FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period ________ to _______
Commission File Number T3-24235
SECURED INVESTMENT RESOURCES FUND, L.P. III
(Exact name of registrant as specified in its charter)
Missouri 48-6291172
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1100 Main, Suite 2100 Kansas City, Missouri 64105
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (816) 421-4670
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests ("Units")
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 such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ___ No X
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K, is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
1
<PAGE>
PART I
Item 1. Business
Secured Investment Resources Fund, L.P. III ("Partnership") is a Missouri
limited partnership formed pursuant to the Missouri Revised Uniform Limited
Partnership Act on April 20, 1988. SIR Partners III, L.P., a Missouri limited
partnership, Nichols Resources Ltd., a Missouri corporation and James R. Hoyt,
an individual, are the General Partners. James R. Hoyt is the Managing General
Partner. The Partnership has no predecessors or subsidiaries.
On July 31, 1998, Nichols Resources, Ltd., a General Partner, filed Form 8-K
with the SEC describing a Settlement Agreement and Mutual Release between James
R. Hoyt, Managing General Partner; SIR Partners III, L.P., a General Partner and
Nichols Resources, Ltd, also a General Partner. Under terms of the agreement,
James R. Hoyt and SIR Partners III have agreed to withdraw as General Partners
of the partnership (as described in item 12). This settlement is expected to
have a positive future impact on the Partnership.
The Partnership was formed to engage in the business of acquiring, improving,
developing, operating and holding for investment income producing real
properties with the objectives of (i) preserving and protecting the
Partnership's capital; (ii) providing cash distributions from operations; (iii)
providing capital growth through property appreciation of Partnership
properties; and (iv) increasing equity in property ownership by the reduction of
mortgage loans on Partnership properties. The term of the partnership is 60
years from the date of the Partnership Agreement (December 6, 1988), or the date
on which all of the assets acquired by the Partnership are sold and converted to
cash.
On December 7, 1990, the Partnership closed its offering having received gross
proceeds of $4,842,500 from the sale of 9,685 units of limited partnership
interests.
The Partnership acquired two apartment communities in 1989. The General Partners
feel that these properties met the Partnership's investment criteria and
objectives. Because of many factors, the Partnership did not raise the level of
capital anticipated. Accordingly, the General Partners were unable to obtain the
targeted leveraged ratio and a residential/commercial property mix.
As of December 31, 1997, the Partnership has made cash distributions to Limited
Partners of $363,928 for the period April 1, 1989 through December 31, 1997. No
distributions have been made since July 1990. Future distributions will only be
made from excess cash flow not needed for working capital reserves.
As of December 31, 1997, the Partnership had no employees. As of January 1,
1995, employees of SPECS, Inc. provide property management services to the
Partnership (as described in Note E). James R. Hoyt, a General Partner, is
the owner of 33% of SPECS, Inc. as of December 31, 1997.
2
<PAGE>
Item 1. Business--Cont'd..
As of December 31, 1997, the Partnership was in negotiation with the mortgage
holder on KC Club Apartments concerning a restructure of that debt. More
favorable interest rates and possible principal write downs were under
consideration. Due to the inability to restructure the debt, on January 7, 1998
the property was lost to foreclosure (as described in Note L).
Competition
The real estate business is highly competitive and the Partnership
competes with numerous entities engaged in real estate activities, some of which
may have greater financial resources than those of the Partnership. The
Partnership's management believes that success against such competition is
dependent upon the geographic location of the property, the performance of
property managers, the amount of new construction in the area and the
maintenance and appearance of the property. With respect to residential
property, competition is also based upon the design and mix of the units and the
ability to provide a community atmosphere for the tenants. The Partnership's
direct competitors, located within five miles of the Bicycle Club Apartments,
are Quail Run Apartments, 690 units built in 1985; Falcon Point, 192 units built
in 1988; The Ethans, 606 units built in 1988; Camden Passage, 598 units built in
1989-1998; The Lakes, 400 units built in 1987 and Kelly Crossing, 624 units
built in 1998. The Bicycle Club Apartments is competitive in terms of square
footage per unit and rents for unit types. The Partnership's management
believes that general economic circumstances and trends and new properties
in the vicinity of each of the Partnership's properties will also be competitive
factors.
Inflation
The effects of inflation on the Partnership's operations or investments are not
quantifiable. Revenues from property operations fluctuate proportionately with
increases and decreases in housing costs. Fluctuations in the rate of inflation
also affect the sales values of properties and, correspondingly, the ultimate
gains to be realized by the Partnership from property sales.
3
<PAGE>
Item 2. Properties
The following table sets forth the investment portfolio of the Partnership at
December 31, 1997:
<TABLE>
<CAPTION>
Average
Properties at Occupancy(*)
Property Description Initial Cost Date Acquired Percentage
---------- ------------- -------------- --------------- -------------
1997 1996
<S> <C> <C> <C> <C>
KC Club Apartments 200 units $5,070,992 June 14, 1989 84% 88%
Kansas City, MO
Greenhills Bicycle 312 units $11,251,613 Oct. 27, 1989 91% 91%
Club Apartments
Kansas City, MO
</TABLE>
(*) Based upon vacancy amount (in dollars) as a percent of gross possible rents.
