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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTIONS 12(G), 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1995
Commission file number 0-16027
REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
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Delaware 13-3341425
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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27611 La Paz Road, P.O. Box A-1, Laguna Niguel, California 92677-0100
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(Address of principal executive offices) (Zip Code)
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(714) 831-0707
(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 Sections 12(g), 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve 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 ___
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REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED JUNE 30, 1995
INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets -
June 30, 1995 (Unaudited) and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Operations (Unaudited) -
Three and Six Months Ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . 4
Statements of Cash Flows (Unaudited) -
Six Months Ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
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2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
BALANCE SHEETS
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June 30, December 31,
1995 1994
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(Unaudited) (Note)
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ASSETS
- ------
Investment in real estate, net:
Land $ 7,014,000 $ 7,014,000
Buildings and improvements 36,470,000 36,275,000
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43,484,000 43,289,000
Less accumulated depreciation (12,669,000) (11,955,000)
------------ ------------
30,815,000 31,334,000
Investment in Cooper Village Partners 3,537,000 3,586,000
Cash and cash equivalents 1,303,000 1,085,000
Accounts receivable (net of allowance for
doubtful accounts of $9,000 in 1995) 91,000 49,000
Accrued rent receivable 819,000 765,000
Prepaid expenses and other assets 519,000 686,000
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$ 37,084,000 $ 37,505,000
============ ============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts payable and accrued liabilities $ 342,000 $ 391,000
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Partners' capital:
Limited Partners 36,923,000 37,291,000
General Partner (181,000) (177,000)
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36,742,000 37,114,000
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Commitments and contingencies - -
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$ 37,084,000 $ 37,505,000
============ ============
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Note: The balance sheet at December 31, 1994 has been prepared from the
audited financial statements as of that date.
The accompanying notes are an integral part of these financial statements.
3
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REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(UNAUDITED)
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Three Months Ended Six Months Ended
June 30, June 30,
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1995 1994 1995 1994
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REVENUES
- --------
Rental income $1,303,000 $1,136,000 $2,565,000 $2,251,000
Interest 14,000 10,000 29,000 20,000
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Total revenues 1,317,000 1,146,000 2,594,000 2,271,000
---------- ---------- ---------- ----------
EXPENSES
- --------
Operating expenses 307,000 339,000 617,000 670,000
Real estate taxes 180,000 195,000 362,000 419,000
Depreciation and
amortization 399,000 398,000 797,000 789,000
General and
administrative 190,000 178,000 388,000 346,000
---------- ---------- ---------- ----------
Total expenses 1,076,000 1,110,000 2,164,000 2,224,000
---------- ---------- ---------- ----------
Income before
equity in earnings 241,000 36,000 430,000 47,000
Equity in earnings
of Cooper Village
Partners 29,000 40,000 60,000 76,000
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NET INCOME $ 270,000 $ 76,000 $ 490,000 $ 123,000
========== ========== ========== ==========
NET INCOME
ALLOCABLE TO:
General Partner $ 3,000 $ 1,000 $ 5,000 $ 1,000
========== ========== ========== ==========
Limited Partners $ 267,000 $ 75,000 $ 485,000 $ 122,000
========== ========== ========== ==========
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The accompanying notes are an integral part of these financial statements.
4
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REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Six Months Ended June 30,
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1995 1994
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Cash flows from operating activities:
Net income $ 490,000 $ 123,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 797,000 789,000
Equity in earnings of Cooper Village Partners (60,000) (76,000)
Changes in:
Accounts receivable (42,000) 2,000
Accrued rent receivable (54,000) 61,000
Prepaid expenses and other assets 84,000 197,000
Accounts payable and accrued liabilities (49,000) (105,000)
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Net cash provided by operating activities 1,166,000 991,000
Cash flows from investing activities:
Investment in real estate (195,000) (39,000)
Distributions received from
Cooper Village Partners 109,000 105,000
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Net cash (used in) provided by investing
activities (86,000) 66,000
Cash flows from financing activities:
Distributions (862,000) (875,000)
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Net cash used in financing activities (862,000) (875,000)
Net increase in cash and cash equivalents 218,000 182,000
Cash and cash equivalents, beginning of
period 1,085,000 1,056,000
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Cash and cash equivalents, end of period $1,303,000 $1,238,000
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The accompanying notes are an integral part of these financial statements.
