<PAGE>
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 December 31, 1994
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 0-15348
MRI Business Properties Fund, Ltd. III
(Exact name of Registrant as specified in its charter)
California 94-2969782
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5665 Northside Drive N.W., Ste. 370, Atlanta, Georgia 30328
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (404) 916-9090
N/A
Former name, former address and fiscal year, if changed since last report.
Indicate by check mark whether 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. Yes /X/ No / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
Yes / / No / /
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date __________________.
1 of 14
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. III - FORM 10-Q - DECEMBER 31, 1994
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets
December 31, September 30,
1994 1994
(Unaudited) (Audited)
-------------- --------------
Assets
Cash and cash equivalents $ 4,223,000 $ 4,045,000
Accounts receivable and other assets 580,000 791,000
Real Estate:
Real estate 48,639,000 48,352,000
Accumulated depreciation (15,823,000) (15,432,000)
-------------- --------------
Real estate, net 32,816,000 32,920,000
-------------- --------------
Total assets $ 37,619,000 $ 37,756,000
============== ==============
Liabilities and Partners' Equity
Accounts payable and other liabilities $ 855,000 $ 1,240,000
Due to unconsolidated joint venture 422,000 339,000
Notes payable 15,722,000 15,791,000
-------------- --------------
Total liabilities 16,999,000 17,370,000
-------------- --------------
Partners' Equity:
General partners (deficit) (1,928,000) (1,933,000)
Limited partners equity (109,027 assignee units
outstanding at December 31, 1994 and September
1994) 22,548,000 22,319,000
-------------- --------------
Total partners' equity 20,620,000 20,386,000
-------------- --------------
Total liabilities and partners' equity $ 37,619,000 $ 37,756,000
============== ==============
See notes to consolidated financial statements.
2 of 14
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. III - FORM 10-Q - DECEMBER 31, 1994
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
December 31, December 31,
1994 1993
<S> <C> <C>
Revenues:
Room revenue $ 3,225,000 $ 6,929,000
Food and beverage revenue - 1,777,000
Other operating revenue 232,000 537,000
Interest 43,000 54,000
-------------- --------------
Total revenues 3,500,000 9,297,000
-------------- --------------
Expenses:
Room expenses 802,000 1,692,000
Food and beverage expenses - 1,499,000
Other operating expenses 1,612,000 3,464,000
Depreciation 391,000 386,000
Interest 255,000 507,000
Equity in unconsolidated joint venture's 83,000 106,000
operations
General and administrative 123,000 125,000
-------------- --------------
Total expenses 3,266,000 7,779,000
-------------- --------------
Income before minority interest in joint
ventures' operations 234,000 1,518,000
Minority interest in joint ventures' operations - (445,000)
-------------- --------------
Net income $ 234,000 $ 1,073,000
============== ==============
Net income per limited partnership assignee unit $ 2 $ 10
============== ==============
</TABLE>
See notes to consolidated financial statements.
