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 December 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>
December 31,
1995 June 30,
(Unaudited) 1995
<S> <C> <C>
Assets
Rental properties, net $ 8,721,414 8,059,941
Investment in joint venture 2,164,192 2,190,057
Temporary investments, at cost
which approximates market value -
Money market fund 1,347,103 1,958,789
Cash 29,307 48,582
Cash and cash equivalents 1,376,410 2,007,371
Accounts receivable -- 6,000
Deferred charges and other assets 206,507 231,117
$ 12,468,523 12,494,486
Liabilities and Partners' Equity
Accounts payable, including amounts due
to affiliates of $5,165 and $7,290 $ 12,628 9,904
Accrued expenses and other liabilities 94,014 164,480
Total liabilities 106,642 174,384
Partners' equity
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 629,186 582,789
Cumulative distributions (668,724) (626,505)
(38,538) (42,716)
Limited Partners (27,141 interests):
Capital contributions, net of offering
costs 12,756,270 12,756,270
Cumulative net income 5,662,664 5,245,089
Cumulative distributions (6,018,515) (5,638,541)
12,400,419 12,362,818
Total Partners' equity 12,361,881 12,320,102
Commitment (note 3)
$ 12,468,523 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
December 31, December 31,
1995 1994
<S> <C> <C>
Income
Rental income $ 259,451 256,159
Equity in earnings of joint venture 35,631 37,993
Less direct expenses, including depreciation
of $59,760 and $59,760 (56,301) (61,014)
Net operating income 238,781 233,138
Interest income 23,372 23,723
Total income 262,153 256,861
Expenses
General and administrative (note 1) 27,735 54,849
Net income $ 234,418 202,012
Net income per limited partnership interest $ 7.77 6.70
Six Months Six Months
Ended Ended
December 31, December 31,
1995 1994
<S> <C> <C>
Income
Rental income $ 519,826 513,201
Equity in earnings of joint venture 75,985 77,418
Less direct expenses, including depreciation
of $119,519 and $119,519 (119,990) (123,747)
Net operating income 475,821 466,872
Interest income 51,241 43,984
Total income 527,062 510,856
Expenses
General and administrative (note 1) 63,090 91,970
Net income $ 463,972 418,886
Net income per limited partnership interest $ 15.39 13.89
See accompanying notes to condensed financial statements.
</TABLE>
3
<PAGE>
<TABLE>
USAA REAL ESTATE INCOME INVESTMENTS II LIMITED PARTNERSHIP
Condensed Statements of Cash Flows
Six months ended December 31, 1995 and 1994
(Unaudited)
<CAPTION>
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 463,972 418,886
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 119,519 119,519
Amortization 1,264 1,264
Earnings from joint venture (75,985) (77,418)
Distributions from joint venture 101,850 105,488
Decrease in accounts receivable 6,000 15,000
Decrease in deferred charges and
other assets 23,346 24,698
Decrease in accounts payable and
other liabilities (67,742) (53,499)
Cash provided by operating activities 572,224 553,938
Cash flows used in investing activities -
Additions to rental properties (780,992) (1,881)
Cash flows used in financing activities -
Payment of distributions (422,193) (527,741)
Net increase (decrease) in cash and cash equivalents (630,961) 24,316
Cash and cash equivalents at beginning of period 2,007,371 1,824,154
Cash and cash equivalents at end of period $ 1,376,410 1,848,470
See accompanying notes to condensed financial statements.
</TABLE>
4
<PAGE>
Notes to Condensed Financial Statements
December 31, 1995
(Unaudited)
1. Transactions with Affiliates
A summary of transactions with affiliates follows for the six
months ended December 31, 1995:
Quorum
USAA Real Estate
Real Estate Services
Company Corporation
Reimbursement
of expenses (a)$ 32,218 1,451
Management fees -- 4,943
Total $ 32,218 6,394
(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 six months of this fiscal year or any other future
period.
The financial information included in this interim report as
of December 31, 1995 and for the three-month and six-month
periods ended December 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.
