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, 1995
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: 0-13772
USAA Income Properties III Limited Partnership
(Exact name of registrant as specified in its charter)
Delaware 74-2356253
(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
1
<PAGE>
PART I
Item 1. Financial Statements
<TABLE>
USAA Income Properties III Limited Partnership
Condensed Balance Sheets
<CAPTION>
June 30,
1995 December 31,
(Unaudited) 1994
<S> <C> <C>
Assets
Rental properties, net $ 39,864,049 40,610,304
Temporary investments, at cost
which approximates market value:
USAA Mutual Fund, Inc. -- 661,162
Money market fund 11,479,548 7,505,568
11,479,548 8,166,730
Cash 28,951 7,085
Cash and cash equivalents 11,508,499 8,173,815
Accounts receivable 293,246 84,870
Deferred charges and other assets, at
amortized cost 2,989,876 3,055,370
$ 54,655,670 51,924,359
Liabilities and Partners' Equity
Mortgages payable, including $11,000,000
due to affiliate $ 29,181,818 30,545,455
Accounts payable, including amounts due
to affiliates of $9,615 and $80,189 35,411 91,992
Accrued expenses and other liabilities 2,575,752 69,847
Total liabilities 31,792,981 30,707,294
Partners' equity
General Partner:
Capital contribution 1,000 1,000
Cumulative net loss (45,900) (70,807)
Cumulative distributions (249,763) (241,312)
(294,663) (311,119)
Limited Partners (111,549 units):
Capital contributions, net of offering
costs 52,428,030 52,428,030
Cumulative net loss (4,544,150) (7,009,936)
Cumulative distributions (24,726,528) (23,889,910)
23,157,352 21,528,184
Total Partners' equity 22,862,689 21,217,065
$ 54,655,670 51,924,359
See accompanying notes to condensed financial statements.
</TABLE>
2
<PAGE>
<TABLE>
USAA Income Properties III Limited Partnership
Condensed Statements of Income
(Unaudited)
<CAPTION>
Three Months Three Months
Ended Ended
June 30, 1995 June 30, 1994
<S> <C> <C>
Income
Rental income $ 2,467,310 2,312,925
Less direct expenses, including depre-
ciation of $369,568 and $580,885 293,840 638,163
Net operating income 2,173,470 1,674,762
Interest income (note 1) 175,397 74,516
Total income 2,348,867 1,749,278
Expenses
General and administrative (note 1) 99,164 96,614
Management fee (note 1) (8,501) 50,250
Interest (note 1) 704,721 1,216,066
Total expenses 795,384 1,362,930
Net income $ 1,553,483 386,348
Net income per limited partnership unit $ 13.79 3.43
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1995 June 30, 1994
<S> <C> <C>
Income
Rental income $ 4,778,495 4,631,705
Less direct expenses, including depre-
ciation of $739,136 and $1,162,839 883,664 1,212,356
Net operating income 3,894,831 3,419,349
Interest income (note 1) 302,743 133,697
Total income 4,197,574 3,553,046
Expenses
General and administrative (note 1) 207,592 242,459
Management fee (note 1) 92,943 73,822
Interest (note 1) 1,406,346 2,395,005
Total expenses 1,706,881 2,711,286
Net income $ 2,490,693 841,760
Net income per limited partnership unit $ 22.10 7.47
See accompanying notes to condensed financial statements.
</TABLE>
3
<PAGE>
<TABLE>
USAA Income Properties III Limited Partnership
Condensed Statements of Cash Flows
Six months ended June 30, 1995 and 1994
(Unaudited)
<CAPTION>
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,490,693 841,760
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 739,136 1,162,839
Amortization 33,171 31,647
Decrease (increase) in accounts
receivable (208,376) 143,998
Decrease in deferred charges and
other assets 32,323 368,138
Increase in accounts payable,
accrued expenses and other liabilities 2,449,324 82,389
Other adjustments 7,119 --
Cash provided by operating activities 5,543,390 2,630,771
Cash flows used in investing activities:
Additions to rental properties -- (22,771)
Cash flows from financing activities:
Repayment of mortgages payable (1,363,637) --
Distributions to partners (845,069) (845,069)
Cash used in financing activities (2,208,706) (845,069)
Net increase in cash and cash equivalents 3,334,684 1,762,931
Cash and cash equivalents at beginning of period 8,173,815 7,502,531
Cash and cash equivalents at end of period $ 11,508,499 9,265,462
See accompanying notes to condensed financial statements.
