<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 12(g), 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1995
----------------------------------------------------------
Commission file number 0-16027
-----------------------------------------------------
REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3341425
- -----------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27611 La Paz Road, P.O. Box A-1, Laguna Niguel, California 92677-0100
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(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 Section 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
--- ---
<PAGE> 2
REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1995 (Unaudited) and
December 31, 1994 ........................................................ 3
Statements of Operations (Unaudited) - Three and Nine Months
Ended September 30, 1995 and 1994 ....................................... 4
Statements of Cash Flows (Unaudited) - Nine Months
Ended September 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
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
- ------
Investment in real estate, net:
Land $ 7,014,000 $ 7,014,000
Buildings and improvements 36,509,000 36,275,000
------------ ------------
43,523,000 43,289,000
Less accumulated depreciation (13,047,000) (11,955,000)
------------ ------------
30,476,000 31,334,000
Investment in Cooper Village Partners 3,500,000 3,586,000
Cash and cash equivalents 1,551,000 1,085,000
Accounts receivable (net of allowance for
doubtful accounts of $16,000 in 1995) 79,000 49,000
Accrued rent receivable 816,000 765,000
Prepaid expenses and other assets 588,000 686,000
------------ ------------
$ 37,010,000 $ 37,505,000
============ ============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts payable and accrued liabilities $ 475,000 $ 391,000
------------ ------------
Partners' capital:
Limited Partners 36,718,000 37,291,000
General Partner (183,000) (177,000)
------------ ------------
36,535,000 37,114,000
------------ ------------
Commitments and contingencies - -
------------ ------------
$ 37,010,000 $ 37,505,000
============ ============
</TABLE>
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
<PAGE> 4
REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -----------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
- --------
Rental income $1,304,000 $1,106,000 $3,869,000 $3,358,000
Interest 20,000 14,000 49,000 33,000
---------- ---------- ---------- ----------
Total revenues 1,324,000 1,120,000 3,918,000 3,391,000
---------- ---------- ---------- ----------
EXPENSES
- --------
Operating expenses 316,000 309,000 933,000 979,000
Real estate taxes 138,000 202,000 500,000 621,000
Depreciation and amortization 437,000 395,000 1,234,000 1,183,000
General and administrative 170,000 171,000 558,000 517,000
---------- ---------- ---------- ----------
Total expenses 1,061,000 1,077,000 3,225,000 3,300,000
---------- ---------- ---------- ----------
Income before equity in earnings 263,000 43,000 693,000 91,000
Equity in earnings of Cooper
Village Partners 26,000 36,000 86,000 111,000
---------- ---------- ---------- ----------
NET INCOME $ 289,000 $ 79,000 $ 779,000 $ 202,000
========== ========== ========== ==========
NET INCOME ALLOCABLE TO:
General Partner $ 3,000 $ 1,000 $ 8,000 $ 2,000
========== ========== ========== ==========
Limited Partners $ 286,000 $ 78,000 $ 771,000 $ 200,000
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-----------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 779,000 $ 202,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,234,000 1,183,000
Equity in earnings of Cooper Village Partners (86,000) (111,000)
Changes in:
Accounts receivable (30,000) 30,000
Accrued rent receivable (51,000) 92,000
Prepaid expenses and other assets (44,000) 45,000
Accounts payable and accrued liabilities 84,000 69,000
----------- -----------
Net cash provided by operating activities 1,886,000 1,510,000
Cash flows from investing activities:
Investment in real estate (234,000) (132,000)
Distributions received from Cooper
Village Partners 172,000 160,000
----------- -----------
Net cash (used in) provided by investing activities (62,000) 28,000
Cash flows from financing activities:
Distributions (1,358,000) (1,313,000)
----------- -----------
Net cash used in financing activities (1,358,000) (1,313,000)
Net increase in cash and cash equivalents 466,000 225,000
Cash and cash equivalents, beginning of period 1,085,000 1,056,000
----------- -----------
Cash and cash equivalents, end of period $ 1,551,000 $ 1,281,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
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. The 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.
6
<PAGE> 7
REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(1) Accounting Policies (Cont'd.)
-------------------
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.
(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
September 30, 1995 and 1994, the Partnership incurred approximately
$39,000 and $28,000, respectively, of such expenses. For the nine
months ended September 30, 1995 and 1994, such amounts were $122,000
and $96,000, 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 fees amounted to
approximately $49,000 and $43,000 for the three months ended September
30, 1995 and 1994, respectively, and $142,000 and $129,000 for the
nine months ended September 30, 1995 and 1994 respectively. In
addition, an affiliate of the General Partner received $26,000 and
$23,000 for the three months ended September 30, 1995 and 1994,
respectively, as reimbursement of costs of on-site property management
personnel and other reimbursable expenses. For the nine months ended
September 30, 1995 and 1994, such costs were $78,000 and $69,000,
respectively.
