UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1996
or
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number: 0-16171
USAA Income Properties IV Limited Partnership
(Exact name of registrant as specified in its charter)
Delaware 74-2449334
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8000 Robert F. McDermott Fwy., IH 10 West, Suite 600
San Antonio, Texas 78230-3884
(Address of principal executive offices) (Zip Code)
(210) 498-7391
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
1
<PAGE>
PART I
Item 1. Financial Statements
<TABLE>
USAA Income Properties IV Limited Partnership
Condensed Consolidated Balance Sheets
<CAPTION>
September 30,
1996 December 31,
(Unaudited) 1995
<S> <C> <C>
Assets
Rental properties, net $ 45,076,844 46,218,351
Temporary investments, at cost
which approximates market value -
Money market fund 2,029,656 2,217,339
Cash 62,196 61,643
Cash and cash equivalents (note 3) 2,091,852 2,278,982
Accounts receivable 58,231 81,956
Deferred charges and other assets, at amortized cost 180,057 193,842
$ 47,406,984 48,773,131
Liabilities and Partners' Equity
Mortgages payable $ 16,475,797 16,638,886
Note payable to affiliate 6,000,000 6,000,000
Accounts payable, including amounts due
to affiliates of $31,624 and $44,323 89,114 57,801
Accrued expenses and other liabilities 311,865 251,595
Total liabilities 22,876,776 22,948,282
Minority interest in joint venture 4,187,448 4,310,989
Partners' equity
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 45,703 52,678
Cumulative distributions (126,612) (121,876)
(79,909) (68,198)
Limited Partners (60,495 interests):
Capital contributions, net of
offering costs 28,432,650 28,432,650
Cumulative net income 4,524,583 5,215,136
Cumulative distributions (12,534,564) (12,065,728)
20,422,669 21,582,058
Total Partners' equity 20,342,760 21,513,860
Commitment (note 3)
$ 47,406,984 48,773,131
See accompanying notes to condensed consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
USAA Income Properties IV Limited Partnership
Condensed Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Three Months
Ended Ended
September 30, September 30,
1996 1995
<S> <C> <C>
Income
Rental income $ 956,867 911,721
Less direct expenses, including depreciation
of $448,788 and $469,079 557,865 545,629
Net operating income 399,002 366,092
Interest income 29,946 37,021
Total income 428,948 403,113
Expenses
General and administrative (note 1) 53,237 41,603
Management fee (note 1) 12,670 21,201
Interest (note 1) 529,121 534,517
Minority interest in joint venture earnings 48,831 45,479
Total expenses 643,859 642,800
Net loss $ (214,911) (239,687)
Net loss per limited partnership interest $ (3.52) (3.92)
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1996 1995
<S> <C> <C>
Income
Rental income $ 2,808,866 3,352,412
Less direct expenses, including depreciation
of $1,377,096 and $1,403,826 1,655,139 1,533,225
Net operating income 1,153,727 1,819,187
Interest income 87,317 109,920
Total income 1,241,044 1,929,107
Expenses
General and administrative (note 1) 174,702 163,529
Management fee (note 1) 35,210 66,134
Interest (note 1) 1,587,241 1,601,087
Minority interest in joint venture earnings 141,419 137,864
Total expenses 1,938,572 1,968,614
Net loss $ (697,528) (39,507)
Net loss per limited partnership interest $ (11.42) (0.65)
See accompanying notes to condensed consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
USAA Income Properties IV Limited Partnership
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 1996 and 1995
(Unaudited)
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (697,528) (39,507)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 1,377,096 1,403,826
Amortization 13,845 18,081
Decrease in accounts receivable 23,725 1,245
Decrease (increase) in deferred charges and
other assets (60) 115,386
Increase in accounts payable, accrued
expenses and other liabilities 91,583 31,599
Minority interest in joint venture earnings 141,419 137,864
Cash provided by operating activities 950,080 1,668,494
Cash flows used in investing activities-
Additions to rental properties (235,589) (79,735)
Cash flows from financing activities:
Repayment of mortgages payable (163,089) (148,831)
Distributions to co-venturer (264,960) (397,439)
Distributions to partners (473,572) (687,443)
Cash used in financing activities (901,621) (1,233,713)
Net increase (decrease) in cash and cash equivalents (187,130) 355,046
Cash and cash equivalents at beginning of period 2,278,982 2,208,744
Cash and cash equivalents at end of period $ 2,091,852 2,563,790
See accompanying notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
Notes to Condensed Consolidated Financial Statements
September 30, 1996
(Unaudited)
1. Transactions with Affiliates
A summary of transactions with affiliates follows for the
nine-month period ended September 30, 1996:
Quorum
USAA Real Estate
Real Estate Services
Company Corporation
Reimbursement of
expenses (a) $ 85,295 26,259
Management fees 35,210 40,726
Lease commissions -- 24,421
Interest expense (b) 449,180 --
Total $ 569,685 91,406
(a) Reimbursement of expenses represents amounts paid or
accrued as reimbursement of expenses incurred on behalf of
the Partnership at actual cost and does not include any
mark-up or items normally considered as overhead.
