FORM 10-QSB.--QUARTERLY OR TRANSITIONAL 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 September 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)
September 30, 1997
Assets
Cash and cash equivalents:
Unrestricted $ 3,616,965
Restricted--tenant security deposits 18,536
Accounts receivable, net of $54,801
allowance for doubtful accounts 274,517
Prepaid expenses 116,116
Deferred charges 208,667
Deferred rent receivable 74,046
Escrows and other assets 188,215
Real and personal property:
Land and improvements $ 9,102,865
Buildings and improvements 24,183,680
33,286,545
Less accumulated depreciation (14,983,347) 18,303,198
$ 22,800,260
Liabilities and Partners' Equity (Deficit)
Liabilities
Accounts payable $ 243,763
Accrued liabilities:
Interest $ 74,470
Real estate taxes 307,284
Professional fees 56,106
Other 333,454 771,314
Demand note payable - related party 25,000
Deposits and other liabilities 66,097
Mortgages payable 15,528,587
Total liabilities 16,634,761
Partners' Equity (Deficit)
General partner's $ (117,193)
Limited partners' (60,095 units issued
and 59,905 units outstanding) 6,282,692 6,165,499
$ 22,800,260
See Notes to Consolidated Financial Statements
b) DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES III
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Hotel operations $1,486,908 $1,395,109 $5,934,188 $5,654,675
Rental operations 409,061 398,985 1,293,312 1,230,618
Other income 42,267 33,010 126,111 103,546
Total revenues 1,938,236 1,827,104 7,353,611 6,988,839
Expenses:
Hotel operations 1,423,617 1,376,014 4,622,321 4,443,979
Rental operations 122,549 106,580 366,623 359,951
Depreciation and amortization 311,293 316,696 934,467 949,242
Mortgage interest 372,388 364,253 1,115,615 1,088,205
General and administrative 22,044 26,222 95,729 88,712
Total expenses 2,251,891 2,189,765 7,134,755 6,930,089
Net (loss) income $ (313,655) $ (362,661) $ 218,856 $ 58,750
Net (loss) income allocated to
general partner (1%) $ (3,137) $ (3,627) $ 2,189 $ 588
Net (loss) income allocated to
limited partners (99%) (310,518) (359,034) 216,667 58,162
$ (313,655) $ (362,661) $ 218,856 $ 58,750
Net (loss) income per limited
unit $ (5.18) $ (5.99) $ 3.62 $ .97
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
c) DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES III
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner's Partners' Total
<S> <C> <C> <C> <C>
Original capital contributions 60,095 $ 1,000 $30,047,500 $30,048,500
Partners' (deficit) equity at
December 31, 1996 59,905 $(119,382) $ 6,066,025 $ 5,946,643
Net income for the nine months
ended September 30, 1997 -- 2,189 216,667 218,856
Partners' (deficit) equity at
September 30, 1997 59,905 $(117,193) $ 6,282,692 $ 6,165,499
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
d) DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 218,856 $ 58,750
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 934,467 949,242
Change in accounts:
Restricted cash 1,446 --
Accrued interest receivable -- (23,318)
Accounts receivable 16,921 (132,411)
Prepaid expense (32,329) 101,296
Deferred charges (46,820) (9,043)
Deferred rent receivable 10,834 682
Escrows and other assets (26,444) (263,664)
Accounts payable (155,866) 140,501
Accrued liabilities 277,382 186,664
Deposits and other liabilities (9,700) 1,350
Net cash provided by operating activities 1,188,747 1,010,049
Cash flows from investing activities:
Property improvements and replacements (223,046) (310,269)
Purchases of certificates of deposit -- (20,614)
Net cash used in investing activities (223,046) (330,883)
Cash flows from financing activities:
Payments of mortgages payable (196,434) (75,490)
Distributions paid to partners (599,050) (599,050)
Net cash used in financing activities (795,484) (674,540)
Net increase in unrestricted cash and cash equivalents 170,217 4,626
Unrestricted cash and cash equivalents at beginning of period 3,446,748 1,829,631
Unrestricted cash and cash equivalents at end of period $3,616,965 $1,834,257
Supplemental disclosure of cash flow information:
Cash paid for interest $1,112,903 $1,088,386
<FN>
See Notes to Consolidated Financial Statements
</FN>
</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 nine month periods ended September 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
consolidated 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.