3 of 14
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. III - FORM 10-Q - DECEMBER 31, 1994
Consolidated Statement of Partners' Equity (Deficit) (Unaudited)
For the Three Months Ended December 31, 1994
<TABLE>
<CAPTION>
General Limited Total
Partners' Partners' Partners'
(Deficit) Equity Equity
-------------- -------------- --------------
<S> <C> <C> <C>
Balance - October 1, 1994 $ (1,933,000) $ 22,319,000 $ 20,386,000
Net income 5,000 229,000 234,000
-------------- -------------- --------------
Balance - December 31, 1994 $ (1,928,000) $ 22,548,000 $ 20,620,000
============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
4 of 14
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. III - FORM 10-Q - DECEMBER 31, 1994
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
December 31, December 31,
Operating Activities: 1994 1993
-------------- --------------
<S> <C> <C>
Net income $ 234,000 $ 1,073,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 398,000 393,000
Minority interest in joint ventures' operations - 445,000
Equity in unconsolidated joint venture's 83,000 106,000
operations
Changes in operating assets and liabilities:
Accounts receivable and other assets 204,000 131,000
Accounts payable and other liabilities (385,000) (843,000)
-------------- --------------
Net cash provided by operating activities 534,000 1,305,000
-------------- --------------
Investing Activities:
Properties and improvements additions (287,000) (788,000)
Unconsolidated joint venture contributions - (150,000)
Proceeds from cash investments - 2,380,000
Purchase of cash investments - (2,376,000)
-------------- --------------
Net cash (used in) investing activities (287,000) (934,000)
-------------- --------------
Financing Activities:
Notes payable principal payments (69,000) (4,000)
-------------- --------------
Cash (used in) financing activities (69,000) (4,000)
-------------- --------------
Increase in Cash and Cash Equivalents 178,000 367,000
Cash and Cash Equivalents at Beginning of Period 4,045,000 5,088,000
-------------- --------------
Cash and Cash Equivalents at End of Period $ 4,223,000 $ 5,455,000
============== ==============
Supplemental Disclosure of Cash Flow Information:
Interest paid in cash during the period $ 248,000 $ 602,000
============== ==============
</TABLE>
See notes to consolidated financial statements.
5 of 14
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. III - FORM 10-Q - DECEMBER 31, 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
The accompanying consolidated financial statements, footnotes and
discussions should be read in conjunction with the consolidated financial
statements, related footnotes and discussions contained in the Partnership's
Annual Report for the year ended September 30, 1994. Certain accounts have been
reclassified in order to conform to the current period.
The financial information contained herein is unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of such financial
information have been included. All adjustments are of a normal recurring
nature.
The results of operations for the three months ended December 31, 1994 and
1993 are not necessarily indicative of the results to be expected for the full
year.
2. Transactions with Related Parties
Affiliates of the Managing General Partner ("MGP") received reimbursements
of administrative expenses amounting to $39,000 during the three months ended
December 31, 1994. These reimbursements are primarily included in general and
administrative expenses.
MGP was paid a fee of $26,383 relating to a successful real estate tax
appeal on the Partnership's Embassy Suites - Tempe hotel during the three months
ended December 31, 1994. The tax appeal fee is included in operating expenses.
6 of 14
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. III - FORM 10-Q - DECEMBER 31, 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Investment in Unconsolidated Joint Venture
The following are the condensed balance sheets as of December 31,
1994 and September 30, 1994 and condensed statements of operations for the three
months ended December 31, 1994 and 1993 of the unconsolidated joint venture:
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1994 1994
(Unaudited) (Audited)
-------------- --------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 691,000 $ 561,000
Restricted cash 258,000 564,000
Accounts receivable and other assets 1,386,000 1,323,000
Real Estate:
Real estate 62,970,000 62,898,000
Accumulated depreciation (16,735,000) (16,335,000)
Allowance for impairment of value (11,962,000) (11,962,000)
-------------- --------------
Real estate, net 34,273,000 34,601,000
-------------- --------------
Total assets $ 36,608,000 $ 37,049,000
============== ==============
Liabilities and Partners' Deficiency
Accounts payable and other liabilities $ 2,436,000 $ 2,320,000
Due to affiliates 1,872,000 2,095,000
Note payable 34,000,000 34,000,000
-------------- --------------
Total liabilities 38,308,000 38,415,000
-------------- --------------
Minority interest in joint venture (856,000) (689,000)
-------------- --------------
Partners' Deficiency:
MRI BPF, LTD. II (422,000) (338,000)
MRI BPF, LTD. III (422,000) (339,000)
-------------- --------------
Total partners' deficiency (844,000) (677,000)
-------------- --------------
Total liabilities and partners' deficiency $ 36,608,000 $ 37,049,000
============== ==============
</TABLE>
7 of 14
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. III - FORM 10-Q - DECEMBER 31, 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Investment in Unconsolidated Joint Venture (Continued)
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
December 31, December 31,
1994 1993
-------------- --------------
<S> <C> <C>
Revenues $ 4,871,000 $ 5,128,000
Expenses 5,205,000 5,549,000
-------------- --------------
Loss before minority interest in joint
venture operations (334,000) (421,000)
Minority interest in joint venture
operations 167,000 208,000
-------------- --------------
Net loss $ (167,000) $ (213,000)
============== ==============
Allocation of net loss:
MRI BPF, Ltd. II $ (84,000) $ (107,000)
MRI BPF, Ltd. III (83,000) (106,000)
-------------- --------------
Net loss $ (167,000) $ (213,000)
============== ==============
</TABLE>
The three months ended December 31, 1993 contained fourteen weeks.