5
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REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
(1) Accounting Policies
The financial statements of Real Estate Income Partners III, Limited
Partnership (the "Partnership") included herein have been prepared by
the General Partner, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. These
financial statements include all adjustments which are of a normal
recurring nature and, in the opinion of the General Partner, necessary
for a fair presentation. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted, pursuant to the rules and regulations of the Securities and
Exchange Commission. These financial statements should be read in
conjunction with the financial statements and notes thereto included
in the Partnership's annual report on Form 10-K for the year ended
December 31, 1994.
Earnings Per Unit
The Partnership Agreement does not designate investment interests in
units. All investment interests are calculated on a "percent of
Partnership" basis, in part to accommodate original reduced rates on
sales commissions for subscriptions in excess of certain specified
amounts.
A Limited Partner who was charged a reduced sales commission or no
sales commission was credited with proportionately larger Invested
Capital and therefore had a disproportionately greater interest in the
capital and revenues of the Partnership than a Limited Partner who
paid commissions at a higher rate. As a result, the Partnership has
no set unit value as all accounting, investor reporting and tax
information is based upon each investor's relative percentage of
Invested Capital. Accordingly, earnings or loss per unit is not
presented in the accompanying financial statements.
Investments in Real Estate
At December 31, 1994, after evaluation of Flaircentre, management
estimated a $1,900,000 impairment of value as compared to its
respective carrying value. At December 31, 1992, after evaluation of
The Forum, Martinazzi Square and NorthTech, management estimated an
aggregate $5,700,000 impairment of value as compared to their
respective carrying values.
6
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REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd)
(2) Transactions with Affiliates
The Partnership has no employees and, accordingly, the General Partner
and its affiliates perform services on behalf of the Partnership in
connection with administering the affairs of the Partnership. The
General Partner and affiliates are reimbursed for their general and
administrative costs actually incurred and associated with services
performed on behalf of the Partnership. For the three months ended
June 30, 1995 and 1994, the Partnership incurred approximately $43,000
and $34,000, respectively, of such expenses. For the six months ended
June 30, 1995 and 1994, such payments were $84,000 and $68,000,
respectively.
An affiliate of the General Partner provides property management
services with respect to the Partnership's properties and receives a
fee for such services not to exceed 6% of the gross receipts from the
properties under management, provided that leasing services are
performed, otherwise not to exceed 3%. Such fee amounted to
approximately $45,000 and $44,000 for the three months ended June 30,
1995 and 1994, respectively, and $92,000 and $86,000 for the six
months ended June 30, 1995 and 1994. In addition, an affiliate of the
General Partner received $17,000 and $24,000 for the three months
ended June 30, 1995 and 1994, respectively, as reimbursement of costs
of on-site property management personnel and other reimbursable
expenses. For the six months ended June 30, 1995 and 1994, such costs
were $41,000 and $45,000 respectively.
In addition to the aforementioned, the General Partner was also paid
$10,000 and $10,000, related to the Partnership's portion (42%) of
property management fees, leasing fees, reimbursement of on-site
property management personnel and other reimbursable expenses for
Cooper Village Partners for the three months ended June 30, 1995 and
1994, respectively. For the six months ended June 30, 1995 and 1994,
such costs were $18,000 and $19,000, respectively.
As previously reported, on June 24, 1993, the Partnership completed
its solicitation of written consents from its Limited Partners. A
majority in interest of the Partnership's Limited Partners approved
each of the proposals contained in the Information Statement dated May
5, 1993. Those proposals have been implemented by the Partnership as
contemplated by the Information Statement as amendments to the
Partnership Agreement, and are reflected in these financial statements
as such.