</TABLE>
4
<PAGE>
Notes to Condensed Financial Statements
June 30, 1995
(Unaudited)
1. Transactions with Affiliates
A summary of transactions with affiliates follows for the six-
month period ended June 30, 1995:
Quorum
USAA USAA Las Colinas Real Estate
Mutual Real Estate Management Services
Fund, Inc. Company Corporation Corporation
Reimbursement
of expenses (a) $ -- 84,858 -- 22,594
Interest income (1,262) -- -- --
Management fees -- 92,943 -- 24,941
Lease commissions -- -- -- 12,082
Interest expense (b) -- 595,356 639,842 --
Total $ (1,262) 773,157 639,842 59,617
(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.
(b) Represents interest expense at market rate on a mortgage
loan.
2. Other
Reference is made to the financial statements in the Annual
Report filed with the Form 10-K for the year ended December
31, 1994 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 1995 or any other future period.
The financial information included in this interim report as
of June 30, 1995 and for the three months and six months ended
June 30, 1995 and 1994 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, 1995, the Partnership had cash of $28,951 and temporary
investments of $11,479,548. These funds were held in the working
capital reserve for the payment of obligations of the Partnership.
Accounts receivable consisted of tenant receivables. Deferred
charges and other assets included deferred rent resulting from
recognition of income as required by generally accepted accounting
principles, lease commissions and a land lease receivable.
Accounts payable included amounts due to affiliates for
reimbursable expenses and management fees, and amounts payable to
third parties for expenses incurred for operations. Accrued
expenses and other liabilities consisted primarily of prepaid rent,
accrued property taxes, security deposits, and a deposit held as a
contribution toward tenant improvement costs.
During the quarter ended June 30, 1995, the Partnership distributed
$418,309 to Limited Partners and $4,225 to the General Partner for
a total of $422,534.
On March 30, 1995, a twelve-year lease was signed with Hospitality
Franchise Systems, Inc. (HFS), the major subtenant at the Ramada
property, for the ten story building which contains approximately
100,000 square feet. Upon execution of the lease, HFS contributed
$3,000,000 to be used toward the cost of improvements to the
property. Ramada was released from further obligations on the
property. The total cost of improvements, lease commissions and
other renovations will be approximately $5 million. The
Partnership shall pay approximately $2 million of these costs to be
funded from the working capital reserve. The design phase of the
construction process is currently underway. Improvements will
include interior and exterior refurbishment as well as elevator
replacement. Until the improvements to the property are
substantially complete (estimated to be November 1995), the basic
rent due from HFS will be at a reduced rate. Upon substantial
completion, the rent will begin at approximately $13.11 per square
foot per year. HFS will also pay its proportionate share of
operating expenses each year which exceed $7.00 per square foot.
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 periods ended June 30, 1995 and 1994, income was generated
from rental income from the income-producing real estate properties
and interest income earned on the funds in temporary investments.
6
<PAGE>
Expenses incurred during the same periods were associated with the
operation of the Partnership's properties, interest on the
mortgages payable and various other costs required for
administration of the Partnership.
Rental properties decreased from December 31, 1994 to June 30, 1995
due to depreciation. The increase in cash and cash equivalents at
June 30, 1995 reflected the contribution from HFS at the Ramada
property to be used toward the cost of improvements to the
property. The increase also resulted from the decrease in cash
distributions to partners in order to build the working capital
reserve for future operations. Monthly principal payments on the
Parkview Plaza mortgage loan caused the decrease in mortgages
payable from December 31, 1994 to June 30, 1995. Accrued expenses
and other liabilities increased from December 31, 1994 to June 30,
1995 due to an increase in prepaid rent, the tenant contribution
from HFS and a security deposit received from HFS.