8 of 14
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. III - FORM 10-Q - DECEMBER 31, 1994
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
This item should be read in conjunction with the Consolidated Financial
Statements and other Items contained elsewhere in this Report.
Liquidity and Capital Resources
All of Registrant's properties are hotels. Registrant receives hotel operating
revenues and is responsible for operating expenses, administrative expenses,
capital improvements and debt service payments. Registrant uses working capital
reserves provided from any undistributed cash flow from operations and sales
proceeds as its primary source of liquidity. During the three months ended
December 31, 1994, all of Registrant's hotels generated positive cash flow.
Guest room renovations continue at the Holiday Inn Crowne Plaza. During the
three months ended December 31, 1994, $72,000 was spent on room renovations.
Management anticipates spending an additional $900,000 to complete the
renovations. The renovations will be funded by working capital and replacement
reserves (restricted cash). To preserve working capital reserves required for
necessary capital improvements to properties and provide resources for debt
restructuring, cash distributions remained suspended during the three months
ended December 31, 1994. The Managing General Partner will evaluate future cash
distributions based on the capital needs of Registrant.
The level of liquidity based upon cash and cash equivalents experienced a
$178,000 increase at December 31, 1994, as compared to September 30, 1994.
Registrant's $534,000 from operating activities was only partially offset by
$287,000 of fixed asset purchases (investing activities) and $69,000 of note
principal payments (financing activities). Net cash provided by operating
activities declined at December 31, 1994, as compared to 1993, primarily due to
the disposition of Registrant's joint venture interests during the second
quarter of fiscal year ended September 30, 1994, which was only partially offset
by improved operations at Registrant's remaining properties. Mortgage principal
payments increased primarily due to Registrant's Residence Inn, Orlando property
loan, which started principal amortization during November 1993. All other
increases (decreases) in certain assets and liabilities are the result of the
timing of receipt and payment of various operating activities.
During the first quarter of 1995, DeForest Ventures I L.P. acquired 26,730
limited partnership units or 24.5% of total limited partnership units of
Registrant. The purchase is not expected to have an impact on the operations or
liquidity of Registrant.
Working capital reserves are invested in money market accounts and repurchase
agreements secured by United States Treasury obligations. At December 31, 1994,
Registrant had approximately $2,740,000 invested in overnight repurchase
agreements earning 5.25% per annum. The Managing General Partner believes that,
if market conditions remain relatively stable, cash flow from operations, when
combined with working capital reserves, will be sufficient to fund essential
capital improvements and debt service payments in 1995 and the foreseeable
future. Balloon payments on mortgages encumbering Registrant's properties are
due in September 1997 and October 1997. The mortgage encumbering Registrant's
unconsolidated joint venture, the Holiday Inn Crowne Plaza, matures in July
1995. The mortgage agreement provides an option to extend the maturity date to
June 1999. The new interest rate on the loan, if extended, would be
approximately 12%. The Managing General Partner believes that each property
generates sufficient cash flow to allow all mortgages to be refinanced in an
orderly fashion.