7
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REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd)
(2) Transactions with Affiliates (Cont'd)
The amended Partnership Agreement provides for the Partnership's
payment to the General Partner of an annual asset management fee equal
to .75% of the aggregate appraised value of the Partnership's
properties as determined by independent appraisal undertaken in
January of each year. Such fees amounted to approximately $120,000
and $117,000, for the six months ended June 30, 1995 and 1994,
respectively. In addition, the amended Partnership Agreement provides
for payment to the General Partner of a leasing fee for services
rendered in connection with leasing space in a Partnership property
after the expiration or termination of leases. Fees for leasing
services for the six months ended June 30, 1995 and 1994, amounted to
$23,000 and $3,000, respectively.
In addition to the aforementioned, the General Partner was also paid
$12,000 and $11,000 for the six months ended June 30, 1995 and 1994,
respectively, related to the Partnership's portion (42%) of asset
management fees for Cooper Village Partners.
(3) Commitments and Contingencies
Litigation
The Partnership is not a party to any pending legal proceedings other
than ordinary routine litigation incidental to its business. It is
the General Partner's belief that the outcome of these proceedings
will not be material to the business or financial condition of the
Partnership.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resource
Subsequent to the completion of its acquisition program, the
Partnership has been principally engaged in the operation of its
properties. The Partnership intends to hold its properties as
long-term investments, although properties may be sold at any time
depending upon the General Partner's judgment of the anticipated
remaining economic benefits of continued ownership. Working capital
is provided principally from the operation of the Partnership's
properties and the working capital reserve established for the
properties. The Partnership may incur mortgage indebtedness relating
to such properties by borrowing funds primarily to fund capital
improvements or to obtain financing proceeds for distribution to the
Partners.
8
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REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
Liquidity and Capital Resources(Cont'd)
Distributions through June 30, 1995, primarily represent cash flow
from operation of the Partnership's properties and interest earned on
the temporary investment of the Partnership's working capital net of
capital improvement requirements and fees paid to the General Partner.
Future cash distributions will be made principally to the extent of
cash flow attributable to the operation of the Partnership's
properties net of capital improvement requirements and fees paid to
the General Partner.
Certain of the Partnership's properties are not fully leased. The
Partnership is actively marketing the vacant space in these
properties, subject to the competitive environment in each of the
market areas. To the extent the Partnership is not successful in
maintaining or increasing occupancy levels at these properties, the
Partnership's future cash flow and distributions may be reduced.
In accordance with the terms of the Partnership Agreement, each year
the Partnership secures an independent appraisal of each of the
Partnership's properties as of January 1. In past years, the
independent appraiser has estimated each property's "Investment
Value," utilizing a seven to ten-year cash flow model to estimate
value based upon an income approach.
The amendment to the Partnership Agreement consented to by the Limited
Partners in June 1993 mandates, among other things, that the General
Partner seek a vote of (and provide an analysis and recommendation to)
the Limited Partners no later than December 31, 1996, regarding the
prompt liquidation of the Partnership in the event that properties
with (then) current appraised values constituting at least one-half of
the total (then) current appraised values of all of the Partnership's
properties are not sold or under contract for sale by the end of 1996.
Given this mandate, the General Partner has requested that the
appraiser provide an assessment of value that reflects a shorter
investment holding term. Although the General Partner does not
currently have a specific liquidation plan for the Partnership's
properties, it requested that the appraiser assume that the entire
portfolio would be sold over the next four years.
Using the shorter-term investment methodology that is consistent with
the mandate of the 1993 amendment to the Partnership Agreement, the
appraiser estimated the value of the Partnership's properties at
January 1, 1995 to be $35,300,000.
9
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REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
Results of Operations for the Three Months Ended June 30, 1995
Compared With the Three Months Ended June 30, 1994 and for the Six
Months Ended June 30, 1995 Compared With the Six Months Ended June 30,
1994.