(Gross possible rents is calculated by multiplying established market rents for
each unit type by the total unit mix. Established market rents are budgeted
rents, established by conducting market surveys to determine the typical rents
charged for similar properties in the area and through knowledge of the rates
the market will bear for similar unit types.)
The encumbrances against each property are described in Note C.
On January 7, 1998 KC Club Apartments was lost to foreclosure as described in
Note L.
Description of Real Estate:
The partnership's remaining property, the Greenhills Bicycle Club Apartments,
consists of 312 units of multi-family rental real estate. On July 8, 1996 the
Partnership refinanced the matured first mortgage on Greenhills Bicycle Club
Apartments. The terms of the mortgage are $8,100,000 at 9.0% interest with
monthly principal and interest payments in the amount of $65,000 through the
loan maturity date of August 1, 2001. The outstanding principal balance of the
note at December 31, 1997 is $8,025,000. The balance to be due at maturity
assuming no payment has been made on principal in advance of its due date is
$7,766,000. The note can be prepaid with penalty. In addition, a second mortgage
note was signed by the Partnership. The terms of the new note are $400,000 with
interest paid monthly at the rate of 9% with a maturity date of July 31, 2001 at
which time the principal shall be due. The note can be prepaid without penalty.
Competition:
The real estate business is highly competitive and the Partnership competes with
numerous entities engaged in real estate activities, some of which may have
greater financial resources than those of the Partnership. The Partnership's
management believes that success against such competition is dependent upon the
geographic location of the property, the performance of property managers, the
amount of new construction in the area and the maintenance and appearance of the
property. With respect to residential property, competition is also based upon
the design and mix of the units and the ability to provide a community
atmosphere for the tenants. The Partnership's direct competitors, located within
five miles of the Bicycle Club Apartments, are Quail Run Apartments, 690 units
built in 1985; Falcon Point, 192 units built in 1988; The Ethans, 606 units
built in 1988;
4
<PAGE>
Item 2. Properties
Competition - Cont'd
Camden Passage, 598 units built in 1989-1998; The Lakes, 400 units built in 1987
and Kelly Crossing, 624 units built in 1998. The Bicycle Club Apartments is
competitive in terms of square footage per unit and rents for unit types.
The Partnership's management believes that general economic circumstances and
trends and new properties in the vicinity of each of the Partnership's
properties will also be competitive factors. The partnership's management
believes that the properties are adequately covered by insurance.
Operating Data:
The occupancy rate for the Greenhills Bicycle Club Apartments for each of the
last five years was:
1993: 93% 1994: 92% 1995: 93% 1996: 91% 1997: 91%
The average effective annual rental per unit for each of the last five years
was:
1993: $4,685 1994: $4,870 1995: $5,360 1996: $5,750 1997: $6,000
Depreciation:
Investment property is depreciated on a straight-line basis over the estimated
useful life of the property (30 years for buildings and 5 years for furniture,
fixtures and equipment). Improvements are capitalized and depreciated over their
estimated useful lives. Maintenance and repair expenses are charged to
operations as incurred. Cost (including capital improvements subsequent to
acquisition) of the Greenhills Bicycle Club Apartments at December 31, 1997 is
$11,045,368.
Item 3. Legal Proceedings.
As of December 31, 1997, the Partnership was in negotiations with the mortgage
holder on KC Club Apartments concerning a restructure of that debt. More
favorable interest rates and possible principal write downs were under
consideration. Due to the inability to restructure the debt, on January 7, 1998
the property was lost to foreclosure.
The assets and liabilities as of December 31, 1997 that were applicable to the
foreclosed property approximated the following:
Investment properties, net of accumulated depreciation $3,388,000
Other assets 84,000
Mortgage payable, including accrued interest (3,992,000)
Other liabilities (259,000)
Rental revenue for the KC Club Apartments for the year ended December 31, 1997
was $853,000 while operating expenses (including interest) were $1,160,000.
Item 4. Submission of Matters to a Vote for Security Holders.
None
5
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Security Holder
Matters
(A) There is no established public trading market for the Units of
the Partnership.
(B) There have been no distributions the last three years.
(C) As of December 31, 1997, the Partnership had admitted 539
Limited Partners who purchased 9,685 units.
(The remainder of this page intentionally left blank.)
