UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1997
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>
INTRODUCTORY NOTE
This Amendment No. 1 to the Quarterly Report on Form 10-Q of
USAA Income Properties IV Limited Partnership is being filed
for the purpose of changing the method for accounting for
the Partnership's 55.84% interest in USAA Chelmsford
Associates Joint Venture. Prior financial statements of the
Partnership were prepared on a consolidated basis with USAA
Chelmsford Associates Joint Venture. For all periods
presented in the accompanying financial statements, the
Partnership's 55.84% interest in USAA Chelmsford Associates
Joint Venture is accounted for using the equity method.
2
<PAGE>
PART I
Item 1. Financial Statements
<TABLE>
USAA Income Properties IV Limited Partnership
Condensed Balance Sheets
<CAPTION>
June 30,
1997 December 31,
(Unaudited) 1996
<S> <C> <C>
Assets
Rental properties, net $ 21,098,717 20,743,237
Investment in joint venture 4,948,220 5,183,456
Temporary investments, at cost
which approximates market value -
Money market fund 850,663 753,756
Cash 33,702 33,233
Cash and cash equivalents 884,365 786,989
Accounts receivable 7,536 5,600
Deferred charges and other assets, at amortized cost 738,482 634,161
$ 27,677,320 27,353,443
Liabilities and Partners' Equity
Mortgage payable $ 1,098,504 1,131,500
Note payable to affiliate 7,200,000 6,000,000
Accounts payable, including amounts due
to affiliates of $9,046 and $29,082 87,061 88,517
Accrued expenses and other liabilities 142,822 102,743
Total liabilities 8,528,387 7,322,760
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 37,431 43,804
Cumulative distributions (130,278) (127,834)
(91,847) (83,030)
Limited Partners (60,495 interests):
Capital contributions, net of
offering costs 28,432,650 28,432,650
Cumulative net income 3,705,664 4,336,617
Cumulative distributions (12,897,534) (12,655,554)
19,240,780 20,113,713
Total Partners' equity 19,148,933 20,030,683
$ 27,677,320 27,353,443
See accompanying notes to condensed financial statements.
</TABLE>
3
<PAGE>
<TABLE>
USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
Condensed Statements of Operations
(Unaudited)
<CAPTION>
Three Months Three Months
Ended Ended
June 30, June 30,
1997 1996
<S> <C> <C>
Income
Rental income $ 518,466 295,002
Equity in earnings of joint venture (66,215) 62,517
Interest income 14,222 18,790
Total income 466,473 376,309
Expenses
Direct expenses, $11,270 and $15,262
to affiliate (note 1) 232,038 146,184
Depreciation 307,403 221,027
General and administrative, $33,000 and
$25,468 to affiliates (note 1) 66,649 43,434
Management fee to affiliate (note 1) 811 10,875
Interest, $161,556 and $149,181
to affiliate (note 1) 188,182 177,235
Total expenses 795,083 598,755
Net loss $ (328,610) (222,446)
Net loss per limited partnership interest $ (5.38) (3.64)
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
1997 1996
<S> <C> <C>
Income
Rental income $ 1,017,950 562,396
Equity in earnings of joint venture (134,724) 117,077
Interest income 21,907 40,710
Total income 905,133 720,183
Expenses
Direct expenses, $27,485 and $30,671
to affiliate (note 1) 436,758 238,528
Depreciation 571,626 463,593
General and administrative, $81,231 and
$62,081 to affiliates (note 1) 152,779 123,314
Management fee to affiliate (note 1) 14,368 22,540
Interest, $313,578 and $298,361
to affiliate (note 1) 366,928 354,826
Total expenses 1,542,459 1,202,801
Net loss $ (637,326) (482,618)
Net loss per limited partnership interest $ (10.43) (7.90)
See accompanying notes to condensed financial statements.
