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, 1995
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: 0-17094
USAA Real Estate Income Investments II Limited Partnership
(Exact name of registrant as specified in its charter)
Texas 74-2473951
(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 REAL ESTATE INCOME INVESTMENTS II LIMITED PARTNERSHIP
Condensed Balance Sheets
<CAPTION>
March 31,
1995 June 30,
(Unaudited) 1994
<S> <C> <C>
Assets
Rental properties, net $ 8,062,386 8,234,295
Investment in joint venture 2,195,922 2,221,783
Temporary investments, at cost
which approximates market value:
USAA Mutual Fund, Inc. -- 11,367
Money market fund 1,900,370 1,809,143
1,900,370 1,820,510
Cash 31,613 3,644
Cash and cash equivalents 1,931,983 1,824,154
Accounts receivable -- 15,000
Deferred charges and other assets 242,918 282,669
$ 12,433,209 12,577,901
Liabilities and Partners' Equity
Accounts payable, including amounts due
to affiliates of $12,749 and $6,937 $ 19,171 20,014
Accrued expenses and other liabilities 124,725 106,633
Total liabilities 143,896 126,647
Partners' equity
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 558,600 495,633
Cumulative distributions (605,395) (526,234)
(45,795) (29,601)
Limited Partners (27,141 interests):
Capital contributions, net of offering
costs 12,756,270 12,756,270
Cumulative net income 5,027,392 4,460,688
Cumulative distributions (5,448,554) (4,736,103)
12,335,108 12,480,855
Total Partners' equity 12,289,313 12,451,254
$ 12,433,209 12,577,901
See accompanying notes to condensed financial statements.
</TABLE>
2
<PAGE>
<TABLE>
USAA REAL ESTATE INCOME INVESTMENTS II LIMITED PARTNERSHIP
Condensed Statements of Income
(Unaudited)
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1995 1994
<S> <C> <C>
Income
Rental income $ 257,891 255,303
Equity in earnings of joint venture 38,584 37,296
Less direct expenses, including depreciation
of $59,760 and $59,753 (66,361) (59,055)
Net operating income 230,114 233,544
Interest income (note 1) 26,772 13,625
Total income 256,886 247,169
Expenses
General and administrative (note 1) 46,101 37,035
Net income $ 210,785 210,134
Net income per limited partnership interest $ 6.99 6.97
Nine Months Nine Months
Ended Ended
March 31, March 31,
1995 1994
Income
Rental income $ 771,093 764,270
Equity in earnings of joint venture 116,002 110,834
Less direct expenses, including depreciation
of $179,279 and $178,858 (190,109) (178,242)
Net operating income 696,986 696,862
Interest income (note 1) 70,756 39,942
Total income 767,742 736,804
Expenses
General and administrative (note 1) 138,071 106,883
Net income $ 629,671 629,921
Net income per limited partnership interest $ 20.88 20.89
See accompanying notes to condensed financial statements.
</TABLE>
3
<PAGE>
<TABLE>
USAA REAL ESTATE INCOME INVESTMENTS II LIMITED PARTNERSHIP
Condensed Statements of Cash Flows
Nine months ended March 31, 1995 and 1994
(Unaudited)
<CAPTION>
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 629,671 629,921
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 179,279 178,858
Amortization 1,896 1,896
Earnings from joint venture (116,002) (110,834)
Distributions from joint venture 141,863 132,768
Decrease in accounts receivable 15,000 --
Decrease in deferred charges and
other assets 37,855 36,560
Increase in accounts payable and
other liabilities 17,249 52,041
Cash provided by operating activities 906,811 921,210
Cash flows used in investing activities:
Additions to rental properties (7,370) (41,358)
Cash flows used in financing activities:
Payment of distributions (791,612) (791,613)
Net increase in cash and cash equivalents 107,829 88,239
Cash and cash equivalents at beginning of period 1,824,154 1,777,809
Cash and cash equivalents at end of period $ 1,931,983 1,866,048
See accompanying notes to condensed financial statements.
</TABLE>
4
<PAGE>
Notes to Condensed Financial Statements
March 31, 1995
(Unaudited)
1. Transactions with Affiliates
A summary of transactions with affiliates follows for the
nine months ended March 31, 1995:
Quorum
USAA USAA Real Estate
Mutual Real Estate Services
Fund, Inc. Company Corporation
Reimbursement $
of expenses (a) -- 69,849 2,201
Management fees -- -- 8,837
Interest income (316) -- --
Total $ (316) 69,849 11,038
(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.
2. Other
The notes to the financial statements on pages 12 through
16 of the Partnership's 1994 annual report are an
integral part of these financial statements. Information
furnished in this report reflects all normal recurring
adjustments which are, in the opinion of management,
necessary to a fair presentation of the results for the
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 this fiscal year or any other
future period.
