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 March 31, 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>
March 31,
1995 December 31,
(Unaudited) 1994
<S> <C> <C>
Assets
Rental properties, net $ 40,240,736 40,610,304
Temporary investments, at cost
which approximates market value:
USAA Mutual Fund, Inc. -- 661,162
Money market fund 8,954,151 7,505,568
8,954,151 8,166,730
Cash 3,912,031 7,085
Cash and cash equivalents 12,866,182 8,173,815
Accounts receivable 96,537 84,870
Deferred charges and other assets, at
amortized cost 1,989,803 3,055,370
$ 55,193,258 51,924,359
Liabilities and Partners' Equity
Mortgages payable, including $11,000,000
due to affiliate $ 29,863,636 30,545,455
Accounts payable, including amounts due
to affiliates of $134,518 and $80,189 268,609 91,992
Accrued expenses and other liabilities 3,329,273 69,847
Total liabilities 33,461,518 30,707,294
Partners' equity
General Partner:
Capital contribution 1,000 1,000
Cumulative net loss (61,435) (70,807)
Cumulative distributions (245,538) (241,312)
(305,973) (311,119)
Limited Partners (111,549 units):
Capital contributions, net of offering
costs 52,428,030 52,428,030
Cumulative net loss (6,082,098) (7,009,936)
Cumulative distributions (24,308,219) (23,889,910)
22,037,713 21,528,184
Total Partners' equity 21,731,740 21,217,065
$ 55,193,258 51,924,359
See accompanying notes to condensed financial statements.
</TABLE>
2
<PAGE>
<TABLE>
USAA Income Properties III Limited Partnership
Condensed Statements of Income
Three months ended March 31, 1995 and 1994
(Unaudited)
<CAPTION>
1995 1994
<S> <C> <C>
Income
Rental income $ 2,311,185 2,318,780
Less direct expenses, including depre-
ciation of $369,568 and $581,954 589,824 574,193
Net operating income 1,721,361 1,744,587
Interest income (note 1) 127,346 59,181
Total income 1,848,707 1,803,768
Expenses
General and administrative (note 1) 108,428 145,845
Management fee (note 1) 101,444 23,572
Interest (note 1) 701,625 1,178,939
Total expenses 911,497 1,348,356
Net income $ 937,210 455,412
Net income per limited partnership unit $ 8.32 4.04
See accompanying notes to condensed financial statements.
</TABLE>
3
<PAGE>
<TABLE>
USAA Income Properties III Limited Partnership
Condensed Statements of Cash Flows
Three months ended March 31, 1995 and 1994
(Unaudited)
<CAPTION>
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 937,210 455,412
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 369,568 581,954
Amortization 7,521 15,823
Decrease (increase) in accounts
receivable (11,667) 156,399
Decrease in deferred charges and
other assets 1,058,046 180,960
Increase (decrease) in accounts payable,
accrued expenses and other liabilities 3,436,043 (1,115,848)
Cash provided by operating activities 5,796,721 274,700
Cash flows used in investing activities:
Additions to rental properties -- (9,110)
Cash flows from financing activities:
Repayment of mortgages payable (681,819) --
Distributions to partners (422,535) (422,534)
Cash used in financing activities (1,104,354) (422,534)
Net increase (decrease) in cash and cash equivalents 4,692,367 (156,944)
Cash and cash equivalents at beginning of period 8,173,815 7,502,531
Cash and cash equivalents at end of period $ 12,866,182 7,345,587
See accompanying notes to condensed financial statements.
</TABLE>
4
<PAGE>
Notes to Condensed Financial Statements
March 31, 1995
(Unaudited)
1. Transactions with Affiliates
A summary of transactions with affiliates follows for the
three-month period ended March 31, 1995:
Quorum
USAA USAA Las Colinas Real Estate
Mutual Real Estate Management Services
Fund, Inc. Company Corporation Corporation
Reimbursement
of expenses (a) $ -- 50,095 -- 9,470
Interest income (1,262) -- -- --
Management fees -- 101,444 -- 13,686
Lease commissions -- -- -- 6,726
Interest expense (b) -- 293,685 322,839 --
Total $ (1,262) 445,224 322,839 29,882
(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
The notes to the financial statements on pages 13 through 18
of the Partnership's 1994 annual report are an integral part
of these financial statements. 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 nine months of 1995 or any other future period.
