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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1995
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Commission file number 0-16027
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REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3341425
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(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
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(Address of principal executive offices) (Zip Code)
(714) 831-8031
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(Registrant's telephone number, including area code)
N/A
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(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 ___
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REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1995
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INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets -
March 31, 1995 (Unaudited) and December 31, 1994 . . . . . . . . . 3
Statements of Operations (Unaudited) -
Three Months Ended March 31, 1995 and 1994 . . . . . . . . . . . . 4
Statements of Cash Flows (Unaudited) -
Three Months Ended March 31, 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>
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PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
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REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
BALANCE SHEETS
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<CAPTION>
March 31, December 31,
1995 1994
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(Unaudited) (Note)
ASSETS
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Investments in real estate, net:
Land $ 7,014,000 $ 7,014,000
Buildings and improvements 36,322,000 36,275,000
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43,336,000 43,289,000
Less accumulated depreciation (12,313,000) (11,955,000)
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31,023,000 31,334,000
Investment in Cooper Village Partners 3,562,000 3,586,000
Cash and cash equivalents 1,275,000 1,085,000
Accounts receivable 84,000 49,000
Accrued rent receivable 773,000 765,000
Prepaid expenses and other assets 690,000 686,000
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$37,407,000 $37,505,000
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LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts payable and accrued liabilities $ 485,000 $ 391,000
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Partners' capital:
Limited Partners 37,101,000 37,291,000
General Partner (179,000) (177,000)
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36,922,000 37,114,000
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Commitments and contingencies -- --
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$37,407,000 $37,505,000
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</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
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REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(UNAUDITED)
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<TABLE>
<CAPTION>
Three Months Ended March 31,
1995 1994
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REVENUES
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Rental income $1,262,000 $1,115,000
Interest and other income 15,000 10,000
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Total revenues 1,277,000 1,125,000
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EXPENSES
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Operating expenses 310,000 331,000
Real estate taxes 182,000 225,000
Depreciation and amortization 398,000 390,000
General and administrative 198,000 168,000
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Total expenses 1,088,000 1,114,000
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Income before equity in earnings 189,000 11,000
Equity in earnings of Cooper
Village Partners 31,000 36,000
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NET INCOME $ 220,000 $ 47,000
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NET INCOME ALLOCABLE TO:
General Partner $ 2,000 $ --
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Limited Partners $ 218,000 $ 47,000
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</TABLE>
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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<TABLE>
<CAPTION>
Three Months Ended March 31,
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1995 1994
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Cash flows from operating activities:
Net income $ 220,000 $ 47,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 398,000 390,000
Equity in earnings of Cooper Village
Partners (31,000) (36,000)
Changes in:
Accounts receivable (35,000) 1,000
Prepaid expenses and other assets (44,000) 78,000
Accrued rent receivable (8,000) 29,000
Accounts payable and accrued liabilities 94,000 (1,000)
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Net cash provided by operating activities 594,000 508,000
Cash flows from investing activities:
Investments in real estate (47,000) (4,000)
Distributions received from
Cooper Village Partners 55,000 63,000
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Net cash provided by investing activities 8,000 59,000
Cash flows from financing activities:
Distributions (412,000) (392,000)
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Net cash used in financing activities (412,000) (392,000)
Net increase in cash and
cash equivalents 190,000 175,000
Cash and cash equivalents, beginning of
period 1,085,000 1,056,000
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Cash and cash equivalents, end of period $1,275,000 $1,231,000
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</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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REAL ESTATE INCOME PARTNERS INCOME III,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
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(1) Accounting Policies
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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, are
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 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.
(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
6
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REAL ESTATE INCOME PARTNERS INCOME III,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
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(2) Transactions with Affiliates (Cont'd.)
----------------------------
performed on behalf of the Partnership. For the three months ended
March 31, 1995 and 1994, the Partnership incurred approximately
$41,000 and $34,000, respectively, of such expenses.
On November 1, 1993, the General Partner elected to terminate the
Partnership's property management agreement with an unaffiliated third
party. On that date, the General Partner caused the Partnership to
enter into new property management agreements with Birtcher
Properties, an affiliate of the General Partner. The new contracts
encompass terms at least as favorable to the Partnership as the
terminated contracts with the unaffiliated third party, and are
terminable by the Partnership upon 60 days' notice to Birtcher
Properties.
Pursuant to the property management agreement, Birtcher Properties
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 leasing services are performed, otherwise not to exceed 3%.
Such fee amounted to approximately $47,000 and $43,000, respectively,
for the three months ended March 31, 1995 and 1994. In addition, an
affiliate of the General Partner received $24,000 and $22,000 for the
three months ended March 31, 1995 and 1994, respectively, as
reimbursement of costs of on-site property management personnel and
other reimbursable costs.