Item 6. Selected Financial Data,
<TABLE>
<CAPTION>
OPERATING DATA
(In Thousands) 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Rents $ 2,791 $ 2,768 $ 2,697 $ 2,299 $ 2,261
Interest and earnings on
investments 196 90 128 106 103
Property operating
expense 1,473 1,504 1,560 1,454 1,260
Interest expense 1,113 1,126 925 931 974
Depreciation/
Amortization 605 606 512 648 711
-------- -------- -------- -------- --------
Partnership Loss (204) (378) (172) (628) (581)
======== ======== ======== ======== ========
PER LIMITED PARTNERSHIP UNIT
Partnership Loss (1) $ (20.87) $ (38.64) $ (17.54) $ (64.23) $ (59.39)
======== ======== ======== ======== ========
Cash Distribution $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
BALANCE SHEET DATA 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(In Thousands)
Total Assets $ 11,617 $ 12,749 $ 13,223 $ 14,227 $ 14,779
Mortgage Debt $ 12,344 $ 12,931 $ 12,851 $ 13,737 $ 13,770
</TABLE>
(1) Partnership loss per limited partnership unit is computed by dividing loss
allocated to the Limited Partners by the weighted average number of limited
partnership units outstanding (9,685 units for each period).
6
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Revenue for the Partnership increased in 1997 to $2,987,000 compared to
$2,858,000 (4.5%) in 1996. This increased revenue was the result of an increase
in gross possible rental rates. During 1997 the operating and administrative
costs decreased $31,000 (2.1%) primarily in the areas of services, payroll and
marketing. The decrease in service, payroll and marketing was caused by
continuing management initiatives to decrease administrative expenses and
budgets, and increase Net Operating Income.
Interest expense decreased from $1,126,000 in 1996 to $1,112,000 (1.2%) in 1997.
The decrease in interest expense was due to the reduction in principal related
to the KC Club Apartments of $530,000, which was paid with the proceeds of the
sale of the certificate of accrual (as described in note D). Depreciation and
amortization expense decreased from $606,000 to $605,000. The 1997 net loss
decreased by $174,000 (46.0%).
Revenue for the Partnership was $2,858,000 for 1996 as compared to $2,825,000
(1.2%) in 1995. During 1996 the operating costs decreased $44,000 (3.4%)
primarily in the areas of services, marketing, and payroll. The decrease in
service, payroll and marketing was caused by management initiatives to decrease
administrative expenses and budgets, and increase Net Operating Income.
Interest expense increased from $925,000 in 1995 to $1,126,000 (21.7%) in 1996.
In 1995, the interest rate on the first mortgage of the Bicycle Club Apartments
was 5.5%. On December 31, 1995, the loan was refinanced with an interest rate
of 8% and on July 8, 1996, the loan was refinanced with an interest rate of 9%.
Therefore, the effective interest rate change from 5.5% in 1995 to approximately
8.5% in 1996, is the primary cause of the increase in interest expense from 1995
to 1996. Depreciation and amortization increased from $512,000 to $606,000
(18.3%). The increase in depreciation and amortization was due primarily to the
refinancing of the Bicycle Club Apartments. When the loan was refinanced in
July, 1996 the unamortized loan fees of $44,000 relating to the December 31,
1995 refinancing were written off. An additional $29,000 of amortization was
amortized relating to the costs of refinancing in July, 1996. Depreciation
expense increased due to depreciation of additions to fixed assets during 1996.
The 1996 net loss increased by $206,000 (120.3%).
Total expenses decreased $56,000 (3.5%) for 1996 operations compared to 1995
results. The decrease in expenses was primarily due to a decrease in
administrative, marketing, and payroll costs.
The Partnership anticipates that 1998 operations will improve as the result of
the foreclosure of the KC Club Apartments and of planned increases in rental
rates and decreased promotional rental incentives at the Greenhills Bicycle Club
Apartments. This planned increase in net rental income will be coupled with a
close monitoring of costs.
7
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results Of Operations - Cont'd
Due to the inability to renegotiate loan terms with the lender, the KC Club
Apartments was foreclosed in 1998. It is anticipated that this will result in a
decrease in revenue with a corresponding decrease in expenses. The 1997 rental
revenue for the KC Club was $853,000 and expenses (including interest) were
$1,160,000.
Liquidity and Sources of Capital
During 1997, the primary source of working capital was provided by investing
activities in the amount of $887,000. Operations used $59,000, and financing
activities (primarily payments on debt, as described in the Consolidated
Statement of Cash Flows) used $594,000. During the year accounts payable and
accrued expenses increased by $56,000 and accrued interest decreased by
$386,000.
The Partnership invested $500,000 (held as a Certificate of Accrual with a
market value of $1,037,000 as of December 31, 1996) which was pledged as
collateral on the KC Club Apartments until the property's net operating income
achieved the level of 120% of the debt service on the first mortgages for a
consecutive 24- month period or May 31, 2004, whichever is earlier. As a result
of declining cash flows for KC Club Apartments, on August 1, 1997, the
Certificate of Accrual was sold. The proceeds of $1,083,000 were used to pay
$553,000 of accrued interest and $530,000 of delinquent principal on the
property. The cash generated from operations for that property was insufficient
to service the mortgage under the existing payment requirements. The General
Partner had ongoing negotiations with the lender concerning a complete
restructure of the mortgage and related debt service. The negotiations were
unsuccessful and on January 7, 1998 the property was lost to foreclosure.
