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 March 31, 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>
PART I
Item 1. Financial Statements
<TABLE>
USAA Income Properties IV Limited Partnership
Condensed Consolidated Balance Sheets
<CAPTION>
March 31,
1997 December 31,
(Unaudited) 1996
<S> <C> <C>
Assets
Rental properties, net $ 45,594,652 45,409,746
Temporary investments, at cost
which approximates market value -
Money market fund 1,504,817 977,512
Cash 102,445 226,365
Cash and cash equivalents 1,607,262 1,203,877
Accounts receivable 193,928 32,715
Deferred charges and other assets, at amortized cost 340,688 260,706
$ 47,736,530 46,907,044
Liabilities and Partners' Equity
Mortgages payable $ 16,360,520 16,419,083
Note payable to affiliate 7,200,000 6,000,000
Accounts payable, including amounts due
to affiliates of $33,872 and $29,663 219,576 89,097
Accrued expenses and other liabilities 351,831 269,410
Total liabilities 24,131,927 22,777,590
Minority interest in joint venture 4,004,848 4,098,771
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 40,717 43,804
Cumulative distributions (129,056) (127,834)
(87,339) (83,030)
Limited Partners (60,495 interests):
Capital contributions, net of
offering costs 28,432,650 28,432,650
Cumulative net income 4,030,988 4,336,617
Cumulative distributions (12,776,544) (12,655,554)
19,687,094 20,113,713
Total Partners' equity 19,599,755 20,030,683
$ 47,736,530 46,907,044
See accompanying notes to condensed consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
USAA Income Properties IV Limited Partnership
Condensed Consolidated Statements of Operations
Three months ended March 31, 1997 and 1996
(Unaudited)
<CAPTION>
1997 1996
<S> <C> <C>
Income
Rental income $ 1,006,436 961,042
Interest income 12,305 28,713
Total income 1,018,741 989,755
Expenses
Direct expenses, $22,882 and $25,026
to affiliates (note 1) 218,339 109,095
Depreciation 520,260 474,924
General and administrative, $68,470 and
$36,980 to affiliates (note 1) 102,305 81,415
Management fee to affiliate (note 1) 13,557 11,665
Interest, $152,022 and $149,180 527,175 529,680
to affiliate (note 1)
Minority interest in joint venture earnings (54,179) 43,148
Total expenses 1,327,457 1,249,927
Net loss $ (308,716) (260,172)
Net loss per limited partnership interest $ (5.05) (4.26)
See accompanying notes to condensed consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
USAA Income Properties IV Limited Partnership
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1997 and 1996
(Unaudited)
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (308,716) (260,172)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 520,260 474,924
Amortization 12,954 6,027
Decrease (increase) in accounts receivable (161,213) 33,243
Decrease (increase) in deferred charges and
other assets (92,936) 60,559
Increase in accounts payable, accrued
expenses and other liabilities 212,900 9,510
Minority interest in joint venture earnings (54,179) 43,148
Cash provided by operating activities 129,070 367,239
Cash flows used in investing activities-
Additions to rental properties (705,166) --
Cash flows from financing activities:
Repayment of mortgages payable (58,563) (53,217)
Distributions to co-venturer (39,744) --
Distributions to partners (122,212) (229,148)
Proceeds from issuance of note payable 1,200,000 --
Cash provided by (used in) financing activities 979,481 (282,365)
Net increase in cash and cash equivalents 403,385 84,874
Cash and cash equivalents at beginning of period 1,203,877 2,278,982
Cash and cash equivalents at end of period $ 1,607,262 2,363,856
See accompanying notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
Notes to Condensed Consolidated Financial Statements
March 31, 1997
(Unaudited)
1. Transactions with Affiliates
A summary of transactions with affiliates follows for the
three-month period ended March 31, 1997:
Quorum
USAA Real Estate
Real Estate Services
Company Corporation
Reimbursement of
expenses (a) $ 41,741 10,557
Management fees 13,557 12,325
Lease commissions -- 26,729
Interest expense (b) 152,022 --
Total $ 207,320 49,611
(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, 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 nine months of 1997 or any other future
period.
The financial information included in this interim report as of
March 31, 1997 and for the three months ended March 31, 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.
5
<PAGE>
PART I
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
At March 31, 1997, the Partnership had cash of $102,445 and
temporary investments of $1,504,817. 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 March 31, 1997, the Partnership
distributed $120,990 to Limited Partners and $1,222 to the General
Partner for a total of $122,212.
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.
