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: 0-17094
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>
September 30,
1996 June 30,
(Unaudited) 1996
<S> <C> <C>
Assets
Rental properties, net $ 9,414,967 9,493,829
Investment in joint venture 2,141,468 2,147,966
Temporary investments, at cost
which approximates market value -
Money market fund 687,820 804,821
Cash 137,209 30,737
Cash and cash equivalents 825,029 835,558
Accounts receivable 3,171 --
Deferred charges and other assets 257,133 230,824
$ 12,641,768 12,708,177
Liabilities and Partners' Equity
Accounts payable, including amounts due
to affiliates of $6,259 and $7,981 $ 45,992 113,426
Accrued expenses and other liabilities 184,876 172,579
Total liabilities 230,868 286,005
Partners' equity
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 702,694 677,435
Cumulative distributions (737,330) (710,943)
(33,636) (32,508)
Limited Partners (27,141 interests):
Capital contributions, net of offering
costs 12,756,270 12,756,270
Cumulative net income 6,324,239 6,096,899
Cumulative distributions (6,635,973) (6,398,489)
12,444,536 12,454,680
Total Partners' equity 12,410,900 12,422,172
$ 12,641,768 12,708,177
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
September 30, September 30,
1996 1995
<S> <C> <C>
Income
Rental income $ 331,051 260,375
Equity in earnings of joint venture 37,152 40,355
Less direct expenses, including depreciation
of $78,362 and $59,760 (79,162) (63,689)
Net operating income 289,041 237,041
Interest income 9,488 27,869
Total income 298,529 264,910
Expenses
General and administrative (note 1) 45,930 35,356
Net income $ 252,599 229,554
Net income per limited partnership interest $ 8.38 7.61
See accompanying notes to condensed financial statements.
</TABLE>
3
<PAGE>
<TABLE>
USAA REAL ESTATE INCOME INVESTMENTS II LIMITED PARTNERSHIP
Condensed Statements of Cash Flows
Three months ended September 30, 1996 and 1995
(Unaudited)
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 252,599 229,554
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 78,362 59,760
Amortization 632 632
Earnings from joint venture (37,152) (40,355)
Distributions from joint venture 43,650 58,200
Decrease (increase) in accounts receivable (3,171) 6,000
Decrease (increase) in deferred charges
and other assets (26,941) 11,785
Decrease in accounts payable and
other liabilities (55,137) (38,248)
Other adjustments 500 --
Cash provided by operating activities 253,342 287,328
Cash flows used in investing activities -
Additions to rental properties -- (122,417)
Cash flows used in financing activities -
Payment of distributions (263,871) (211,096)
Net decrease in cash and cash equivalents (10,529) (46,185)
Cash and cash equivalents at beginning of period 835,558 2,007,371
Cash and cash equivalents at end of period $ 825,029 1,961,186
See accompanying notes to condensed financial statements.
</TABLE>
4
<PAGE>
Notes to Condensed Financial Statements
September 30, 1996
(Unaudited)
1. Transactions with Affiliates
A summary of transactions with affiliates follows for the three
months ended September 30, 1996:
Quorum
USAA Real Estate
Real Estate Services
Company Corporation
Reimbursement
of expenses (a)$ 15,253 624
Management fees -- 3,254
Lease commissions -- 10,460
Total $ 15,253 14,338
(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, 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 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 this fiscal year or any other future
period.
The financial information included in this interim report as
of September 30, 1996 and for the three 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>
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 $137,209 and
temporary investments of $687,820. 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 owns 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, accrued
property taxes and prepaid rent.
During the quarter ended September 30, 1996, the Partnership
distributed $237,484 to Limited Partners and $26,387 to the
General Partner for a total of $263,871.
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 three months ended September 30, 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.
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 September 30, 1996 decreased from June 30,
1996 due to depreciation. Deferred charges and other assets at
September 30, 1996 increased from June 30, 1996 due to deferred
rent at Continental Plastic.
Rental income for the three months ended September 30, 1996 was
higher than the three months ended September 30, 1995 as a result
of the lease renewal and the building addition at Continental
Plastic. Depreciation increased for the three months ended
September 30, 1996 due to depreciation on the building addition
6
<PAGE>
at Continental Plastic. Other direct expenses decreased for the
three months ended September 30, 1996 due to an increase in
reimbursements from tenants.
Interest income decreased as a result of lower cash balances for
the three months ended September 30, 1996 as compared to the
three months ended September 30, 1995.
General and administrative expenses for the three months ended
September 30, 1996 increased as compared to the three months
ended September 30, 1995 due to lease commissions paid at the
Continental Plastic building on the lease renewal.
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 September 30, 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
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
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 825,029
<SECURITIES> 0
<RECEIVABLES> 3,171
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9,414,967
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,641,768
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 12,410,900
<TOTAL-LIABILITY-AND-EQUITY> 12,641,768
<SALES> 0
<TOTAL-REVENUES> 331,051
<CGS> 0
<TOTAL-COSTS> 79,162
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 252,599
<INCOME-TAX> 0
<INCOME-CONTINUING> 252,599
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 252,599
<EPS-PRIMARY> 8.38
<EPS-DILUTED> 0
</TABLE>
