properties
for the six month periods ended June 30, 1997 and 1996:
Average
Occupancy
Property 1997 1996
Perimeter Square 92% 94%
Tulsa, Oklahoma
Shallowford Corners 90% 88%
Roswell, Georgia
Green Valley Hotel 79% 77%
Green Valley, Arizona
Tucson Airport Hotel 81% 85%
Tucson, Arizona
For the six months ended June 30, 1997, the Partnership realized net income of
$532,511 compared to net income of $421,411 for the corresponding period of
1996. For the three months ended June 30, 1997 and 1996, the Partnership
realized net losses of $67,247 and $156,547, respectively. This fluctuation in
quarterly net income is due to the seasonal variation in occupancy at the Green
Valley and Tucson Airport Hotels during the second quarter of 1997 and 1996.
During the three months ended March 31, 1997, the hotels had net operating
income of $932,102 compared to $910,115 for the corresponding period in 1996.
For the three months ended June 30, 1997, the hotels had net operating income of
$316,474 compared to $281,486 for the three months ended June 30, 1996.
The increase in net income for the six months ended June 30, 1997, was due
primarily to the increase in hotel revenue resulting from golfing package
revenues at the Green Valley Hotel. Partially offsetting the increase in hotel
revenues was an increase in variable hotel operating expenses. Also
contributing to the increase in net income was an increase in rental and other
income. Rental income increased primarily due to new leases being executed at
Shallowford Corners at rental rates which exceeded the expired leases on the
same space. Other income increased due to an increase in interest income as a
result of higher average cash balances.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environments of the investment properties to assess
the feasibility of increasing rates, maintaining or increasing occupancy levels
and protecting the Partnership from increases in expense. As part of this plan,
the General Partner attempts to protect the Partnership from the burden of
inflation-related increases in expenses by increasing rates and maintaining a
high overall occupancy level. However, due to changing market conditions, which
can result in the use of rental concessions and rental reductions to offset
softening market conditions, there is no guarantee that the General Partner will
be able to sustain such a plan.
At June 30, 1997, the Partnership had unrestricted cash and cash equivalents of
$3,620,296 versus $1,998,077 at June 30, 1996. The increase in unrestricted
cash is primarily due to a long term certificate of deposit investment being
reinvested in a short term certificate of deposit, and as a result, is included
in unrestricted cash at June 30, 1997. Net cash provided by operating
activities at June 30, 1997 and 1996, remained relatively stable. Net cash used
in investing activities decreased primarily due to a decrease in property
improvement and replacement expenditures. Net cash used in financing activities
increased due to a $1,500,000 mortgage payable encumbering Perimeter Square,
which requires monthly principal payments, being executed in October 1996.
During 1996, the General Partner negotiated and executed a sale contract for the
Shallowford Corners Shopping Center. The main tenant in that center, occupying
45,528 sq. ft., approximately 39% of the leaseable space, was approached by a
competing center to vacate its space and occupy space in the competing center.
The General Partner has had a number of discussions with that tenant regarding
expanding and improving the space it occupies as well as adding additional
parking space to the center. The tenant is presently studying its alternatives
and the buyer has expressed its unwillingness to proceed with the acquisition
until the tenant's plan is known. The first mortgage of $7,750,000 on the
property, which matured on April 15, 1997, was anticipated to be repaid from the
proceeds of the sale. The General Partner has commenced discussions with the
holder of the mortgage regarding an extension of the maturity pending the
resolution of this situation. There can be no certainty that this situation
will be satisfactorily resolved or that a satisfactory agreement will be reached
with the lender. If not satisfactorily resolved, the property could be lost in
a foreclosure sale.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Partnership. Such assets are currently
thought to be sufficient for any near-term needs of the Partnership. The
mortgage indebtedness of the properties amounts to $15,595,362 and Perimeter
Square, Tucson Airport Hotel, and Green Valley Hotel require monthly principal
and interest payments. All of the properties mortgages require balloon payments
on or before November 1, 2001, at which time the properties will either be
refinanced or sold. The mortgage encumbering Shallowford Corners Shopping
Center is currently in default due to the failure of making the balloon payment
of $7,750,000 at the April 15, 1997, maturity. The General Partner is in
negotiations with the current lender to extend the maturity date of this
indebtedness; however, there can be no assurance that these negotiations will be
successful. Future cash distributions will depend on the levels of cash
generated from operations, property sales, and the availability of cash
reserves. Distributions of $599,050 ($10 per limited partner unit) were paid to
the limited partners during the six months ended June 30, 1997 and 1996.
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Partnership has defaulted upon the $7,750,000 first mortgage on Shallowford
Corners as discussed in Part I, Item 2. "Management's Discussion and Analysis or
Plan of Operation," which discussion is hereby incorporated into this Item by
reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
b) Reports on Form 8-K: A Form 8-K dated June 24, 1997, was filed
reporting the change in control of the Registrant.
SIGNATURE
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.
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES III
By: DBL Properties Corporation
Its General Partner
By: /s/ William H. Jarrard, Jr.
William H. Jarrard, Jr.
President and Director
Date: August 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Drexel
Burnham Lambert Real Estate Associates III Second Quarter 10-QSB and is
qualified in its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000761657
<NAME> DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES III
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,620,296
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 33,209,780
<DEPRECIATION> 14,679,207
<TOTAL-ASSETS> 23,058,999
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 15,595,362
0
0
<COMMON> 0
<OTHER-SE> 6,479,154
<TOTAL-LIABILITY-AND-EQUITY> 23,058,999
<SALES> 0
<TOTAL-REVENUES> 5,415,375
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,882,864
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 743,227
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 532,511
<EPS-PRIMARY> 8.80
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
</FN>
</TABLE>