The increase in rental income for the three and six months ended June
30, 1995, as compared to the corresponding periods in 1994, were
primarily attributable to the following factors: at NorthTech, two
new leases were successfully negotiated. In October 1994, a five-
year lease encompassing 14,698 square feet commenced with Citizens
Bank and in January 1995 a five-year lease encompassing 54,918 square
feet commenced with International Data Products. The commencement of
these leases had the effect of increasing occupancy to a level of 100%
and revenues by $280,000. In addition, at The Forum, operating
expense recoveries increased by $30,000 when compared to 1994.
Interest income resulted from the temporary investment of Partnership
working capital. The increase for the three and six months ended June
30, 1995, as compared to the corresponding periods in 1994, were
attributable to an increase in the average level of working capital
available for investment and a higher rate of return on short-term
investment achieved during 1995.
The decrease in operating expenses for the six months ended June 30,
1995, as compared to the corresponding period in 1994, was primarily
attributable to a decrease in HVAC repairs and snow removal costs at
The Forum ($14,000). In addition, legal and professional services and
snow removal costs were decreased at NorthTech ($36,000).
The decrease in real estate taxes for the three and six months ended
June 30, 1995, as compared to the corresponding periods in 1994, were
primarily attributable to the lower building assessment at The Forum
and NorthTech.
General and administrative expenses for the six months ended June 30,
1995 and 1994, include charges of $227,000 and $189,000, respectively,
from the General Partner and its affiliates for services rendered in
connection with administering the affairs of the Partnership and
operating the Partnership's properties. Also included in general and
administrative expenses for the six months ended June 30, 1995 and
1994 are direct charges of $161,000 and $157,000, respectively,
relating to audit and tax return preparation fees, annual appraisal
fees, insurance expense, legal and professional fees, costs incurred
in providing information to the Limited Partners and other
miscellaneous costs.
10
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REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
Results of Operations for the Three Months Ended June 30, 1995
Compared With the Three Months Ended June 30, 1994 and for the Six
Months Ended June 30, 1995 Compared With the Six Months Ended June 30,
1994(Cont'd)
The increase in general and administrative expenses for the six months
ended June 30, 1995, as compared to the corresponding period in 1994,
was primarily attributable to an increase in leasing fees related to
NorthTech's new lease. In addition, general and administrative wages
and data processing costs were higher in 1995.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
So far as is known to the General Partner, neither the Partnership nor
its properties are subject to any material pending legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27 -- Financial Data Schedule.
b) Reports on Form 8-K:
None filed in quarter ended June 30, 1995.
11
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REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
REAL ESTATE INCOME PARTNERS III
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By: BIRTCHER/LIQUIDITY By: BIRTCHER INVESTORS,
PROPERTIES a California limited partnership
(General Partner)
By: BIRTCHER INVESTMENTS,
a California general partnership,
General Partner of Birtcher Investors
By: BIRTCHER LIMITED,
a California limited partnership,
General Partner of Birtcher
Investments
By: BREICORP,
a California corporation,
formerly known as Birtcher
Real Estate Inc., General
Partner of Birtcher Limited
Date: August 11, 1995 By: /s/ Robert M. Anderson
------------------------
Robert M. Anderson
Executive Director
BREICORP
By: LF Special Fund I, L.P.,
a California limited partnership
By: Liquidity Fund Asset Management, Inc.,
a California corporation, General
Partner of LF Special Fund I, L.P.
Date: August 11, 1995 By: /s/ Brent R. Donaldson
-----------------------------
Brent R. Donaldson
President
Liquidity Fund Asset Management, Inc.
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12
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
BALANCE SHEET AND STATEMENT OF OPERATIONS OF REAL ESTATE INCOME PARTNERS III AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q
</LEGEND>
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,303,000
<SECURITIES> 0
<RECEIVABLES> 100,000
<ALLOWANCES> 9,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,449,000
<PP&E> 43,484,000
<DEPRECIATION> 12,669,000
<TOTAL-ASSETS> 37,084,000
<CURRENT-LIABILITIES> 342,000
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 36,742,000
<TOTAL-LIABILITY-AND-EQUITY> 37,084,000
<SALES> 0
<TOTAL-REVENUES> 2,663,000
<CGS> 0
<TOTAL-COSTS> 2,164,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 490,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