(b) Represents interest expense at market rate on a note
payable.
2. Other
Reference is made to the consolidated financial statements in
the Annual Report filed as part of the Form 10-K for the year
ended December 31, 1995 with respect to significant accounting
and financial reporting policies as well as to other pertinent
information concerning the Partnership. Information furnished
in this report reflects all normal recurring adjustments which
are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented.
Further, the operating results presented for these interim
periods are not necessarily indicative of the results which may
occur for the remaining three months of 1996 or any other future
period.
The financial information included in this interim report as of
September 30, 1996 and for the three months and nine months
ended September 30, 1996 and 1995 has been prepared by
management without audit by independent certified public
accountants who do not express an opinion thereon. The
Partnership's annual report includes audited financial
statements.
5
<PAGE>
3. Commitment
During 1995, the Linear Technology lease was renewed for an
additional five years. The original lease expiration has been
extended from June 1995 to June 2000. The Partnership has
committed to funding approximately $168,500 for tenant
improvements to be paid out of the working capital reserve. As
of September 30, 1996, none of the allowance had been expended.
During 1995, the lease with Hewlett-Packard Company at the
Apollo Building was renewed for an additional 41 months. The
original lease expiration has been extended from December 1996
to May 2000. The Partnership has committed to funding
approximately $565,000 to be paid from the working capital
reserve. As of September 30, 1996, approximately $108,000 of
the allowance had been expended.
6
<PAGE>
PART I
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
At September 30, 1996, the Partnership had cash of $62,196 and
temporary investments of $2,029,656. These funds were held in the
working capital reserve for the payment of obligations of the
Partnership. Accounts receivable consisted of amounts due from
tenants. Deferred charges and other assets consisted primarily of
deferred rent resulting from recognition of income as required by
generally accepted accounting principles and lease commissions.
Accounts payable consisted of amounts due to affiliates for
reimbursable expenses and management fees, and amounts due to third
parties for expenses incurred for operations. Accrued expenses and
other liabilities consisted primarily of security deposits,
property tax accruals and prepaid rent.
During the quarter ended September 30, 1996, the Partnership
distributed $120,990 to Limited Partners and $1,222 to the General
Partner for a total of $122,212. The single tenant lease at 1881
Pine Street expired in May 1995 and substantial expenditures for
tenant improvements are anticipated in 1996 and into 1997 as new
leases are signed. Linear Technology renewed its lease effective
June 1995 for an additional five years with approximately $168,500
in tenant improvement costs and at a decreased rental rate to
reflect market conditions. Hewlett-Packard renewed its lease at
Apollo effective January 1997 for an additional 41 months at a
reduced rental rate to reflect current market conditions and with
$565,000 in tenant improvement costs. Due to significant decreases
in 1996 cash flow, distributions were reduced in May 1996.
During the third quarter, a five-year lease was signed with
Sherwood Medical Company at 1881 Pine Street. Sherwood occupied
the building on August 24, 1996 and the lease will expire August
2001. The lease provides for an annual rental rate of
approximately $12.75 per square foot for 22,376 square feet of
space and annual parking rent of $21,600. In addition to rent,
Sherwood will pay their prorata share of operating expenses in
excess of their base year of 1996. An allowance for tenant
improvements in the approximate amount of $259,600 was provided
which was paid out of the working capital reserve of the
Partnership. In addition, Sherwood paid a security deposit of
$23,774. Negotiations are also in progress with a prospective
tenant for approximately 64,000 square feet.
