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, 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: 0-17094
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,
1996 June 30,
(Unaudited) 1995
<S> <C> <C>
Assets
Rental properties, net $ 9,448,425 8,059,941
Investment in joint venture 2,153,950 2,190,057
Temporary investments, at cost
which approximates market value -
Money market fund 808,638 1,958,789
Cash 96,347 48,582
Cash and cash equivalents 904,985 2,007,371
Accounts receivable 255 6,000
Deferred charges and other assets 206,515 231,117
$ 12,714,130 12,494,486
Liabilities and Partners' Equity
Accounts payable, including amounts due
to affiliates of $89,809 and $7,290 $ 169,181 9,904
Accrued expenses and other liabilities 165,336 164,480
Total liabilities 334,517 174,384
Partners' equity
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 652,069 582,789
Cumulative distributions (689,834) (626,505)
(36,765) (42,716)
Limited Partners (27,141 interests):
Capital contributions, net of offering
costs 12,756,270 12,756,270
Cumulative net income 5,868,610 5,245,089
Cumulative distributions (6,208,502) (5,638,541)
12,416,378 12,362,818
Total Partners' equity 12,379,613 12,320,102
$ 12,714,130 12,494,486
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,
1996 1995
<S> <C> <C>
Income
Rental income $ 282,024 257,891
Equity in earnings of joint venture 33,407 38,584
Less direct expenses, including depreciation
of $65,386 and $59,760 (66,846) (66,361)
Net operating income 248,585 230,114
Interest income 14,026 26,772
Total income 262,611 256,886
Expenses
General and administrative (note 1) 33,783 46,101
Net income $ 228,828 210,785
Net income per limited partnership interest $ 7.59 6.99
Nine Months Nine Months
Ended Ended
March 31, March 31,
1996 1995
<S> <C> <C>
Income
Rental income $ 801,850 771,093
Equity in earnings of joint venture 109,392 116,002
Less direct expenses, including depreciation
of $184,906 and $179,279 (186,836) (190,109)
Net operating income 724,406 696,986
Interest income 65,268 70,756
Total income 789,674 767,742
Expenses
General and administrative (note 1) 96,873 138,071
Net income $ 692,801 629,671
Net income per limited partnership interest $ 22.97 20.88
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, 1996 and 1995
(Unaudited)
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 692,801 629,671
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 184,906 179,279
Amortization 1,896 1,896
Earnings from joint venture (109,392) (116,002)
Distributions from joint venture 145,499 141,863
Decrease in accounts receivable 5,745 15,000
Decrease in deferred charges and
other assets 22,706 37,855
Increase in accounts payable and
other liabilities 160,133 17,249
Cash provided by operating activities 1,104,294 906,811
Cash flows used in investing activities -
Additions to rental properties (1,573,390) (7,370)
Cash flows used in financing activities -
Payment of distributions (633,290) (791,612)
Net increase (decrease) in cash and cash equivalents (1,102,386) 107,829
Cash and cash equivalents at beginning of period 2,007,371 1,824,154
Cash and cash equivalents at end of period $ 904,985 1,931,983
See accompanying notes to condensed financial statements.
</TABLE>
4
<PAGE>
Notes to Condensed Financial Statements
March 31, 1996
(Unaudited)
1. Transactions with Affiliates
A summary of transactions with affiliates follows for the nine
months ended March 31, 1996:
Quorum
USAA Real Estate
Real Estate Services
Company Corporation
Reimbursement
of expenses (a) $ 52,032 2,288
Management fees -- 8,950
Total $ 52,032 11,238
(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
Reference is made to the financial statements in the Annual
Report filed as part of the Form 10-K for the year ended June
30, 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 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, 1996 and for the three-month and nine-month
periods ended March 31, 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>
PART I
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
At March 31, 1996, the Partnership had cash of $96,347 and
temporary investments of $808,638. These funds were held in the
working capital reserve for the payment of obligations of the
Partnership. Deferred charges and other assets included an
acquisition fee paid in 1988 to USAA Investors II, Inc., the
General Partner, in connection with the acquisition of the
interest in the joint venture which holds Sequoia Plaza -
Building I. Deferred charges also included 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
and prepaid rent.
During the quarter ended March 31, 1996, the Partnership
distributed $189,987 to Limited Partners and $21,110 to the
General Partner for a total of $211,097.
In March 1995, the Partnership completed negotiations with
Continental Plastic Containers, Inc. to expand the facilities
under lease and to extend the term of the triple-net lease at the
Continental Plastic Buildings. The original lease expiration was
extended from April 1998 to 2010. The Partnership committed to
fund approximately $1.7 million to provide approximately 45,200
square feet of additional leasable area. The expansion was
completed and the tenant occupied the building addition in March
1996. The Partnership utilized existing working capital to fund
the construction.
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,
interest on temporary investments, and the possible participation
in the profits from the sale of the underlying assets of the
joint venture.
Results of Operations
For the nine months ended March 31, 1996 and 1995, 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.
6
<PAGE>
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, 1996 increased from June 30, 1995
due to building addition costs at the Continental Plastic
Containers Building offset by depreciation. Accounts receivable
decreased due to payment of reimbursable expenses by a tenant.
Rental income for the three-month and nine-month periods ended
March 31, 1996 was higher than the same periods ended March 31,
1995 primarily as a result of Continental Plastic Containers
occupying the completed building addition and paying the
increased rental rate. Depreciation increased for the three-month
and nine-month periods ended March 31, 1996 as a result of
one month of depreciation on the building addition at Continental
Plastic. Other direct expenses decreased for the three-month and
nine-month periods ended March 31, 1996 due to a decrease in
repair and maintenance expenses at the Bowater property related
to connection of the property to the city sewer system.
Interest income decreased as a result of lower cash balances for
the three-month and nine-month periods ended March 31, 1996 as
compared to the same periods ended March 31, 1995.
General and administrative expenses for the three-month and
nine-month periods ended March 31, 1996 decreased primarily due to a
decrease in state filing fees.
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, attached as Exhibit A to
the Partnership's Prospectus dated
February 11, 1988, filed pursuant to
Rule 424(b), Registration No. 33-16479
and incorporated herein by this reference. --
27 Financial Data Schedule 10
(b) During the quarter ended March 31, 1996, 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 9, 1996 BY: /s/Edward B. Kelley
Edward B. Kelley
Chairman, President and
Chief Executive Officer
May 9, 1996 BY: /s/Martha J. Barrow
Martha J. Barrow
Vice President -
Administration and
Finance/Treasurer
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 904,985
<SECURITIES> 0
<RECEIVABLES> 255
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9,448,425
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,714,130
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 12,379,613
<TOTAL-LIABILITY-AND-EQUITY> 12,714,130
<SALES> 0
<TOTAL-REVENUES> 801,850
<CGS> 0
<TOTAL-COSTS> 186,836
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 692,801
<INCOME-TAX> 0
<INCOME-CONTINUING> 692,801
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 692,801
<EPS-PRIMARY> 22.97
<EPS-DILUTED> 0
</TABLE>