At March 31, 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 and
the possibility of leasing the entire building. 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. Water infiltration has been discovered at the Kodak
Building which 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.
During the first quarter of 1997, a sixty-two month lease was
signed at 1881 Pine Street for 8,350 rentable square feet. This
resulted in 90% of the building being leased at March 31, 1997.
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 their
pro rata share of operating expenses in excess of a 1997 base year.
6
<PAGE>
The Partnership provided approximately $133,600 of tenant
improvements to be 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 working capital reserve. During the first quarter of 1997,
Hewlett-Packard used approximately $81,000 of the allowance.
Approximately $116,000 of the allowance remains. Hewlett-Packard
has announced plans to relocate its workstation group out of
Massachusetts. They also announced plans to sublease the top floor
of the Apollo 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 periods ended March 31, 1997 and 1996, 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 increased as of March 31, 1997 as compared to
December 31, 1996 due to tenant improvements at 1881 Pine Street
for Busch Creative Services, Inc. and at the Apollo Building for
Hewlett-Packard, offset by depreciation. Cash and cash equivalents
and the note payable to affiliate increased as of March 31, 1997
due to borrowing from the Adviser to fund working capital needs.
See "Liquidity and Capital Resources". Accounts receivable was
higher at March 31, 1997 due to a receivable from a tenant at 1881
Pine Street for tenant improvements over the allowance. Deferred
charges and other assets increased as a result lease commissions
paid at 1881 Pine Street. Accounts payable was higher at March 31,
1997 due to timing in the payment of tenant improvements. Accrued
expenses and other liabilities increased primarily due to an
increase in property taxes at 1881 Pine Street.
7
<PAGE>
Rental income increased for the three-month period ended March 31,
1997 as compared to the three-month period ended March 31,1996.
Rental income at the Kodak Building increased by approximately
$14,000 due to Invitrogen paying holdover rent for January and
February 1997. Rental income at 1881 Pine Street increased by
approximately $219,000 due to occupancy going from 100% vacant to
82% occupied at March 31, 1997. Offsetting these increases in
rental income was a decrease in rental income at the Apollo
Building. The 1995 lease renewal became effective January 1, 1997,
decreasing monthly rental income from approximately $.76 per square
foot to approximately $.57 per square foot resulting in a decrease
for the three-month period ended March 31, 1997 of approximately
$189,000.
Interest income decreased due to lower cash balances for the
three-month period ended March 31, 1997 as compared to the three-month
period ended March 31, 1996.
Direct expenses were higher for the three-month period ended March
31, 1997 as compared to the three-month period ended March 31, 1996
due to operating expenses at 1881 Pine Street. Expenses were
minimal for the three-month period ended March 31, 1996 due to the
building being 100% vacant. For the three-month period ended March
31, 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 period ended March 31,
1997 as compared to the three-month period ended March 31, 1996 due
to tenant improvements at 1881 Pine Street and Apollo 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
period ended March 31, 1997 as compared to the three-month period
ended March 31, 1996 due to lease commission expense at 1881 Pine
Street for the new leases and at Apollo for the lease renewal. The
management fee is based on cash flow from operations of the
Partnership adjusted for cash reserves and fluctuated accordingly.
8
<PAGE>
Minority interest in joint venture earnings decreased for the
three-month period ended March 31, 1997 as compared to the three-
month period ended March 31, 1996 due to a net loss for the joint
venture property for the three-month period ended March 31, 1997.
Rental income at the Apollo Building decreased based on the lease
renewal effective January 1, 1997.
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 March 31, 1997, 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
May 12, 1997 By: /s/Edward B. Kelley
Edward B. Kelley
Chairman, President and
Chief Executive Officer
May 12, 1997 BY: /s/Martha J. Barrow
Martha J. Barrow
Vice President -
Administration
and Finance/Treasurer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,607,262
<SECURITIES> 0
<RECEIVABLES> 193,928
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 45,594,652
<DEPRECIATION> 0
<TOTAL-ASSETS> 47,736,530
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 19,599,755
<TOTAL-LIABILITY-AND-EQUITY> 47,736,530
<SALES> 0
<TOTAL-REVENUES> 1,006,436
<CGS> 0
<TOTAL-COSTS> 738,599
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 527,175
<INCOME-PRETAX> (308,716)
<INCOME-TAX> 0
<INCOME-CONTINUING> (308,716)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (308,716)
<EPS-PRIMARY> (5.05)
<EPS-DILUTED> 0
</TABLE>