During 1996, the primary source of working capital was provided by existing cash
balances. Operations provided $49,000, investing activities consumed $207,000,
and financing activities used $246,000. During 1996 accounts payable and accrued
expenses decreased $339,000 and accrued interest payable increased by $142,000.
On July 8, 1996 the Partnership refinanced the matured $8,400,000 first mortgage
on Greenhills Bicycle Club Apartments. The terms of the new mortgage are
$8,100,000 at 9.0% interest with monthly principal and interest payments in the
amount of $65,000 through the loan maturity date of August 1, 2001 (5 years).
In addition, a second mortgage note was signed by the Partnership. The terms of
the note were $400,000 with interest paid monthly at the rate of 9% with a
maturity date of July 31, 2001 at which time the principal shall be due. The
note can be prepaid at a discount. The past due real estate taxes on Greenhills
Bicycle Club Apartments were paid in full from a portion of the proceeds of this
note.
8
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Sources of Capital - Cont'd
The funds advanced by the Partnership to Secured Investment Resources Fund, L.P.
began to be repaid, including 9% interest, in May, 1995. No principal or
interest payments were received in 1997, while interest accrued into the note
balance was $7,349.
As a result of the foreclosure of the KC Club Apartments, the liquidity and
financial condition of the Partnership is expected to improve. The cash
generated from operations for the KC Club Apartments was insufficient to service
the mortgage on the property. The 1997 Net Operating Income after interest
expense of the remaining property, The Greenhills Bicycle Club Apartments, was
$395,000.
One Time Gain on Sale of Investment
The Partnership recorded a one time gain on the sale of an investment of
$114,531. The Certificate of Accrual (as described in Note D.) was sold on
August 1, 1997 for $1,083,068. The recorded value of the Certificate of Accrual
was $968,537, resulting in a one time gain on the sale of $114,531.
Year 2000
The Partnership is currently dependent upon the General Partners and SPECS, Inc.
("SPECS") for management and administrative services. It is anticipated that the
General Partners and SPECS will have to modify or replace portions of their
software so that the computer systems will function properly with respect to
dates in the year 2000 and thereafter (the "Year 2000 Issue"). The project is
estimated to be completed no later than January, 1999. It is anticipated that
SPECS will install a Year 2000 compliant software system at the property by that
date. The cost of the conversion is not anticipated to be material. The general
partners believe that with modifications to existing software and conversion to
new software, the Year 2000 Issue will not pose significant operational problems
for its computer systems. The General Partners also believe that if such
conversions are not made, or are not completed timely, the Year 2000 issue would
not have a material impact on the operations of the Partnership.
Inflation
The effects of inflation on the Partnership's operations or investments are not
quantifiable. Revenues from property operations fluctuate proportionately with
increases and decreases in housing costs. Fluctuations in the rate of inflation
also affect the sales values of properties and, correspondingly, the ultimate
gains to be realized by the Partnership from property sales.
9
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
New Accounting Standards
SFAS No. 130, "Reporting Comprehensive Income," was issued in June 1997.
Comprehensive income is defined as net income plus certain items that are
recorded directly to shareholders' equity, such as unrealized gains and losses
on available-for-sale securities. Components of comprehensive income will be
included in a financial statement that has the same prominence as other
financial statements starting in the first quarter of fiscal 1999. SFAS No.
130's disclosure requirements will have no impact on the Partnership's financial
condition or results of operations.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," is effective for financial statements for periods beginning after
December 15, 1997, but interim reporting is not required in 1998. An operating
segment is defined under SFAS No. 131 as a component of an enterprise that
engages in business activities that generate revenue and expense for which
operating results are reviewed by the chief operating decision maker in the
determination of resource allocation and performance. The Partnership
anticipates no impact of SFAS No. 131 on future financial statement disclosures.
In April 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-5 Reporting on the Costs of Start-Up Activities. SOP 98-5 provides
guidance on the financial reporting of start up costs and organization costs. It
requires costs of start-up activities and organization costs to be expensed as
incurred. The SOP broadly defines start-up activities and provides examples to
help entities determine what costs are and are not within the scope of this SOP.
The SOP applies to all nongovernmental entities and, in general, is effective
for financial statements for fiscal years beginning after December 15, 1998.
The Partnership is not in its start-up phase and thus does not expect this SOP
to have a significant effect on its financial statement when it becomes
effective.
In June 1998, the Financial Accounting Standards Board Issued SFAS 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS 133 requires
companies to recognize all derivatives contracts as either assets or liabilities
in the balance sheet and to measure them at fair value. If certain conditions
are met, a derivative may be specifically designated as a hedge, the objective
of which is to match the timing of gain or loss recognition on the hedging
derivative with the recognition of (i) the changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk or (ii) the
earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999.