3. Commitment
In 1995, the Partnership completed negotiations with a tenant
to expand the facilities under lease and to extend the term of
the lease. The original lease has been extended from April
1998 to 2010. The Partnership has committed to fund
approximately $1.7 million to provide approximately 45,200
square feet of additional leasable area. Since the lease
renewal in March, approximately $845,000 in construction costs
have been spent. The expansion is currently expected to be
completed in February 1996. The Partnership will utilize
existing working capital to fund the construction.
5
<PAGE>
PART I
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
At December 31, 1995, the Partnership had cash of $29,307 and
temporary investments of $1,347,103. Included in the Partnership's
cash and cash equivalents was the working capital reserve.
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 joint venture interest.
Deferred charges also include 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 December 31, 1995, 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 lease at the Continental
Plastic Buildings. The original lease expiration has been extended
from April 1998 to 2010. The Partnership has committed to fund
approximately $1.7 million to provide approximately 45,200 square
feet of additional leasable area. Since the lease renewal in
March, approximately $845,000 in construction costs have been
spent. The expansion is currently expected to be completed in
February 1996. The Partnership will utilize 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, temporary
investment of funds, and the possible participation in the profits
from the sale of the underlying assets of the joint venture.
Results of Operations
For the six months ended December 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.
6
<PAGE>
Rental properties at December 31, 1995 increased from June 30, 1995
due to building addition costs at the Continental Plastic
Containers Building offset by depreciation. 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 I property. Accounts receivable decreased due
to payment of reimbursable expenses by a tenant. Accrued expenses
and other liabilities at December 31, 1995 decreased from June 30,
1995 primarily due to a decrease in prepaid rent and a decrease in
accrued property taxes after payment of taxes.
Rental income for the periods ended December 31, 1995 was higher
than the periods ended December 31, 1994 as a result of a rent
increase based on the Consumer Price Index (CPI) at Bowater.
Direct expenses decreased for the periods ended December 31, 1995
as compared to the periods ended December 31, 1994 due to an
increase in reimbursements from tenants.
A higher cash balance and an increase in interest rates resulted in
an increase in interest income for the six months ended December
31, 1995 as compared to the six months ended December 31, 1994.
General and administrative expenses for the periods ended December
31, 1995 decreased as compared to the periods ended December 31,
1994 due to a decrease in state filing fees, printing and data
processing charges.
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 Schedules 10-11
(b) During the quarter ended December 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
February 12, 1996 BY: /s/Edward B. Kelley
Edward B. Kelley
Chairman, President and
Chief Executive Officer
February 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 1,376,410
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 8,721,414
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,468,523
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 12,361,881
<TOTAL-LIABILITY-AND-EQUITY> 12,468,523
<SALES> 0
<TOTAL-REVENUES> 519,826
<CGS> 0
<TOTAL-COSTS> 119,990
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 463,972
<INCOME-TAX> 0
<INCOME-CONTINUING> 463,972
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 463,972
<EPS-PRIMARY> 15.39
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR 3-MOS
<FISCAL-YEAR-END> JUN-30-1995 JUN-30-1995 JUN-30-1996
<PERIOD-END> MAR-31-1995 JUN-30-1995 SEP-30-1995
<CASH> 1,931,983 2,007,371 1,961,186
<SECURITIES> 0 0 0
<RECEIVABLES> 0 6,000 0
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 0 0 0
<PP&E> 8,062,386 8,059,941 8,122,598
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 12,433,209 12,494,486 12,474,696
<CURRENT-LIABILITIES> 0 0 0
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 12,289,313 12,320,102 12,338,560
<TOTAL-LIABILITY-AND-EQUITY> 12,433,209 12,494,486 12,474,696
<SALES> 0 0 0
<TOTAL-REVENUES> 771,093 1,028,693 260,375
<CGS> 0 0 0
<TOTAL-COSTS> 190,109 245,292 63,689
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> 629,671 871,557 229,554
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 629,671 871,557 229,554
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 629,671 871,557 229,554
<EPS-PRIMARY> 20.88 28.90 7.61
<EPS-DILUTED> 0 0 0
</TABLE>