9 of 14
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. III - FORM 10-Q - DECEMBER 31, 1994
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Liquidity and Capital Resources (Continued)
At this time, it appears that the investment objective of capital growth will
not be attained and that a significant portion of invested capital will not be
returned to investors. The extent to which invested capital is returned to
investors is dependent upon the performance of Registrant's remaining properties
and the markets in which such properties are located and on the sales price of
the remaining properties.
Real Estate Market
The income and expenses of operating the properties owned by Registrant are
subject to factors outside of Registrant's control, such as over-supply of
similar properties resulting from over-building, increases in unemployment,
population shifts or changes in patterns or needs of users. Expenses, such as
local real estate taxes and miscellaneous expenses, are subject to change and
cannot always be reflected in room rate increases due to market conditions. In
addition, there are risks inherent in owning and operating lodging facilities
because such properties are management and labor intensive and especially
susceptible to the impact of economic and other conditions outside the control
of Registrant.
There have been, and it is possible there may be other Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. Registrant is unable to predict the extent, if any, to which such
new legislation or regulations might occur and the degree to which such existing
or new legislation or regulations might adversely affect the properties still
owned by Registrant.
Results of Operations
Three Months Ended December 31, 1994 vs. December 31, 1993
Operating results, before the minority interest in joint venture operations
declined by $1,284,000, for the three months ended December 31, 1994, as
compared to 1993, due to a decrease in revenues of $5,797,000 and expenses of
$4,513,000. Operating results declined due to the sale of Registrant's joint
venture interests. With respect to the remaining properties, operating results
improved by $227,000, for the three months ended December 31, 1994, as compared
to 1993, due to increases in revenues of $258,000 and expenses of $31,000.
The $258,000 increase in revenues is attributable to increases in room revenue
of $232,000, other operating revenue of $21,000 and interest income of $5,000 at
Registrant's remaining properties.
Room revenue increased at all of Registrant's remaining properties, except for
the Residence Inn - Sacramento, which declined primarily due to a decrease in
occupancy. The largest increase was at Registrant's Residence Inn - Orlando
property, due to a significant increase in occupancy which was only partially
offset by a slight decline in average daily room rates. Other operating
revenues increased due to slight increases in other income at Registrant's
Embassy Suites - Tempe and Residence Inn - Orlando properties. Interest income
remained relatively constant, as the decline in average working capital
available for investment was offset by higher interest rates.
10 of 14
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. III - FORM 10-Q - DECEMBER 31, 1994
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Three Months Ended December 31, 1994 vs. December 31, 1993 (Continued)
The $31,000 increase in expenses at Registrant's remaining properties is
attributable to increases in room expenses of $12,000, other operating of
$279,000 and depreciation of $5,000, which was only partially offset by
decreases in interest expense of $240,000, general and administrative expenses
of $2,000 and equity in unconsolidated joint venture operations of $23,000.
Other operating expenses increased primarily at Registrant's Embassy Suites and
Residence Inn - Orlando properties. Interest expense decreased primarily due to
the reduction in the interest on the loan encumbering Registrant's Residence Inn
- - Orlando property (from 10% to 6.5%) and Registrant prepaying on June 2, 1994,
in full satisfaction, the note encumbering Registrant's Embassy Suites
property. The loss from Registrant's unconsolidated joint venture property (the
Holiday Inn Crowne Plaza) decreased due to improved operations at the hotel.
Room expenses, general and administrative expenses and depreciation expense
remained relatively constant.
Unconsolidated Joint Venture Operations
(MRI BPF Combined Fund No. 1)
Three Months Ended December 31, 1994 vs. December 31, 1993
Operating results remained relatively constant during the thirteen week
comparative period, due to increased occupancy and room rates, which were offset
by increased expenses.
