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, 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>
December 31,
1996 June 30,
(Unaudited) 1996
<S> <C> <C>
Assets
Rental properties, net $ 9,347,383 9,493,829
Investment in joint venture 2,148,609 2,147,966
Temporary investments, at cost
which approximates market value -
Money market fund 687,699 804,821
Cash 126,481 30,737
Cash and cash equivalents 814,180 835,558
Accounts receivable 5,141 --
Deferred charges and other assets 282,758 230,824
$ 12,598,071 12,708,177
Liabilities and Partners' Equity
Accounts payable, including amounts due
to affiliates of $9,441 and $7,981 $ 44,114 113,426
Accrued expenses and other liabilities 158,325 172,579
Total liabilities 202,439 286,005
Partners' equity
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 727,555 677,435
Cumulative distributions (763,717) (710,943)
(35,162) (32,508)
Limited Partners (27,141 interests):
Capital contributions, net of offering
costs 12,756,270 12,756,270
Cumulative net income 6,547,981 6,096,899
Cumulative distributions (6,873,457) (6,398,489)
12,430,794 12,454,680
Total Partners' equity 12,395,632 12,422,172
$ 12,598,071 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
December 31, December 31,
1996 1995
<S> <C> <C>
Income
Rental income $ 327,390 259,451
Equity in earnings of joint venture 36,241 35,631
Less direct expenses, including depreciation
of $78,775 and $59,760 (80,850) (56,301)
Net operating income 282,781 238,781
Interest income 9,358 23,372
Total income 292,139 262,153
Expenses
General and administrative (note 1) 43,537 27,735
Net income $ 248,602 234,418
Net income per limited partnership interest $ 8.24 7.77
<CAPTION>
Six Months Six Months
Ended Ended
December 31, December 31,
1996 1995
<S> <C> <C>
Income
Rental income $ 658,441 519,826
Equity in earnings of joint venture 73,393 75,985
Less direct expenses, including depreciation
of $157,137 and $119,519 (160,012) (119,990)
Net operating income 571,822 475,821
Interest income 18,846 51,241
Total income 590,668 527,062
Expenses
General and administrative (note 1) 89,466 63,090
Net income $ 501,202 463,972
Net income per limited partnership interest $ 16.62 15.39
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, 1996 and 1995
(Unaudited)
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 501,202 463,972
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 157,137 119,519
Amortization 1,264 1,264
Earnings from joint venture (73,393) (75,985)
Distributions from joint venture 72,750 101,850
Decrease (increase) in accounts receiva (5,141) 6,000
Decrease (increase) in deferred charges and
other assets (53,198) 23,346
Decrease in accounts payable and
other liabilities (83,566) (67,742)
Cash provided by operating activities 517,055 572,224
Cash flows used in investing activities -
Additions to rental properties (10,691) (780,992)
Cash flows used in financing activities -
Payment of distributions (527,742) (422,193)
Net decrease in cash and cash equivalents (21,378) (630,961)
Cash and cash equivalents at beginning of period 835,558 2,007,371
Cash and cash equivalents at end of period $ 814,180 1,376,410
See accompanying notes to condensed financial statements.
</TABLE>
4
<PAGE>
Notes to Condensed Financial Statements
December 31, 1996
(Unaudited)
1. Transactions with Affiliates
A summary of transactions with affiliates follows for the six
months ended December 31, 1996:
Quorum
USAA Real Estate
Real Estate Services
Company Corporation
Reimbursement
of expenses (a)$ 38,689 1,456
Management fees -- 5,395
Lease commissions -- 20,276
Total $ 38,689 27,127
(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 six months of this fiscal year or any other future
period.
The financial information included in this interim report as
of December 31, 1996 and for the three-month and six-month
periods ended December 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 December 31, 1996, the Partnership had cash of $126,481 and
temporary investments of $687,699. 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 December 31, 1996, 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, the Partnership entered into a
contract to sell the Bowater Building in Lakeland, Florida. Due
diligence procedures are currently underway by the potential
buyer. During this 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. During the quarter, Star Forms, Inc., the single
tenant at Bowater, was sold to CST Office Products, Inc. The
lease has an expiration date of July 1999.
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 and six months ended December 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 December 31, 1996 decreased from June 30,
1996 due to depreciation. Deferred charges and other assets at
December 31, 1996 increased from June 30, 1996 due to deferred
rent at Continental Plastic.
Rental income was higher for the three-month and six-month
periods ended December 31, 1996 than the three-month and six-
month periods ended December 31, 1995 as a result of the lease
renewal and the building addition at Continental Plastic.
Depreciation increased for the three-month and six-month periods
ended December 31, 1996 due to the building addition at
Continental Plastic. Other direct expenses increased for the
three-month and six-month periods ended December 31, 1996 due to
loading dock repairs at the Bowater Building.
Interest income decreased as a result of lower cash balances for
the three-month and six-month periods ended December 31, 1996 as
compared to the three-month and six-month periods ended December
31, 1995.
General and administrative expenses for the three-month and six-
month periods ended December 31, 1996 increased as compared to
the three-month and six-month periods ended December 31, 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 December 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
February 12, 1997 BY: /s/Edward B. Kelley
Edward B. Kelley
Chairman, President and
Chief Executive Officer
February 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 814,180
<SECURITIES> 0
<RECEIVABLES> 5,141
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9,347,383
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,598,071
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 12,395,632
<TOTAL-LIABILITY-AND-EQUITY> 12,598,071
<SALES> 0
<TOTAL-REVENUES> 658,441
<CGS> 0
<TOTAL-COSTS> 160,012
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 501,202
<INCOME-TAX> 0
<INCOME-CONTINUING> 501,202
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 501,202
<EPS-PRIMARY> 16.62
<EPS-DILUTED> 0
</TABLE>