The financial information included in this interim report as
of March 31, 1995 and for the three months ended March 31,
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 March 31, 1995, the Partnership had cash of $3,912,031 and
temporary investments of $8,954,151. These funds were held for
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 and a land
lease receivable. Accounts payable included amounts due to
affiliates for reimbursable expenses and management fees, and 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 March 31, 1995, the Partnership
distributed $418,309 to Limited Partners and $4,226 to the General
Partner for a total of $422,535.
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. Improvements include
elevator replacement as well as interior and exterior
refurbishment. Until the improvements to the property are
substantially complete (estimated to be November 1995), the basic
rent will be abated. 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 which exceed
$7.00 per square foot each year.
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.
6
<PAGE>
Results of Operations
For the periods ended March 31, 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.
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 March 31,
1995 due to depreciation. The increase in cash and cash
equivalents at March 31, 1995 reflected the contribution from HFS
at the Ramada property to be used toward the cost of improvements
to the property and the decrease in cash distributions to partners
in order to build the working capital reserve for future
operations. The decrease in deferred charges and other assets at
March 31, 1995 was primarily due to application of Ramada deferred
rent against the contribution from HFS. Monthly principal payments
on the Parkview Plaza mortgage loan caused the decrease in
mortgages payable from December 31, 1994 to March 31, 1995.
Accrued expenses and other liabilities increased from December 31,
1994 to March 31, 1995 due to an increase in prepaid rent, the
tenant contribution from HFS and a security deposit received from
HFS.
Rental income for the period ended March 31, 1995 remained fairly
consistent with the period ended March 31, 1994. Depreciation
decreased for the period ended March 31, 1995 as compared to the
period ended March 31, 1994 due to the write-down on Parkview
Plaza. Direct expenses increased for the period ended March 31,
1995 due to an increase in property taxes at Curlew Crossing, an
increase in earthquake insurance at Parkview Plaza and rent tax at
Ramada.
An increase in interest rates and a higher cash reserve accounted
for the increase in interest income for the period ended March 31,
1995 as compared to March 31, 1994.
General and administrative expenses were higher as of March 31,
1994 as compared to March 31, 1995 due to legal fees related to
1994 negotiations with the third-party lender on the Parkview Plaza
mortgage. In addition, 1994 general and administrative expenses
included marketing expenses for Curlew Crossing. The management
fee is based on cash flow from operations of the Partnership
adjusted for cash reserves and fluctuated accordingly. Interest
expense decreased for the period ended March 31, 1995 as a result
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, offset slightly by 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.
7
<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,
incorporated as Exhibit A to the Partnership's
Prospectus dated May 6, 1985, filed
pursuant to Rule 424(b) [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, incorporated as Exhibit 3(b)
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 10
(b) During the quarter ended March 31, 1995, there were no
Current Reports on Form 8-K filed.
8
<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
May 11, 1995 BY: /s/Edward B. Kelley
Edward B. Kelley
Chairman, President and
Chief Executive Officer
May 11, 1995 BY: /s/Martha J. Barrow
Martha J. Barrow
Vice President -
Administration and
Finance
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 12,866,182
<SECURITIES> 0
<RECEIVABLES> 96,537
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 40,240,736
<DEPRECIATION> 0
<TOTAL-ASSETS> 55,193,258
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 21,731,740
<TOTAL-LIABILITY-AND-EQUITY> 55,193,258
<SALES> 0
<TOTAL-REVENUES> 2,311,185
<CGS> 0
<TOTAL-COSTS> 589,824
<OTHER-EXPENSES> 209,872
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 701,625
<INCOME-PRETAX> 937,210
<INCOME-TAX> 0
<INCOME-CONTINUING> 937,210
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 937,210
<EPS-PRIMARY> 8.32
<EPS-DILUTED> 0
</TABLE>