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 March 31,
1995 and 1994, amounted to $60,000 and $59,000, 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 leases. Fees for leasing services for
the three months ended March 31, 1995 and 1994, amounted to $23,000
and $1,000, respectively.
In addition to the aforementioned, the General Partner was also paid
$15,000 and $15,000 related to the Partnership's portion (42%) of
asset management fees, property management fees, leasing fees and
reimbursement for on-site personnel and other reimbursable expenses
for
7
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REAL ESTATE INCOME PARTNERS INCOME III,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
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(2) Transactions with Affiliates (Cont'd.)
----------------------------
Cooper Village Partners for the three months ended March 31, 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
-------------------------------
Since completion of its acquisition program in December 1988, the
Partnership has been engaged primarily 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 Partners' judgment of the anticipated
remaining economic benefits of continued ownership. Working capital
is provided principally from the operation of the Partnership's
properties. The Partnership may incur mortgage indebtedness relating
to such properties by borrowing funds primarily to fund capital
improvements or to obtain sale or financing proceeds for distribution
to the Partners.
Distributions through March 31, 1995 represent cash flow generated
from operations of the Partnership's properties and interest earned on
the Partnership's working capital, net of capital reserve
requirements. Future cash distributions will be made principally to
the extent of cash flow attributable to operations of the
Partnership's properties.
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.
8
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REAL ESTATE INCOME PARTNERS INCOME 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.)
-------------------------------
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.
Results of Operations for the Three Months Ended March 31, 1995
---------------------------------------------------------------
Compared With the Three Months Ended March 31, 1994
---------------------------------------------------
The increase in rental income for the three months ended March
31, 1995, as compared to the corresponding period in 1994, was
primarily attributable to several factors: 1) 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
commencing with International Data Products. The commencement of
these new leases had the effect of increasing occupancy to a level of
100% and rental income by $121,000; 2) at The Forum, operating expense
recoveries increased by $22,000 when compared to 1994; and 3) at
Martinazzi Square, percentage rental income was increased by $14,000.
Interest income resulted from the temporary investment of Partnership
working capital. The increase for the three months ended March 31,
1995, as compared to the corresponding period 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.
9
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REAL ESTATE INCOME PARTNERS INCOME 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 March 31, 1995
---------------------------------------------------------------
Compared With the Three Months Ended March 31, 1994 (Cont'd.)
---------------------------------------------------
The decrease in operating expenses for the three months ended March
31, 1995, as compared to the corresponding period in 1994, was
primarily attributable to a decrease in HVAC repairs and snow removal
at The Forum ($12,000). In addition, legal and professional fees
decreased at Martinazzi Square in 1995 ($6,000).
The decrease in real estate taxes for the three months ended March 31,
1995, as compared to the corresponding period in 1994, was primarily
attributable to lower tax assessments at Martinazzi Square, Creek
Edge, NorthTech and The Forum.
General and administrative expenses for the three months ended March
31, 1995 and 1994, included charges of $124,000 and $94,000,
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 three months ended
March 31, 1995 and 1994, are direct charges of $74,000 and $74,000,
respectively, relating to audit fees, tax preparation fees, legal and
professional fees, insurance expenses, costs incurred in providing
information to the Limited Partners and other miscellaneous costs.
The increase in general and administrative expenses for the three
months ended March 31, 1995, as compared to the corresponding period
in 1994, was primarily attributable to an increase in leasing fees
relating to Northtech new lease.
10
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REAL ESTATE INCOME PARTNERS INCOME III,
LIMITED PARTNERSHIP
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:
27 - Financial Data Schedule.
b) Reports on Form 8-K:
None filed in quarter ended March 31, 1995.
11
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REAL ESTATE INCOME PARTNERS INCOME 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.
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REAL ESTATE INCOME PARTNERS III
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: May 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: May 11, 1995 By: /s/ Brent R. Donaldson
----------------------
Brent R. Donaldson
President
Liquidity Fund Asset Management, Inc.
</TABLE>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
BALANCE SHEET AND STATEMENT OF OPERATIONS OF REAL ESTATE INCOME PARTNERS III
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) 10-Q
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 1275000
<SECURITIES> 0
<RECEIVABLES> 84000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1540000
<PP&E> 43336000
<DEPRECIATION> 12313000
<TOTAL-ASSETS> 37407000
<CURRENT-LIABILITIES> 485000
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 36922000
<TOTAL-LIABILITY-AND-EQUITY> 37407000
<SALES> 0
<TOTAL-REVENUES> 1308000
<CGS> 0
<TOTAL-COSTS> 1088000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 220000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 220000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