Historically, the Partnership has not entered into derivatives contracts either
to hedge existing risks or for speculative purposes. Accordingly, the
Partnership does not expect adoption of the new standard on January 1, 2000 to
affect its financial statements.
10
<PAGE>
Item 8. Financial Statements and Supplementary Data
SECURED INVESTMENT RESOURCES FUND, L.P. III
Index
Page
Independent Auditors' Report 12
Financial Statements:
Consolidated Balance Sheets - December 31, 13-14
1997 and 1996
Consolidated Statements of Operations -
Years ended December 31, 1997, 1996 and 1995 15
Consolidated Statements of Partnership Deficit
Years ended December 31, 1997, 1996 and 1995 16
Consolidated Statements of Cash Flows -
Years ended December 31, 1997, 1996 and 1995 17-18
Notes to Consolidated Financial Statements 19-28
11
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Secured Investment Resources Fund, L.P. III
Mission, KS
We have audited the accompanying consolidated balance sheets of Secured
Investment Resources Fund, L.P. III and affiliated companies as of December 31,
1997 and 1996, and the related statements of operations, partnership deficit and
cash flows for each of the three years in the period ended December 31, 1997. We
have also audited the schedules listed in the accompanying index. These
financial statements and schedules are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and schedules based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedules are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedules. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedules. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Secured
Investment Resources Fund, L.P. III at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
Also in our opinion, the schedules present fairly, in all material respects,
the information set forth therein.
s/ BDO Seidman LLP
St. Louis, Missouri
February 6, 1998
12
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1997 1996
----------- ----------
<S> <C> <C>
ASSETS
INVESTMENT PROPERTIES (Notes B and C)
Land and buildings $14,591,003 $14,569,699
Furniture, fixtures and equipment 1,516,980 1,471,943
----------- -----------
16,107,983 16,041,642
Less accumulated depreciation (5,273,994) (4,732,073)
----------- -----------
10,833,989 11,309,569
RESTRICTED DEPOSITS
Certificate of Accrual on
Treasury Security (Notes C and D) --- 898,023
Restricted Reserve Fund 93,553 34,490
----------- -----------
93,553 932,513
Cash 317,315 82,985
Rents and other receivables, less
allowance for doubtful accounts
of $16,200 in 1997 and
$12,000 in 1996 7,347 5,106
Prepaid expenses and deposits 30,695 29,161
Due from related parties (Notes F and G)
Notes receivable 85,694 78,345
Syndication costs 21,751 21,751
Debt issuance costs, net of
accumulated amortization of
$94,880 in 1997 and $31,627
in 1996. 226,659 289,913
----------- -----------
689,461 507,261
----------- -----------
TOTAL ASSETS $11,617,003 $12,7849,343
=========== ===========
</TABLE>
See notes to consolidated financial statements.
13
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED BALANCE SHEETS--CONT'D.
<TABLE>
<CAPTION>
December 31,
1997 1996
----------- ----------
<S> <C> <C>
LIABILITIES AND PARTNERSHIP DEFICIT
Mortgage debt (Note C) $12,344,460 $12,931,003
Accounts payable and accrued expenses --
(Note H) 300,653 244,253
Accrued interest 141,133 527,106
Unearned revenue 14,449 30,360
Tenant security deposits 105,913 102,050
----------- -----------
TOTAL LIABILITIES 12,906,608 13,834,772
----------- -----------
PARTNERSHIP DEFICIT
General Partners
Capital contributions 2,000 2,000
Partnership deficit (52,051) (50,009)
----------- -----------
(50,051) (48,009)
----------- -----------
Limited Partners (9,865 units)
Capital contributions 3,915,084 3,915,084
Partnership deficit (5,154,638) (4,952,504)
----------- -----------
1,239,554 1,037,420
----------- -----------
TOTAL PARTNERSHIP DEFICIT (1,289,605) (1,085,429)
----------- -----------
TOTAL LIABILITIES & PARTNERSHIP DEFICIT $11,617,003 $12,749,343
=========== ===========
</TABLE>
See notes to consolidated financial statements.
