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, 1996
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,
1996 December 31,
(Unaudited) 1995
<S> <C> <C>
Assets
Rental properties, net $ 38,766,020 39,125,747
Temporary investment, at cost
which approximates market value -
Money market fund 12,906,613 12,202,023
Cash 85,819 573,020
Cash and cash equivalents 12,992,432 12,775,043
Accounts receivable, net of allowance for doubtful
accounts of $15,000 and $12,000 449,518 419,871
Deferred charges and other assets, at
amortized cost 3,433,630 3,305,650
$ 55,641,600 55,626,311
Liabilities and Partners' Equity
Mortgages payable to affiliates $ 27,136,364 27,818,182
Accounts payable, including amounts due
to affiliates of $116,697 and $65,139 198,512 138,535
Accrued expenses and other liabilities 2,563,783 2,843,826
Total liabilities 29,898,659 30,800,543
Partners' equity
General Partner:
Capital contribution 1,000 1,000
Cumulative net loss (4,422) (17,819)
Cumulative distributions (262,439) (258,214)
(265,861) (275,033)
Limited Partners (111,549 units):
Capital contributions, net of offering
costs 52,428,030 52,428,030
Cumulative net loss (437,773) (1,764,083)
Cumulative distributions (25,981,455) (25,563,146)
26,008,802 25,100,801
Total Partners' equity 25,742,941 24,825,768
Commitment (note 3)
$ 55,641,600 55,626,311
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, 1996 and 1995
(Unaudited)
<CAPTION>
1996 1995
<S> <C> <C>
Income
Rental income $ 2,463,603 2,311,185
Less direct expenses, including depre-
ciation of $369,151 and $369,568 438,328 589,824
Net operating income 2,025,275 1,721,361
Interest income 167,589 127,346
Total income 2,192,864 1,848,707
Expenses
General and administrative (note 1) 149,923 108,428
Management fee (note 1) 78,822 101,444
Interest (note 1) 624,412 701,625
Total expenses 853,157 911,497
Net income $ 1,339,707 937,210
Net income per limited partnership unit $ 11.89 8.32
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, 1996 and 1995
(Unaudited)
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,339,707 937,210
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 369,151 369,568
Amortization 25,650 7,521
Increase in accounts receivable (29,647) (11,667)
Decrease (increase) in deferred charges
and other assets (153,630) 1,058,046
Increase (decrease) in accounts payable,
accrued expenses and other liabilities (220,066) 3,436,043
Cash provided by operating activities 1,331,165 5,796,721
Cash flows used in investing activities -
Additions to rental properties (9,424) --
Cash flows from financing activities:
Repayment of mortgages payable (681,818) (681,819)
Distributions to partners (422,534) (422,535)
Cash used in financing activities (1,104,352) (1,104,354)
Net increase in cash and cash equivalents 217,389 4,692,367
Cash and cash equivalents at beginning of period 12,775,043 8,173,815
Cash and cash equivalents at end of period $ 12,992,432 12,866,182
See accompanying notes to condensed financial statements.
</TABLE>
4
<PAGE>
Notes to Condensed Financial Statements
March 31, 1996
(Unaudited)
1. Transactions with Affiliates
A summary of transactions with affiliates follows for the
three-month period ended March 31, 1996:
Quorum
USAA Las Colinas Real Estate
Real Estate Management Services
Company Corporation Corporation
Reimbursement
of expenses (a) $ 52,663 -- 13,196
Management fees 78,822 -- 11,308
Lease commissions -- -- 6,862
Interest expense (b) 282,664 255,702 --
Total $ 414,149 255,702 31,366
(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 as part of the Form 10-K for the year ended
December 31, 1995 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 nine months of 1996 or any other
future period.
The financial information included in this interim report as
of March 31, 1996 and for the three months ended March 31,
1996 and 1995 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>
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. Through March 31, 1996, the
Partnership has incurred no costs related to its commitment
for improvements. Improvements are estimated to be
substantially complete in August 1996.
6
<PAGE>
PART I
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
At March 31, 1996, the Partnership had cash of $85,819 and
temporary investments of $12,906,613. 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 primarily
deferred rent resulting from recognition of income as required by
generally accepted accounting principles and lease commissions.
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
and a deposit held as a contribution toward tenant improvement
costs.
During the quarter ended March 31, 1996, the Partnership
distributed $418,309 to Limited Partners and $4,225 to the General
Partner for a total of $422,534. Due to the expiration of the
Hughes lease in August 1996 and the commencement of the lease with
Hospitality Franchise Systems, Inc. (HFS) in 1995, tenant
improvements and lease commissions will be required at both
Parkview Plaza and Ramada, and will be funded from the
Partnership's working capital reserve. Based on current
projections, distributions to Partners will be reduced beginning
with the May 1996 distribution.
The $11,000,000 mortgage on Curlew Crossing matured March 31, 1996.
The lender, USAA Real Estate Company (the Adviser), has agreed to
renew the loan for a period of two years at a reduced rate of 8.25%
to reflect market rates at the time of maturity. The loan will be
payable monthly, interest only, with the principal due March 31,
1998.
The Parkview Plaza mortgage loan matures on August 31, 1996. Prior
to loan maturity, management plans to pursue alternative financing
with third-party lenders; however, if third-party financing is not
obtained, it is anticipated that the loan will be refinanced by an
affiliate of the General Partner.
Through March 31, 1996, the Partnership has incurred no costs
related to its commitment to fund approximately $2 million of
improvements for HFS. Substantial completion of the improvements
is projected to occur in August 1996, and these costs will be
funded from the Partnership's working capital reserve.
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 three-month periods ended March 31, 1996 and 1995, 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 income for the three-month period ended March 31, 1996
increased compared to the same period ended March 31, 1995 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.
Direct expenses decreased for the three-month period ended March
31, 1996 as compared to the same period ended March 31, 1995 due to
a decrease in rent tax at Ramada.
Interest income increased as a result of a higher cash balance for
the first three months of 1996 as compared to the first three
months of 1995.
General and administrative expenses increased for the three-month
period ended March 31, 1996 as compared to the same period ended
March 31, 1995 primarily due to amortization expense related to
lease commissions at Ramada paid upon the execution of the lease
with Hospitality Franchise Systems, Inc. in 1995. The management
fee is based on cash flow from operations of the Partnership
adjusted for cash reserves and fluctuated accordingly.
The decrease in interest expense at March 31, 1996 as compared to
March 31, 1995 reflected the decrease in the interest rate charged
on the Parkview Plaza loan. The interest rate on the Parkview
Plaza mortgage loan is based on the London Interbank Offered Rate
(LIBOR) and changes in interest expense for this mortgage were a
result of changes in LIBOR.
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 March 31, 1996, 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
May 9, 1996 BY: /s/Edward B. Kelley
Edward B. Kelley
Chairman, President and
Chief Executive Officer
May 9, 1996 BY: /s/Martha J. Barrow
Martha J. Barrow
Vice President -
Administration and
Finance/Treasurer
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 12,992,432
<SECURITIES> 0
<RECEIVABLES> 449,518
<ALLOWANCES> 15,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 38,766,020
<DEPRECIATION> 0
<TOTAL-ASSETS> 55,641,600
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 25,742,941
<TOTAL-LIABILITY-AND-EQUITY> 55,641,600
<SALES> 0
<TOTAL-REVENUES> 2,463,603
<CGS> 0
<TOTAL-COSTS> 438,328
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 624,412
<INCOME-PRETAX> 1,339,707
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,339,707
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,339,707
<EPS-PRIMARY> 11.89
<EPS-DILUTED> 0
</TABLE>