</TABLE>
4
<PAGE>
<TABLE>
USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
Condensed Statements of Cash Flows
Six months ended June 30, 1997 and 1996
(Unaudited)
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (637,326) (482,618)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 571,626 463,593
Amortization 39,196 18,712
Earnings from joint venture 134,724 (117,077)
Distributions from joint venture 100,512 167,520
(Increase) decrease in accounts receivable (1,936) 6,977
(Increase) decrease in deferred charges and
other assets (143,517) 36,461
Increase (decrease) in accounts payable, accrued
expenses and other liabilities 38,623 (3,917)
Cash provided by operating activities 101,902 89,651
Cash flows used in investing activities-
Additions to rental properties (927,106) (623)
Cash flows from financing activities:
Repayment of mortgage payable (32,996) (29,880)
Distributions to partners (244,424) (351,360)
Proceeds from issuance of note payable 1,200,000 --
Cash provided by (used in) financing activities 922,580 (381,240)
Net increase (decrease) in cash and cash equivalents 97,376 (292,212)
Cash and cash equivalents at beginning of period 786,989 1,932,720
Cash and cash equivalents at end of period $ 884,365 1,640,508
See accompanying notes to condensed financial statements.
</TABLE>
5
<PAGE>
Notes to Condensed Financial Statements
June 30, 1997
(Unaudited)
1. Transactions with Affiliates
A summary of transactions with affiliates follows for the
six-month period ended June 30, 1997:
Quorum
USAA Real Estate
Real Estate Services
Company Corporation
Reimbursement of
expenses (a) $ 68,849 18,185
Management fees 14,368 9,300
Lease commissions -- 12,382
Interest expense (b) 313,578 --
Total $ 396,795 39,867
(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 financial statements in the Annual
Report filed as part of the Form 10-K for the year ended
December 31, 1996 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 six months of 1997 or any other
future period.
The financial information included in this interim report as
of June 30, 1997 and for the three months and six months ended
June 30, 1997 and 1996 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.
Certain 1996 balances have been reclassified to conform to the
1997 presentation.
Prior financial statements of the Partnership were prepared on
a consolidated basis with USAA Chelmsford Associates Joint
Venture. For all periods presented in the accompanying
financial statements, the Partnership's 55.84% interest in
USAA Chelmsford Associates Joint Venture is accounted for
using the equity method.
6
<PAGE>
PART I
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
At June 30, 1997, the Partnership had cash of $33,702 and
temporary investments of $850,663. 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 June 30, 1997, the Partnership
distributed $120,990 to Limited Partners and $1,222 to the
General Partner for a total of $122,212. Management evaluates
reserves and the availability of funds for distribution to
Partners on a continuing basis based on anticipated leasing
activity and cash flows available from the Partnership
investments.
A significant amount of the working capital reserve was used
during 1996 and will be needed in 1997 for leasing costs at the
Partnership properties. During the first quarter of 1997, the
Partnership borrowed $1,200,000 from USAA Real Estate Company
(the Adviser) to fund working capital needs in 1997. The
$6,000,000 note payable was thereby increased to $7,200,000 with
a decrease in the interest rate from 10% to 9%. The maturity
date of the note payable was extended from September 1, 1997 to
March 1, 1999.
During the second quarter, the $168,500 tenant improvement
allowance provided to Linear Technology in conjunction with its
1995 lease renewal was paid from the working capital reserve of
the Partnership.
At June 30, 1997, the Kodak Building was 61% occupied by Eastman
Kodak. Eastman Kodak's lease is scheduled to expire February
1998. Discussions continue with Eastman Kodak regarding early
renewal of their lease; however, Eastman Kodak is not interested
in expanding into the space vacated by Invitrogen. The lease
with Invitrogen Corporation was scheduled to expire December 31,
1996; however, Invitrogen remained in the building until February
1997 paying holdover rent (200% of December 1996 rent) for
January and February. Discussions are currently underway with a
prospective tenant for the vacant space at the Kodak Building.
7
<PAGE>
Water infiltration has been discovered at the Kodak Building,
that has caused damage to a portion of the ground floor tiles,
exterior walls and slab joints. Remediation alternatives are
being sought with costs estimated to be approximately $120,000 to
be funded from the working capital reserve of the Partnership.