14
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES
Rents $2,790,617 $2,767,870 $2,697,035
Interest and other investment
income 196,127 90,428 128,763
--------- --------- ---------
2,986,744 2,858,298 2,825,798
--------- --------- ---------
OPERATING AND ADMINISTRATIVE EXPENSES
Property operating expenses 1,189,480 1,177,374 1,222,240
General and administrative expenses 54,526 70,752 70,672
Professional services (Note E) 91,873 118,896 136,955
Management fees (Note E) 137,445 137,449 130,229
Depreciation and Amortization 605,175 605,578 512,242
--------- --------- ---------
2,078,499 2,110,049 2,072,338
--------- --------- ---------
NET OPERATING INCOME 908,245 748,249 753,460
NON-OPERATING EXPENSES
Interest 1,112,421 1,126,256 925,019
PARTNERSHIP LOSS $ (204,176) $ (378,007) $ (171,559)
========= ========= =========
Allocation of loss
General Partners $ (2,042) $ (3,780) $ (1,715)
Limited Partners (202,134) (374,227) (169,844)
--------- --------- ---------
$ (204,176) $ (378,007) $ (171,559)
========= ========= =========
Partnership loss per
limited partnership unit $ (20.87) $ (38.64) $ (17.54)
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
15
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED STATEMENTS OF PARTNERSHIP DEFICIT
<TABLE>
Years Ended December 31, 1997, 1996 and 1995
<CAPTION>
General Limited*
Partners Partners Total
---------- ---------- ---------
<S> <C> <C> <C>
Balances at January 1, 1995 $(42,514) $(493,349) $(535,863)
Partnership loss (1,715) (169,844) (171,559)
-------- --------- ---------
Balances at December 31, 1995 (44,229) (663,193) (707,422)
Partnership loss (3,780) (374,227) (378,007)
-------- --------- ---------
Balances at December 31, 1996 (48,009) $(1,037,420) (1,085,429)
Partnership loss (2,042) (202,134) (204,176)
-------- --------- ---------
Balances at December 31, 1997 $(50,051) $(1,239,554) $(1,289,605)
======== ========= =========
</TABLE>
* (9,685 Limited Partner Units)
See notes to consolidated financial statements.
16
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Partnership loss $ (204,176) $ (378,007) $ (171,559)
Adjustments to reconcile
partnership loss to net
cash provided by (used in)
operating activities:
Depreciation and
amortization 605,175 605,578 512,242
Gain on sale of certificate of
accrual on Treasury security (114,531) --- ---
Provision for losses on rents
and other receivables 4,200 4,850 (664)
Changes in assets
and liabilities:
Rent and other receivables (6,441) (6,171) 48,063
Prepaid expenses and deposits (1,534) (1,992) 22,148
Accounts payable and
accrued expenses 56,400 (339,486) (12,170)
Accrued interest (385,973) 141,726 240,385
Unearned revenue (15,911) 2,881 17,520
Tenant security deposits 3,863 19,840 9,751
--------- -------- -------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (58,928) 49,219 665,716
INVESTING ACTIVITIES
Improvements to investment
properties (66,341) (102,145) (164,484)
Interest earned on certificate
of accrual on Treasury security (70,514) (70,514) (64,978)
Proceeds from sale of certificate of
accrual on Treasury security 1,083,068 --- ---
Restricted deposits (59,063) (34,490) ---
--------- -------- -------
NET CASH PROVIDED BY
(USED IN) INVESTING ACTIVITIES 887,150 (207,149) (229,462)
--------- -------- -------
</TABLE>
17
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED STATEMENTS OF CASH FLOWS--CONT'D
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Debt issuance costs $ (---) $ (321,890) $ (235)
Borrowings (payments) on debt (586,543) 79,621 (14,669)
Received from related parties --- --- 18,879
Note receivable from related parties (7,349) (3,702) (98,080)
---------- ---------- ---------
NET CASH USED IN
FINANCING ACTIVITIES (593,892) (245,971) (94,105)
---------- ---------- ---------
INCREASE/(DECREASE) IN CASH 234,330 (403,901) (342,149)
CASH BEGINNING OF PERIOD 82,895 486,886 144,737
---------- ---------- ---------
CASH END OF PERIOD $ 317,315 $ 82,985 $ 486,886
========== ========== =========
</TABLE>
See notes to consolidated financial statements.
18
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Organization and Business--Secured Investment Resources Fund, L.P. III
("Partnership") is a Missouri limited partnership formed pursuant to the
Missouri Revised Uniform Limited Partnership Act on April 20, 1988. The
Partnership has invested in two apartment complexes in the Metropolitan Kansas
City Missouri area. It extends unsecured credit, subject to security deposits,
to its tenants in both complexes. Tenant leases are generally subject to annual
renewals. The General Partners' and Limited Partners' interest in Partnership
earnings or loss initially amounts to 1% and 99%, respectively. The allocation
of the 1% interest between the General Partners is discretionary. At such point
in time cash distributions to the Limited Partners amount to their original
invested capital plus interest at a rate of the greater of 12% (14% for those
investors who subscribed for units on or before 90 days after December 7, 1988)
or the increase in the consumer price index per annum, cumulative non-compounded
on their adjusted invested capital, net income or loss will be allocated 15% to
the General Partners and 85% to the Limited Partners.
Consolidated Limited Partnerships--To satisfy the lender's requirements that
real estate assets be in single asset partnerships, in 1996 the Partnership
formed a new single asset partnership by the name of Bicycle Club Joint Venture,
L.P. The Partnership retained the same partnership structure as Secured
Investment Resources Fund, L.P. III, with Secured Investment Resources Fund,
L.P. III being the sole Limited Partner. This single asset partnership has been
fully consolidated with the Partnership.