Rental income for the three months and six months ended June 30,
1995 increased compared to the three months and six months ended
June 30, 1994 due to the write-down of a deferred rent receivable
on Parkview Plaza in 1993. Rental income is recognized under the
operating method, whereby aggregate rentals are reported on a
straight-line basis as income over the life of the lease. The
deferred rent receivable remaining after the original maturity date
of the mortgage loan ( March 31, 1995) with Sakura Bank was written
off in 1993; therefore, income recognized after March 31, 1995 is
actual rent received.
Depreciation decreased for the periods ended June 30, 1995 as
compared to the periods ended June 30, 1994 due to the write-down
on Parkview Plaza in 1994. Direct expenses decreased for the three
months ended June 30, 1995 as compared to the three months ended
June 30, 1994 due to the reclassification of rent tax to a tenant
receivable. The increase in direct expenses for the six months
ended June 30, 1995 as compared to the six months ended June 30,
1994 was caused by a credit in 1994 to property taxes for an
overaccrual for prior years tax dispute.
An increase in interest rates and a higher cash reserve accounted
for the increase in interest income for the three months and six
months ended June 30, 1995 as compared to the same periods ended
June 30, 1994.
General and administrative expenses decreased for the six months
ended June 30, 1995 as compared to the six months ended June 30,
1994 due to a decrease in audit fees, printing and legal fees. In
1994, the legal fees related to the negotiations with the third
party lender on the Parkview Plaza mortgage. The management fee is
based on cash flow from operations of the Partnership adjusted for
cash reserves. Cash flow for the current quarter was down due to
payment of the HFS lease commission, reduced rental income from HFS
and timing in receipt of rent. This resulted in a decrease in the
management fee payable for the periods ended June 30, 1995.
7
<PAGE>
Interest expense decreased for the periods ended June 30, 1995
because of a decrease in the interest rate charged on the Parkview
Plaza mortgage loan attributable to the loan modifications, and a
decrease in the loan balance. Slightly offsetting this decrease
was an increase in interest paid on the Curlew Crossing mortgage.
The Curlew Crossing mortgage is based on the prime rate and the
changes in expense for this mortgage were a result of changes in
the prime rate.
8
<PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Sequentially
Exhibit Numbered
No. Description Page
4.1 Restated Certificate and Agreement of
Limited Partnership dated as of May 6, 1985,
attached as Exhibit A to the Partnership's
Prospectus dated May 6, 1985, filed pursuant
to Rule 424(b) Registration No. 2-96113, and
incorporated herein by this reference. --
4.2 Certificate of Amendment to Restated Certificate
and Agreement of Limited Partnership of USAA
Income Properties III Limited Partnership dated
February 14, 1990, attached as Exhibit
3(b) Registration No. 2-96113 to the Partnership's
Annual Report on Form 10-K for the year ended
December 31, 1989, and incorporated herein by
this reference. --
27 Financial Data Schedule 11
(b) During the quarter ended June 30, 1995, there were
no Current Reports on Form 8-K filed.
9
<PAGE>
FORM 10-Q
SIGNATURES
USAA INCOME PROPERTIES III 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 INCOME PROPERTIES III
LIMITED PARTNERSHIP (Registrant)
BY: USAA PROPERTIES III, Inc.,
General Partner
August 11, 1995 BY: /s/Edward B. Kelley
Edward B. Kelley
Chairman, President and
Chief Executive Officer
August 11, 1995 BY: /s/Martha J. Barrow
Martha J. Barrow
Vice President -
Administration and
Finance
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 11,508,499
<SECURITIES> 0
<RECEIVABLES> 293,246
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 39,864,049
<DEPRECIATION> 0
<TOTAL-ASSETS> 54,655,670
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 22,862,689
<TOTAL-LIABILITY-AND-EQUITY> 54,655,670
<SALES> 0
<TOTAL-REVENUES> 4,778,495
<CGS> 0
<TOTAL-COSTS> 883,664
<OTHER-EXPENSES> 300,535
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,406,346
<INCOME-PRETAX> 2,490,693
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,490,693
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,490,693
<EPS-PRIMARY> 22.10
<EPS-DILUTED> 0
</TABLE>