In addition to the aforementioned, the General Partner was also paid
$9,000 and $9,000, 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 September 30, 1995
and 1994, respectively. For the nine months ended September 30, 1995
and 1994, such costs were $27,000 and $29,000, respectively.
7
<PAGE> 8
REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(2) Transactions with Affiliates (Cont'd.)
----------------------------
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.
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 for the three months ended September
30, 1995 and 1994, were $60,000 and $59,000, respectively. For the
nine months ended September 30, 1995 and 1994, such fees were $180,000
and $176,000, 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 any
leases. Fees for leasing services for the three months ended
September 30, 1995 and 1994, amounted to $0 and $15,000, respectively.
For the nine months ended September 30, 1995 and 1994, such fees were
approximately $23,000 and $18,000, respectively. In addition to the
aforementioned, the General Partner was also paid $18,000 and $17,000,
respectively, related to the Partnership's portion (42%) of asset
management fees for Cooper Village Partners for the nine months ended
September 30, 1995 and 1994 respectively.
(3) Commitments and Contingencies
-----------------------------
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 Resources
-------------------------------
Subsequent to the completion of its acquisition program in 1988, 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
8
<PAGE> 9
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.)
-------------------------------
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.
Distributions through September 30, 1995, represent cash flow from
operation of the Partnership's properties and interest earned on the
temporary investment of 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
fees and capital reserve requirements.
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
<PAGE> 10
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 September 30, 1995
Compared With the Three Months Ended September 30, 1994 and for the
Nine Months Ended September 30, 1995 Compared With the Nine Months
Ended September 30, 1994
-------------------------------------------------------------------
The increase in rental income for the three and nine months ended
September 30, 1995, as compared to the corresponding periods in 1994,
was primarily attributable to the increase in revenues at NorthTech,
which was the result of successful negotiations of two new leases. 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 $533,000 in
1995.
Interest income resulted from the temporary investment of Partnership
working capital. The increase for the three and nine months ended
September 30, 1995, as compared to the corresponding periods in 1994,
was attributable to an increase in the average level of working
capital available for investment and a higher rate of return on
short-term investments achieved during 1995.
The increase in operating expenses for the three months ended
September 30, 1995, as compared to the corresponding period in 1994,
was primarily attributable to the increase in management fees at
NorthTech.
The decrease in operating expenses for the nine months ended September
30, 1995, as compared to the corresponding period in 1994, was
primarily attributable to the following factors: at The Forum, HVAC
repairs, electricity usage and snow removal expenses decreased by
$17,000. At Martinazzi Square, building and landscaping repairs and
advertising and marketing decreased by $31,000. In addition, at Creek
Edge, roof repair costs decreased by $8,000. The aforementioned
decreases were partially offset by an increase in cleaning expenses of
$11,000 at NorthTech.
The decrease in real estate taxes for the three and nine months ended
September 30, 1995, as compared to the corresponding periods in 1994,
was primarily attributable to lower building assessments at The Forum,
NorthTech and Martinazzi Square. In addition, at NorthTech, a
successful tax appeal resulted in a $40,000 refund during third
quarter 1995.
10
<PAGE> 11
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 September 30, 1995
Compared With the Three Months Ended September 30, 1994 and for the
Nine Months Ended September 30, 1995 Compared With the Nine Months
Ended September 30, 1994 (Cont'd.)
-------------------------------------------------------------------
General and administrative expenses for the nine months ended
September 30, 1995 and 1994, included $326,000 and $291,000,
respectively, of charges 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 nine months
ended September 30, 1995 and 1994, are direct charges of $232,000 and
$226,000, respectively, relating to audit and tax return preparation
fees, annual appraisal fees, legal fees, insurance expense, costs
incurred in providing information to the Limited Partners and other
miscellaneous costs.
The increase in general and administrative expenses for the nine
months ended September 30, 1995, as compared to the corresponding
period in 1994, was primarily attributable to an increase in legal and
professional services, and appraisal fees. 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) Report on Form 8-K:
None filed in quarter ended September 30, 1995.
11
<PAGE> 12
REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
SIGNATURES
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.
REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
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: November 10, 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: November 10, 1995 By: /s/ Brent R. Donaldson
---------------------------------------
Brent R. Donaldson
President
Liquidity Fund Asset
Management, Inc.
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND STATEMENT OF OPERATION OF REAL ESTATE INCOME PARTNERS III AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,551,000
<SECURITIES> 0
<RECEIVABLES> 95,000
<ALLOWANCES> 16,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,803,000
<PP&E> 43,523,000
<DEPRECIATION> 13,047,000
<TOTAL-ASSETS> 37,010,000
<CURRENT-LIABILITIES> 475,000
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 36,535,000
<TOTAL-LIABILITY-AND-EQUITY> 37,010,000
<SALES> 0
<TOTAL-REVENUES> 4,020,000
<CGS> 0
<TOTAL-COSTS> 3,225,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 16,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 779,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 779,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