Properties
A description of the hotel properties in which Registrant has an ownership
interest during the period covered by this Report, together with occupancy and
room rate data, follows:
MRI BUSINESS PROPERTIES FUND, LTD. III
OCCUPANCY AND ROOM RATE SUMMARY
<TABLE>
<CAPTION>
Average Average
Occupancy Rate (%) Daily Room Rate ($)
------------------ ------------------
Three months Three months
Date Ended Ended
of December 31, December 31,
Name and Location Rooms Purchase 1994 1993 1994 1993
- ----------------- ----- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Holiday Inn Crowne
Plaza (1)
Atlanta, Georgia 492 03/86 71 68 89.20 87.53
</TABLE>
11 of 14
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. III - FORM 10-Q - DECEMBER 31, 1994
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Properties (Continued)
<TABLE>
<CAPTION>
Average Average
Occupancy Rate (%) Daily Room Rate ($)
------------------ ------------------
Three months Three months
Date Ended Ended
of December 31, December 31,
Name and Location Rooms Purchase 1994 1993 1994 1993
- ----------------- ----- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Embassy Suites - Tempe
Tempe, Arizona 224 12/86 74 79 91.77 79.34
Residence Inn - Orlando
Orlando, Florida 176 09/87 71 57 76.41 78.90
Residence Inn - Sacramento,
California 176 09/87 74 78 78.37 77.47
Radisson Park Terrace Hotel (2)
Washington, D.C. 219 09/86 - 74 - 86.51
Park Hyatt Hotel (3)
Chicago, Illinois 255 12/86 - 72 - 157.49
</TABLE>
(1) Registrant and an affiliated partnership, MRI Business Properties Fund, Ltd.
II, own the hotel through a joint venture which has a 50 percent interest in
this property.
(2) Registrant sold its 65% interest in this property on March 15, 1994.
(3) Registrant sold its 60% interest in this property on March 7, 1994.
12 of 14
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. III - FORM 10-Q - DECEMBER 31, 1994
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
On October 12, 1994, a Current Report on Form 8-K was filed with the
Securities and Exchange Commission to provide for the sale by National Property
Investors, Inc. ("NPI"), the parent of NPI Equity Investments II, Inc., of
one-third of its stock to an affiliate of Apollo Real Estate Advisors, L.P.
("Apollo"). In addition, the 8-K disclosed the acquisition by affiliates of
Apollo and NPI of (I) the stock in the general partners of DeForest Ventures I
L.P. ("DeForest") and DeForest Ventures II L.P. ("DeForest II") and (ii) a
limited partnership interest in DeForest and DeForest II.
13 of 14
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. III - FORM 10-Q - DECEMBER 31, 1994
SIGNATURE
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.
MRI BUSINESS PROPERTIES FUND, LTD. III
By: MONTGOMERY REALTY COMPANY 85,
A California General Partnership,
its managing general partner
By: FOX REALTY INVESTORS,
A California General Partnership,
its managing general partner
By: NPI Equity Investments II, Inc.,
A Florida Corporation,
its managing partner
/S/ARTHUR N. QUELER
--------------------------------------------------
ARTHUR N. QUELER
Executive Vice President, Treasurer, Secretary
and Director (Principal Financial and Accounting
Officer)
14 of 14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from MRI Business
Properties Fund, Ltd. III and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 4,223,000
<SECURITIES> 0
<RECEIVABLES> 580,000 <F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 48,639,000
<DEPRECIATION> (15,823,000)
<TOTAL-ASSETS> 37,619,000
<CURRENT-LIABILITIES> 0
<BONDS> 15,722,000
<COMMON> 0
0
0
<OTHER-SE> 20,620,000
<TOTAL-LIABILITY-AND-EQUITY> 37,619,000
<SALES> 0
<TOTAL-REVENUES> 3,457,000
<CGS> 0
<TOTAL-COSTS> 2,805,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 255,000
<INCOME-PRETAX> 234,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 234,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 234,000
<EPS-PRIMARY> 2
<EPS-DILUTED> 2
<FN>
<F1> Accounts receivable includes other assets of $228,000.
</FN>
</TABLE>
