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: 0-17094
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,
1997 June 30,
(Unaudited) 1996
<S> <C> <C>
Assets
Rental properties, net $ 9,258,183 9,493,829
Investment in joint venture 2,143,965 2,147,966
Temporary investments, at cost
which approximates market value -
Money market fund 772,817 804,821
Cash 115,904 30,737
Cash and cash equivalents 888,721 835,558
Accounts receivable 2,141 --
Deferred charges and other assets 308,009 230,824
$ 12,601,019 12,708,177
Liabilities and Partners' Equity
Accounts payable, including amounts due
to affiliates of $8,105 and $7,981 $ 44,347 113,426
Accrued expenses and other liabilities 170,351 172,579
Total liabilities 214,698 286,005
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 753,011 677,435
Cumulative distributions (790,104) (710,943)
(36,093) (32,508)
Limited Partners (27,141 interests):
Capital contributions, net of offering
costs 12,756,270 12,756,270
Cumulative net income 6,777,085 6,096,899
Cumulative distributions (7,110,941) (6,398,489)
12,422,414 12,454,680
Total Partners' equity 12,386,321 12,422,172
$ 12,601,019 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
March 31, March 31,
1997 1996
<S> <C> <C>
Income
Rental income $ 349,453 303,519
Equity in earnings of joint venture 39,006 33,407
Interest income 9,587 14,026
Total income 398,046 350,952
Expenses
Direct expenses, $5,397 and $4,844
to affiliates (note 1) 23,002 22,955
Depreciation 78,555 65,386
General and administrative, $32,889
and $19,814 to affiliates (note 1) 41,929 33,783
Total expenses 143,486 122,124
Net income $ 254,560 228,828
Net income per limited partnership interest $ 8.44 7.59
<CAPTION>
Nine Months Nine Months
Ended Ended
March 31, March 31,
1997 1996
<S> <C> <C>
Income
Rental income $ 1,054,033 865,557
Equity in earnings of joint venture 112,399 109,392
Interest income 28,434 65,268
Total income 1,194,866 1,040,217
Expenses
Direct expenses, $12,249 and $11,238
to affiliates (note 1) 72,016 65,637
Depreciation 235,693 184,906
General and administrative, $91,854
and $52,032 to affiliates (note 1) 131,395 96,873
Total expenses 439,104 347,416
Net income $ 755,762 692,801
Net income per limited partnership interest $ 25.06 22.97
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, 1997 and 1996
(Unaudited)
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 755,762 692,801
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 235,693 184,906
Amortization 1,896 1,896
Earnings from joint venture (112,399) (109,392)
Distributions from joint venture 116,400 145,499
Decrease (increase) in accounts receivable (2,141) 5,745
Decrease (increase) in deferred charges and
other assets (79,081) 22,706
Increase (decrease) in accounts payable and
other liabilities (71,307) 160,133
Cash provided by operating activities 844,823 1,104,294
Cash flows used in investing activities -
Additions to rental properties (47) (1,573,390)
Cash flows used in financing activities -
Payment of distributions (791,613) (633,290)
Net increase (decrease) in cash and cash equivalents 53,163 (1,102,386)
Cash and cash equivalents at beginning of period 835,558 2,007,371
Cash and cash equivalents at end of period $ 888,721 904,985
See accompanying notes to condensed financial statements.
</TABLE>
4
<PAGE>
Notes to Condensed Financial Statements
March 31, 1997
(Unaudited)
1. Transactions with Affiliates
A summary of transactions with affiliates follows for the nine
months ended March 31, 1997:
Quorum
USAA Real Estate
Real Estate Services
Company Corporation
Reimbursement
of expenses (a) $ 61,762 2,527
Management fees -- 9,722
Lease commissions -- 30,092
Total $ 61,762 42,341
(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 three months of this fiscal year or any other future
period.
The financial information included in this interim report as
of March 31, 1997 and for the three-month and nine-month
periods 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 $115,904 and
temporary investments of $772,817. 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 and prepaid
rent.
During the quarter ended March 31, 1997, the Partnership
distributed $237,484 to Limited Partners and $26,387 to the
General Partner for a total of $263,871.
During the second fiscal quarter, Star Forms, Inc., the single
tenant at the Bowater Building in Lakeland, Florida, was sold to
CST Office Products, Inc. The lease has an expiration date of
July 1999. Also during the second fiscal quarter, the
Partnership entered into a contract to sell the Bowater Building.
During the due diligence period, the potential buyer inspects the
property, arranges for financing, evaluates the tenant and the
lease terms and has the option to cancel the contract. The
contract with the potential buyer was canceled during April due
to the buyer being unable to arrange for third-party financing.
The property will continue to be marketed to other interested
buyers.
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.
6
<PAGE>
Results of Operations
For the three months and nine months ended March 31, 1997 and
1996, 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, 1997 decreased from June 30, 1996
due to depreciation. Deferred charges and other assets at March
31, 1997 increased from June 30, 1996 due to deferred rent at
Continental Plastic.
Rental income was higher for the three-month and nine-month
periods ended March 31, 1997 as compared to the three-month and
nine-month periods ended March 31, 1996 as a result of the lease
renewal and the building addition at Continental Plastic. The
tenant began paying the increased rent on March 1, 1996.
Equity in earnings increased for the three-month and nine-month
periods ended March 31, 1997 as compared to the three-month and
nine-month periods ended March 31, 1996 as a result of an
increase in net income of Sequoia I, the joint venture property.
Net income increased at Sequoia I due to an increase in
occupancy.
Interest income decreased as a result of lower cash balances for
the three-month and nine-month periods ended March 31, 1997 as
compared to the three-month and nine-month periods ended March
31, 1996.
Direct expenses increased for the nine-month period ended March
31, 1997 as compared to the nine-month period ended March 31,
1996 due to loading dock repairs at the Bowater Building.
Depreciation increased for the three-month and nine-month periods
ended March 31, 1997 due to the building addition at Continental
Plastic.
General and administrative expenses for the three-month and nine-
month periods ended March 31, 1997 increased as compared to the
three-month and nine-month periods ended March 31, 1996 due to
lease commissions paid at Continental Plastic 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 March 31, 1997, 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 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
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 888,721
<SECURITIES> 0
<RECEIVABLES> 2,141
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9,258,183
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,601,019
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 12,386,321
<TOTAL-LIABILITY-AND-EQUITY> 12,601,019
<SALES> 0
<TOTAL-REVENUES> 1,054,033
<CGS> 0
<TOTAL-COSTS> 307,709
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 755,762
<INCOME-TAX> 0
<INCOME-CONTINUING> 755,762
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 755,762
<EPS-PRIMARY> 25.06
<EPS-DILUTED> 0
</TABLE>