At June 30, 1997, 1881 Pine Street was 90% leased. During the
first quarter of 1997, a sixty-two month lease was signed at 1881
Pine Street for 8,350 rentable square feet. The lease commenced
May 1, 1997 and will terminate on June 30, 2002. The lease
provides for an annual rental rate beginning at $16.00 per square
foot. In addition, this tenant will pay its pro rata share of
operating expenses in excess of a 1997 base year. The
Partnership provided approximately $133,600 of tenant
improvements, which was paid out of the working capital reserve
of the Partnership.
During 1995, the lease with Hewlett-Packard Company, the single
tenant at the Apollo Building in Chelmsford, Massachusetts was
renewed for an additional 41 months. The new monthly rental rate
of approximately $.57 per square foot net for the 291,454 square
foot building began January 1, 1997. This rate is lower than the
rate paid in 1996 of approximately $.76 per square foot net and
reflects the market conditions in the area surrounding the
property at the time of the lease renewal. An allowance for
tenant improvements was provided for a total of $565,000 to be
paid from the joint venture working capital. During 1997,
Hewlett-Packard used approximately $115,000 of the allowance.
Approximately $82,000 of the allowance remains. Hewlett-Packard
has announced plans to relocate its workstation group out of
Massachusetts and to sublease the top floor of the Apollo
Building.
On June 10, 1997, the Partnership signed a letter of intent with
American Industrial Properties REIT [NYSE: IND] (the "Trust")
contemplating the merger of four real estate limited
partnerships, including the Partnership, into the Trust. The
four real estate limited partnerships are USAA Real Estate Income
Investments I Limited Partnership, USAA Real Estate Income
Investments II Limited Partnership, USAA Income Properties III
Limited Partnership and USAA Income Properties IV Limited
Partnership (collectively, the "RELPs"). Each of the RELPs is
affiliated with USAA Real Estate Company, which currently owns
approximately 31.8% of the outstanding shares of the Trust.
On July 7, 1997, the Trust signed definitive merger agreements
with the RELPs pursuant to which the RELPs will be merged into
the Trust (the "Merger"). The Trust will issue an aggregate of
22,064,147 shares of beneficial interest at $2.625 per share (for
a total value of $57,918,385) in exchange for the limited
partnership interests in the RELPs. The number of Shares to be
issued to each RELP will be equal to the net asset value for each
RELP (as agreed by the Trust and each RELP) divided by $2.625.
The number of Shares to be received by a Limited Partner in each
RELP will be computed in accordance with such partner's
percentage interest in the RELP. The general partner of each
RELP has waived any right it may have to receive Shares to which
it may be entitled in exchange for its general partnership
interest.
8
<PAGE>
The Merger, which has been approved by the Trust's Board of Trust
Managers and the Board of Directors of each of the general
partners of the RELPs, is subject to due diligence by both
parties and certain other conditions, including approval by the
shareholders of the Trust and the limited partners of each of the
RELPs. Accordingly, there can be no assurance that definitive
merger agreements will be reached or that the mergers will
ultimately be consummated. The Merger is a taxable transaction
to the partners in the RELPs and will be subject to the
completion of a joint proxy statement/prospectus filed on Form S-
4 with the Securities and Exchange Commission. No date has been
scheduled for the shareholder meeting for the Trust or limited
partner meetings for each of the RELPs to vote on the proposed
transaction. Prudential Securities Inc., on behalf of the Trust,
and Houlihan Lokey Howard & Zukin on behalf of the RELPs, have
rendered opinions to their respective parties that the
transaction is fair from a financial point of view.
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 six-month periods ended June 30, 1997 and
1996, income was generated from rental income from the income-
producing real estate properties, interest income earned on the
funds in temporary investments and earnings from the joint
venture interest.
