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 September 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>
September 30,
1995 December 31,
(Unaudited) 1994
<S> <C> <C>
Assets
Rental properties, net $ 39,494,898 40,610,304
Temporary investments, at cost
which approximates market value:
USAA Mutual Fund, Inc. -- 661,162
Money market fund 12,011,125 7,505,568
12,011,125 8,166,730
Cash 41,876 7,085
Cash and cash equivalents 12,053,001 8,173,815
Accounts receivable 195,247 84,870
Deferred charges and other assets, at
amortized cost 3,185,887 3,055,370
$ 54,929,033 51,924,359
Liabilities and Partners' Equity
Mortgages payable to affiliates $ 28,500,000 30,545,455
Accounts payable, including amounts due
to affiliates of $50,878 and $80,189 67,087 91,992
Accrued expenses and other liabilities 2,501,872 69,847
Total liabilities 31,068,959 30,707,294
Partners' equity
General Partner:
Capital contribution 1,000 1,000
Cumulative net loss (31,701) (70,807)
Cumulative distributions (253,988) (241,312)
(284,689) (311,119)
Limited Partners (111,549 units):
Capital contributions, net of offering
costs 52,428,030 52,428,030
Cumulative net loss (3,138,430) (7,009,936)
Cumulative distributions (25,144,837) (23,889,910)
24,144,763 21,528,184
Total Partners' equity 23,860,074 21,217,065
Commitment (note 3)
$ 54,929,033 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
September 30, September 30,
1995 1994
<S> <C> <C>
Income
Rental income $ 2,473,316 2,308,030
Less direct expenses, including depre-
ciation of $369,151 and $580,965 432,159 636,237
Net operating income 2,041,157 1,671,793
Interest income (note 1) 172,577 102,536
Total income 2,213,734 1,774,329
Expenses
General and administrative (note 1) 70,748 70,517
Management fee (note 1) 35,367 22,421
Interest (note 1) 687,699 1,246,110
Total expenses 793,814 1,339,048
Net income $ 1,419,920 435,281
Net income per limited partnership unit $ 12.60 3.86
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1995 1994
<S> <C> <C>
Income
Rental income $ 7,251,811 6,939,736
Less direct expenses, including depre-
ciation of $1,108,287 and $1,743,804 1,315,825 1,848,593
Net operating income 5,935,986 5,091,143
Interest income (note 1) 475,320 236,233
Total income 6,411,306 5,327,376
Expenses
General and administrative (note 1) 278,340 312,977
Management fee (note 1) 128,309 96,243
Interest (note 1) 2,094,045 3,641,116
Total expenses 2,500,694 4,050,336
Net income $ 3,910,612 1,277,040
Net income per limited partnership unit $ 34.71 11.33
See accompanying notes to condensed financial statements.
</TABLE>
3
<PAGE>
<TABLE>
USAA Income Properties III Limited Partnership
Condensed Statements of Cash Flows
Nine months ended September 30, 1995 and 1994
(Unaudited)
<CAPTION>
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,910,612 1,277,040
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,108,287 1,743,804
Amortization 58,821 47,470
Decrease (increase) in accounts
receivable (110,377) 94,492
Decrease (increase) in deferred charges
and other assets (189,338) 497,328
Increase (decrease) in accounts payable,
accrued expenses and other liabilities 2,407,120 (1,048,490)
Other 7,119 --
Cash provided by operating activities 7,192,244 2,611,644
Cash flows used in investing activities -
Additions to rental properties -- (22,771)
Cash flows from financing activities:
Repayment of mortgages payable (2,045,455) --
Distributions to partners (1,267,603) (1,267,603)
Cash used in financing activities (3,313,058) (1,267,603)
Net increase in cash and cash equivalents 3,879,186 1,321,270
Cash and cash equivalents at beginning of period 8,173,815 7,502,531
Cash and cash equivalents at end of period $ 12,053,001 8,823,801
See accompanying notes to condensed financial statements.
</TABLE>
4
<PAGE>
Notes to Condensed Financial Statements
September 30, 1995
(Unaudited)
1. Transactions with Affiliates
A summary of transactions with affiliates follows for the
nine-month period ended September 30, 1995:
Quorum
USAA USAA Las Colinas Real Estate
Mutual Real Estate Management Services
Fund, Inc. Company Corporation Corporation
Reimbursement
of expenses (a) $ -- 112,679 -- 33,728
Interest income (1,262) -- -- --
Management fees -- 128,309 -- 35,655
Lease commissions -- -- -- 17,017
Interest expense (b) -- 893,863 942,042 --
Total $ (1,262) 1,134,851 942,042 86,400
(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 three months of 1995 or any other future period.
The financial information included in this interim report as
of September 30, 1995 and for the three months and nine months
ended September 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>
Notes to Condensed Financial Statements
September 30, 1995
(Unaudited)
3. Commitment
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
this lease, HFS contributed $3,000,000 to be used toward the
cost of improvements to 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.
6
<PAGE>
PART I
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
At September 30, 1995, the Partnership had cash of $41,876 and
temporary investments of $12,011,125. 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. 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 September 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 end of year 1996), 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 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.
7
<PAGE>
Results of Operations
For the periods ended September 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.
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 as of September 30, 1995 as compared to
December 31, 1994 due to depreciation. The increase in cash and
cash equivalents at September 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 September 30, 1995.
Accrued expenses and other liabilities increased from December 31,
1994 to September 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 nine months ended September
30, 1995 increased compared to the same periods ended September 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 September 30, 1995 as
compared to the periods ended September 30, 1994 due to the write-
down on Parkview Plaza in 1994. Other direct expenses increased
for the periods ended September 30, 1995 as compared to the periods
ended September 30, 1994 due to a decrease in reimbursements from
tenants.
An increase in interest rates and a higher cash reserve accounted
for the increase in interest income for the three months and nine
months ended September 30, 1995 as compared to the same periods
ended September 30, 1994.
8
<PAGE>
General and administrative expenses decreased for the nine months
ended September 30, 1995 as compared to the nine months ended
September 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 and fluctuated accordingly.
Interest expense decreased for the periods ended September 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.
9
<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 12
(b) During the quarter ended September 30, 1995, there were
no Current Reports on Form 8-K filed.
10
<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
November 9, 1995 BY: /s/Edward B. Kelley
Edward B. Kelley
Chairman, President and
Chief Executive Officer
November 9, 1995 BY: /s/Martha J. Barrow
Martha J. Barrow
Vice President -
Administration and
Finance/Treasurer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 12,053,001
<SECURITIES> 0
<RECEIVABLES> 195,247
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 39,494,898
<DEPRECIATION> 0
<TOTAL-ASSETS> 54,929,033
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 23,860,074
<TOTAL-LIABILITY-AND-EQUITY> 54,929,033
<SALES> 0
<TOTAL-REVENUES> 7,251,811
<CGS> 0
<TOTAL-COSTS> 1,315,825
<OTHER-EXPENSES> 406,649
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,094,045
<INCOME-PRETAX> 3,910,612
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,910,612
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,910,612
<EPS-PRIMARY> 34.71
<EPS-DILUTED> 0
</TABLE>