The Kodak Building is currently 100% leased with Eastman Kodak
occupying 34,600 square feet and Invitrogen Corporation occupying
the remaining 23,147 square feet. The lease with Invitrogen was
scheduled to expire in April 1996; however, the lease has been
extended through December 1996 for an extension fee of $20,000 paid
by Invitrogen. It is likely that Invitrogen will request an
extension into 1997 due to delays in the construction of their
7
<PAGE>
building. Eastman Kodak's lease is scheduled to expire February
1998. Discussions have commenced regarding the possibility of
leasing the entire building.
Future liquidity is expected to result from cash generated from
operations of the properties, interest on temporary investments and
ultimately through the sale of the properties.
Results of Operations
For the three-month and nine-month periods ended September 30, 1996
and 1995, income was generated from rental income from the income-
producing real estate properties and interest income earned on the
funds in temporary investments.
Expenses incurred during the same periods were associated with the
operation of the Partnership's properties, interest on the
mortgages payable and various other costs required for
administration of the Partnership.
Rental properties decreased as of September 30, 1996 as compared to
December 31, 1995 due to depreciation offset by tenant improvements
at 1881 Pine Street for Sherwood Medical. Accrued expenses and
other liabilities increased as of September 30, 1996 primarily due
to accrued property taxes at Kodak and 1881 Pine Street buildings.
Rental income increased for the three months ended September 30,
1996 as compared to the three months ended September 30, 1995
primarily as a result of the Sherwood Medical lease at 1881 Pine
Street. Sherwood occupied the building on August 24, 1996. The
decrease in rental income for the nine months ended September 30,
1996 as compared to the nine months ended September 30, 1995 was
caused by MagneTek vacating the 1881 Pine Street property in May
1995. Direct expenses were higher for the three-month and nine-
month periods ended September 30, 1996 as compared to the three-
month and nine-month periods ended September 30, 1995 due to
property operating expenses at 1881 Pine Street. These expenses
were previously paid by MagneTek under terms of the lease.
Interest income decreased due to lower cash balances for the
three-month and nine-month periods ended September 30, 1996 as
compared to the three-month and nine-month periods ended
September 30, 1995.
General and administrative expenses increased for the three-month
and nine-month periods ended September 30, 1996 as compared to the
three-month and nine-month periods ended September 30, 1995 as a
result of lease commissions paid on the Invitrogen lease renewal at
the Kodak building and the Linear Technology lease renewal. The
management fee decreased for the three-month and nine-month periods
8
<PAGE>
ended September 30, 1996 as compared to the three-month and nine-
month periods ended September 30, 1995 due to lower rental income
and higher operating expenses at 1881 Pine Street. The management
fee is based on cash flow from operations of the Partnership
adjusted for cash reserves and fluctuated accordingly.
Minority interest in joint venture earnings increased for the three
months and nine months ended September 30, 1996 as compared to the
three months and nine months ended September 30, 1995 primarily due
to a decrease in property interest expense at the Apollo Building
as a result of amortization of the principal balance on the
mortgage loan.
9
<PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Sequentially
Exhibit Numbered
No. Description Page
4 Restated Certificate and Agreement of
Limited Partnership dated as of June 8,
1987, attached as Exhibit A to the
Partnership's Prospectus dated June 8,
1987 filed pursuant to Rule 424(b),
Registration No. 33-11892 incorporated
herein by this reference. --
27 Financial Data Schedule 12
(b) During the quarter ended September 30, 1996, there
were no Current Reports on Form 8-K filed.
10
<PAGE>
FORM 10-Q
SIGNATURES
USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
USAA INCOME PROPERTIES IV
LIMITED PARTNERSHIP (Registrant)
BY: USAA PROPERTIES IV, INC.,
General Partner
November 12, 1996 By: /s/Edward B. Kelley
Edward B. Kelley
Chairman, President and
Chief Executive Officer
November 12, 1996 BY: /s/Martha J. Barrow
Martha J. Barrow
Vice President -
Administration
and Finance/Treasurer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,091,852
<SECURITIES> 0
<RECEIVABLES> 58,231
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 45,076,844
<DEPRECIATION> 0
<TOTAL-ASSETS> 47,406,984
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 20,342,760
<TOTAL-LIABILITY-AND-EQUITY> 47,406,984
<SALES> 0
<TOTAL-REVENUES> 2,808,866
<CGS> 0
<TOTAL-COSTS> 1,655,139
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,587,241
<INCOME-PRETAX> (697,528)
<INCOME-TAX> 0
<INCOME-CONTINUING> (697,528)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (697,528)
<EPS-PRIMARY> (11.42)
<EPS-DILUTED> 0
</TABLE>