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 increased as of June 30, 1997 as compared to
December 31, 1996 due to tenant improvements at 1881 Pine Street
and Linear offset by depreciation. The investment in joint
venture decreased as of June 30, 1997 as a result of a net loss
on the joint venture property. Deferred charges and other assets
increased as a result of lease commissions paid at 1881 Pine
Street. The note payable to affiliate increased as of June 30,
1997 due to borrowing from the Adviser to fund working capital
needs. See "Liquidity and Capital Resources". Accrued expenses
and other liabilities increased primarily due to an increase in
accrued property taxes at 1881 Pine Street and was offset by a
decrease in prepaid revenue.
Rental income increased for the three-month and six-month periods
ended June 30, 1997 as compared to the three-month and six-month
periods ended June 30, 1996. Rental income at 1881 Pine Street
increased by approximately $310,000 and $529,000 for the three-
month and six-month periods ended June 30, 1997, respectively,
due to increased occupancy from 0% at June 30, 1996 to 90% at
June 30, 1997. Offsetting this increase was a decrease in
rental income at the Kodak Building of approximately $86,000 and
$72,000 for the three-month and six-month periods ended June 30,
1997, respectively, due to a decrease in occupancy from 100% at
December 31, 1996 to 61% at June 30, 1997.
9
<PAGE>
Equity in joint venture earnings decreased for the three-month
and six-month periods ended June 30, 1997 as compared to the
three-month and six-month periods ended June 30, 1996 due to a
net loss for the joint venture property. Rental income at the
Apollo Building decreased based on the lease renewal effective
January 1, 1997.
Interest income decreased due to lower cash balances for the
three-month and six-month periods ended June 30, 1997 as compared
to the three-month and six-month periods ended June 30, 1996.
Direct expenses were higher for the three-month and six-month
periods ended June 30, 1997 as compared to the three-month and
six-month periods ended June 30, 1996 due to operating expenses
at 1881 Pine Street. Expenses were minimal for the three-month
and six-month periods ended June 30, 1996 due to the building
being 100% vacant. For the three-month and six-month periods
ended June 30, 1997, 1881 Pine Street incurred expenses for
utilities, heating and air conditioning repairs, cleaning and
other building services. Also contributing to the increase was an
increase in the property tax accrual. 1881 Pine Street was under
a redevelopment real estate tax incentive program, which expired
December 31, 1996. The 1996 tax payment was approximately
$23,000 compared to an estimate for 1997 taxes of approximately
$212,000.
Depreciation increased for the three-month and six-month periods
ended June 30, 1997 as compared to the three-month and six-month
periods ended June 30, 1996 due to tenant improvements at 1881
Pine Street and Linear offset by a decrease at Kodak caused by
tenant improvements for Invitrogen being fully depreciated in
April 1996.
General and administrative expenses increased for the three-month
and six-month periods ended June 30, 1997 as compared to the
three-month and six-month periods ended June 30, 1996 due to
lease commission expense at 1881 Pine Street for the new leases.
The management fee is based on cash flow from operations of the
Partnership adjusted for cash reserves and fluctuated
accordingly. The decrease in the management fee for the three-
month and six-month periods ended June 30, 1997 was due to an
increase in expenses at 1881 Pine Street.
10
<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 13
(b) A Current Report on Form 8-K was filed June 13, 1997
regarding the agreement signed between the Partnership and
American Industrial Properties REIT (the "Trust")
contemplating a merger of the Partnership into the Trust.
11
<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 4, 1997 By: /s/Edward B. Kelley
Edward B. Kelley
Chairman, President and
Chief Executive Officer
November 4, 1997 BY: /s/Martha J. Barrow
Martha J. Barrow
Vice President -
Administration
and Finance/Treasurer
12
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 884,365
<SECURITIES> 0
<RECEIVABLES> 7,536
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 21,098,717
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,677,320
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 19,148,933
<TOTAL-LIABILITY-AND-EQUITY> 27,677,320
<SALES> 0
<TOTAL-REVENUES> 1,017,950
<CGS> 0
<TOTAL-COSTS> 1,008,384
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 366,928
<INCOME-PRETAX> (637,326)
<INCOME-TAX> 0
<INCOME-CONTINUING> (637,326)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (637,326)
<EPS-PRIMARY> (10.43)
<EPS-DILUTED> 0
</TABLE>