The financial information included in this interim report
as of March 31, 1995 and for the three-month and nine-
month periods ended March 31, 1995 and 1994 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>
PART I
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
At March 31, 1995, the Partnership had cash of $31,613 and
temporary investments of $1,900,370. Included in the
Partnership's cash and cash equivalents was the working capital
reserve. Deferred charges and other assets included an
acquisition fee paid to USAA Investors II, Inc. on the joint
venture interest, and deferred rent resulting from recognition of
income as required by generally accepted accounting principles.
Accounts payable included amounts due to affiliates for
reimbursable expenses and to third parties for expenses incurred
for operations. Accrued expenses and other liabilities consisted
primarily of a security deposit, prepaid rent and accrued state
filing fees.
During the quarter ended March 31, 1995, the Partnership
distributed $237,484 to Limited Partners and $26,387 to the
General Partner for a total of $263,871.
On March 24, 1995, Continental Plastic Containers, Inc. renewed
and extended the lease at the Continental Plastic Building for
fifteen years with an expiration of July 2010. As part of this
renewal, the Partnership has agreed to construct an addition of
approximately 45,200 square feet to the existing building. The
cost of these improvements is estimated to be $1,700,000 to be
funded from the working capital reserve. In order to avoid
borrowing to fund the construction of the addition and maintain
working capital at an adequate level for operations,
distributions to partners will be reduced to $7.00 per unit
beginning with the next distribution.
Future liquidity is expected to result from cash generated from
operations of the properties and ultimately through the sale of
such properties, equity in earnings of the joint venture,
temporary investment of funds, and the possible participation in
the profits from the sale of the underlying assets of the joint
venture.
6
<PAGE>
Results of Operations
For the nine months ended March 31, 1995 and 1994, income was
generated from rental income from the income-producing
properties, earnings from the joint venture investment and
interest income earned on the funds invested in temporary
investments.
Expenses incurred during the same periods were associated with
operation of the Partnership's properties and various other costs
required for administration of the Partnership.
Rental properties at March 31, 1995 decreased from June 30, 1994
due to depreciation offset slightly by preliminary building
addition costs at Continental Plastic. The investment in the
joint venture decreased by the amount of distributions received
from the joint venture offset by increases as a result of equity
in earnings of the joint venture which was derived from the net
income of the Sequoia Plaza - Building I property. Accounts
receivable decreased due to payment of reimbursable expenses by a
tenant. Accrued expenses and other liabilities increased from
June 30, 1994 to March 31, 1995 primarily due to an increase in
state filing fees.
Rental income for the three-month and nine-month periods ended
March 31, 1995 was higher than the three-month and nine-month
periods ended March 31, 1994 as a result of a rent increase based
on the Consumer Price Index (CPI) at Bowater. Equity in earnings
of the joint venture were higher for the periods ended March 31,
1995 as compared to the periods ended March 31, 1994 due to
increased net income from the joint venture. The increase in
direct expenses for the periods ended March 31, 1995 as compared
to March 31, 1994 was caused by a decrease in expense
reimbursements from tenants and an increase in repair and
maintenance expenses.
A higher cash balance and an increase in interest rates resulted
in an increase in interest income for the periods ended March 31,
1995 as compared to the periods ended March 31, 1994.
General and administrative expenses for the three months ended
March 31, 1995 were higher than the three months ended March 31,
1994 due to higher charges for the preparation of federal and
state returns. The increase in general and administrative
expenses for the nine months ended March 31, 1995 reflected an
increase in state filing fees and timing in charges for data
processing services.
7
<PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Sequentially
Exhibit Numbered
No. Description Page
4 Amended and Restated Agreement of Limited
Partnership dated as of February 11, 1988,
incorporated as Exhibit A to the Partnership's
Prospectus dated February 11, 1988, filed
pursuant to Rule 424(b), and incorporated
herein by this reference. __
27 Financial Data Schedule 10
(b) During the quarter ended March 31, 1995, there were no
Current Reports on Form 8-K filed.
8
<PAGE>
FORM 10-Q
SIGNATURES
USAA REAL ESTATE INCOME INVESTMENTS II 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 REAL ESTATE INCOME INVESTMENTS II
LIMITED PARTNERSHIP (Registrant)
BY: USAA Investors II, Inc.,
General Partner
May 11, 1995 BY: /s/Edward B. Kelley
Edward B. Kelley
Chairman, President and
Chief Executive Officer
May 11, 1995 BY: /s/Martha J. Barrow
Martha J. Barrow
Vice President -
Administration and
Finance
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 1,931,983
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 8,062,386
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,433,209
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 12,289,313
<TOTAL-LIABILITY-AND-EQUITY> 12,433,209
<SALES> 0
<TOTAL-REVENUES> 887,095
<CGS> 0
<TOTAL-COSTS> 190,109
<OTHER-EXPENSES> 138,071
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 629,671
<INCOME-TAX> 0
<INCOME-CONTINUING> 629,671
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 629,671
<EPS-PRIMARY> 20.88
<EPS-DILUTED> 0
</TABLE>