Depreciation--Investment property is depreciated on a straight-line basis over
the estimated useful life of the property (30 years for buildings and 5 years
for furniture, fixtures and equipment). Improvements are capitalized and
depreciated over their estimated useful lives. Maintenance and repair expenses
are charged to operations as incurred.
Income Taxes--Any tax liabilities or benefits arising from the Partnership
operations are recognized individually by the respective partners and,
consequently, no provision will be made by the Partnership for income taxes or
income tax benefits.
Partnership Loss Per Limited Partnership Unit--Partnership loss per limited
partnership unit is computed by dividing the loss allocated to the Limited
Partners by the weighted average number of limited partnership units sold. The
per unit information has been computed based on 9,685 weighted average limited
partnership units outstanding.
Debt Issuance Costs--Loan costs, when incurrred, are capitalized by the
Partnership. These costs are amortized over the term of the related loans.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- CONT'D.
NOTE A--SIGNIFICANT ACCOUNTING POLICIES-- CONT'D.
Restricted Deposits--Certificates of Accrual on Treasury Security were sold
August 1, 1997. (As described in note D) These instruments are reported at cost,
adjusted for accretion of discounts which approximates market. The accretion
adjustment is recognized in interest income using the interest method over the
period to maturity.
Accounting Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statement and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Accounting for the Impairment of Long-Lived Assets--SFAS 121 requires that long-
lived assets and certain intangibles to be held and used by an entity be
reviewed for impairment when events or changes in circumstances indicate that
the carrying amount may not be recoverable. In addition, SFAS 121 requires long-
lived assets and certain intangibles to be disposed of to be reported at the
lower of carrying amount or fair value less costs to sell. The Partnership
evaluates long-lived assets to be held and used for impairment when events or
changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. Impairment is recognized if expected undiscounted future
cash flows are less than the carrying amount of these assets.
New Accounting Standards-SFAS No. 130, "Reporting Comprehensive Income," was
issued in June 1997. Comprehensive income is defined as net income plus certain
items that are recorded directly to shareholders' equity, such as unrealized
gains and losses on available-for-sale securities. Components of comprehensive
income will be included in a financial statement that has the same prominence as
other financial statements starting in the first quarter of fiscal 1999. SFAS
No. 130's disclosure requirements will have no impact on the Partnership's
financial condition or results of operations.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," is effective for financial statements for periods beginning after
December 15, 1997, but interim reporting is not required in 1998. An operating
segment is defined under SFAS No. 131 as a component of an enterprise that
engages in business activities that generate revenue and expense for which
operating results are reviewed by the chief operating decision maker in the
determination of resource allocation and performance. The Partnership
anticipates no impact of SFAS No. 131 on future financial statement disclosures.
In April 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-5 Reporting on the Costs of Start-Up Activities. SOP 98-5 provides
guidance on the financial reporting of start up costs and organization costs. It
requires costs of start-up activities and organization costs to be expensed as
incurred. The SOP broadly defines start-up activities and provides examples to
help entities determine what costs are and are not within the scope of this SOP.
The SOP applies to all nongovernmental entities and, in general, is effective
for financial statements for fiscal years beginning after December 15, 1998.
The Partnership is not in its start-up phase and thus does not expect this SOP
to have a significant effect on its financial statement when it becomes
effective.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- CONT'D.
NOTE A--SIGNIFICANT ACCOUNTING POLICIES-- CONT'D.
In June 1998, the Financial Accounting Standards Board Issued SFAS 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS 133 requires
companies to recognize all derivatives contracts as either assets or liabilities
in the balance sheet and to measure them at fair value. If certain conditions
are met, a derivative may be specifically designated as a hedge, the objective
of which is to match the timing of gain or loss recognition on the hedging
derivative with the recognition of (i) the changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk or (ii) the
earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999.
Historically, the Partnership has not entered into derivatives contracts either
to hedge existing risks or for speculative purposes. Accordingly, the
Partnership does not expect adoption of the new standard on January 1, 2000 to
affect its financial statements.
NOTE B--INVESTMENT PROPERTIES
Investment properties consists of the following:
<TABLE>
<CAPTION>
December 31,
1997 1996
----------- -----------
<S> <C> <C>
Cost (including capital improvements
subsequent to acquisition):
Greenhills Bicycle $11,045,368 $10,988,697
Club Apartments
KC Club Apartments 5,050,435 5,040,765
Office Equipment 12,180 12,180
----------- -----------
16,107,983 16,041,642
Less:
Accumulated depreciation 5,273,994 4,732,073
----------- -----------
$10,833,989 $11,309,569
=========== ===========
</TABLE>
Depreciation expense was $541,921, $529,408, and $507,242 for the years ended
December 31, 1997, 1996, and 1995 respectively.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONT'D
NOTE C--NON-RECOURSE MORTGAGE DEBT
Non-recourse mortgage debt consists of the following:
<TABLE>
<CAPTION>
December 31,
1997 1996
----------- -----------
<S> <C> <C>
Collateralized by Investment Property:
First Mortgages:
Greenhills Bicycle
Club Apartments $ 8,025,084 $ 8,082,102
KC Club Apartments $ 3,922,211 $ 4,451,382
Second Mortgage:
Greenhills Bicycle
Club Apartments $ 397,165 $ 397,519
----------- -----------
$12,344,460 $12,931,003
=========== ===========
</TABLE>
KC Club Apartments
The KC Club Apartments' mortgage note payable is collateralized by the apartment
buildings, personal property and assignment of its leases and rents. The
interest rate for this mortgage as of December 31, 1997 was 8.45%.