Certain reclassifications have been made to the 1996 information to conform to
the 1997 presentation.
NOTE 3 - TRANSACTIONS WITH AFFILIATED PARTNERS
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
The Partnership Agreement provides for payments to affiliates for services and
as reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership.
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.
The following transactions with The Wynnewood Company and its affiliates prior
to June 24, 1997, and with affiliates of Insignia subsequent to June 24, 1997,
were incurred during the nine month periods ended September 30, 1997 and 1996:
For the Nine Months Ended
September 30,
1997 1996
Property management fees (including in operating
expenses) $285,329 $211,199
Reimbursement for services of affiliates (included
in general and administrative expenses) 10,500 --
Prior to Insignia's affiliation on June 24, 1997, affiliates of Insignia
provided property management and partnership administrative services for the
Partnership.
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 - SUBSEQUENT EVENT, MORTGAGE PAYABLE
On October 15, 1997, the mortgage encumbering Shallowford Corners Shopping
Center, which originally matured April 15, 1997, was extended through a
forbearance agreement to June 30, 1998. The forbearance agreement requires
interest only payments based on a 10% annum interest rate.
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 nine month periods ended September 30, 1997 and 1996:
Average
Occupancy
Property 1997 1996
Perimeter Square 91% 94%
Tulsa, Oklahoma
Shallowford Corners 91% 90%
Roswell, Georgia
Green Valley Hotel 67% 67%
Green Valley, Arizona
Tucson Airport Hotel 79% 81%
Tucson, Arizona
For the nine months ended September 30, 1997, the Partnership realized net
income of $218,856 compared to net income of $58,750 for the corresponding
period of 1996. For the three months ended September 30, 1997 and 1996, the
Partnership realized net losses of $313,655 and $362,661, respectively. This
fluctuation in net earnings is due primarily to the seasonal variation in
occupancy at the Green Valley and Tucson Airport Hotels.
The increase in net income for the nine months ended September 30, 1997, was due
primarily to the increase in hotel net operating income. During the nine months
ended September 30, 1997, the hotels had net operating income of $1,311,867
compared to $1,210,696 for the corresponding period in 1996 primarily due to an
increase in room rates at the Tucson Airport Hotel. 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 September 30, 1997, the Partnership had unrestricted cash and cash
equivalents of $3,616,965 versus $1,834,257 at September 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 September 30, 1997. Net cash
provided by operating activities increased primarily due to the increase in net
income, as discussed above. 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.
The main tenant in the Shallowford Corners Shopping 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. In October 1997,
the General Partner executed a new letter of intent for the sale of the
property. The sale of the property is anticipated to close during December
1997. The first mortgage of $7,750,000 on the property matured on April 15,
1997. On October 15, 1997, the General Partner negotiated a forbearance
agreement with the holder of the mortgage through June 30, 1998. The
forbearance agreement requires interest only payments based on a 10% per annum
interest rate. If the property is not sold, the property could be lost through
foreclosure when the forbearance agreement expires.
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 $15,528,587 matures at various times with balloon
payments due at maturity at which time the properties will either be refinanced
or sold (also see discussion above regarding Shallowford Corners Shopping
Center). 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 nine months ended September 30, 1997 and 1996.
PART II - OTHER INFORMATION
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: None filed during the quarter ended
September 30, 1997.
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant
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: November 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Drexel
Burnham Lambert Real Estate Associates III 1997 Third 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,616,956
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 33,286,545
<DEPRECIATION> (14,983,374)
<TOTAL-ASSETS> 22,800,260
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 15,528,587
0
0
<COMMON> 6,165,499
<OTHER-SE> 22,800,260
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 7,353,611
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 7,134,755
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,115,615
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 218,856
<EPS-PRIMARY> 3.62
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
</FN>
</TABLE>