As a result of declining cash flows for KC Club Apartments, on August 1, 1997,
the certificate of accrual (as described in note D) was sold. The proceeds of
$1,083,000 were used to pay $553,000 of accrued interest and $530,000 of
delinquent principal on the property. The cash generated from operations for
that property was insufficient to service the mortgage under the current payment
requirements. The Managing General Partner had ongoing negotiations with the
lender concerning a complete restructure of the mortgage and related debt
service. The negotiations were unsuccessful and on January 7, 1998 the property
was lost to foreclosure. (See note L).
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONT'D
NOTE C--NON-RECOURSE MORTGAGE DEBT
Greenhills Bicycle Club Apartments
On July 8, 1996 the Partnership refinanced the matured first mortgage on
Greenhills Bicycle Club Apartments. The terms of the new mortgage are $8,100,000
at 9.0% interest with monthly principal and interest payments in the amount of
$65,000 through the loan maturity date of August 1, 2001.
In addition, a second mortgage note was signed by the Partnership. The terms of
the new note are $400,000 with interest paid monthly at the rate of 9% with a
maturity date of July 31, 2001 at which time the principal shall be due. The
past due real estate taxes on Greenhills Bicycle Club Apartments were paid in
full from a portion of the proceeds of this note.
Cash paid for interest totaled $1,498,393, $984,531, and $886,813 for the years
ended December 31, 1997, 1996, and 1995, respectively.
Maturities of mortgage debt are as follows:
1998 $3,984,578
1999 68,217
2000 74,616
2001 8,217,049
Thereafter 0
------------
$ 12,344,460
============
NOTE D--LEASES
The Partnership entered into a land lease agreement for the land underlying the
KC Club Apartments for a term of twenty years. The lease payments for years 1 to
15 are calculated at 50% of that year's net operating income in excess of an
ascending scale from $650,000 to $800,000. During years 16 to 20, the annual
lease payments are 10% of the land's then appraised value. For the years ended
December 31, 1997, 1996 and 1995, the net operating income did not exceed the
land lease requirements which resulted in no lease payments. In addition, the
Partnership is obligated to pay real estate taxes assessed on the land value.
At all times during the term of the lease, the Partnership (or its assignee) has
the right to purchase the land at a price equal to the greater of $2,000,000 or
fair market value at the time the option is exercised. Should the buildings and
improvements be sold prior to the end of the land lease agreement (20 years),
the Partnership is under no obligation for payment of the land rental
assessments for the remaining portion of the land lease agreement. The lease was
effectively terminated upon foreclosure of the property.
The Partnership invested $500,000 (held as a Certificate of Accrual with a
market value of $1,037,000 as of December 31, 1996) which was pledged as
collateral until the property's net operating income achieves the level of 120%
of the debt service on the first mortgages for a consecutive 24-month
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONT'D
NOTE D--LEASES--CONT'D.
period or May 31, 2004, whichever is earlier. The Certificate of Accrual was
sold on August 1, 1997 for $1,083,000. The proceeds were used to pay $553,000 of
accrued interest and $530,000 of principal on the KC Club Apartments. The
property was subsequently lost to foreclosure on January 7, 1998.
NOTE E--RELATED PARTY--MANAGEMENT FEES
SPECS, Inc., a Kansas corporation in which James R. Hoyt, a general partner, is
a shareholder, receives property management fees for providing property
management services. SPECS, Inc. also performs various professional services for
the Partnership, primarily tax accounting, audit preparation, SEC 10-Q and 10-K
preparation, and investor services. Amounts paid by the Partnership to SPECS,
Inc. are as follows:
1997 1996 1995
--------- --------- ---------
Property Management Fee $ 137,445 $ 137,449 $ 130,229
Professional Services 42,707 45,335 44,000
--------- ----------- ----------
$ 180,152 $ 182,784 $ 174,229
========= ========= =========
The General Partners are entitled to receive a Partnership Management Fee equal
to 5% of Cash Flow From Operations (as defined) for managing the normal
operations of the Partnership. There was no management fee due for years ending
December 31, 1997, 1996 and 1995.
NOTE F--RELATED PARTY--NOTE RECEIVABLE
On April 12, 1995, the SIR Partners III, L.P. executed a note payable to the
Partnership in the amount of $522,004. Interest during 1995 was 9%. Interest
earnings for the note was $50,509 in 1995.
On December 28, 1995, the note principal and all accrued interest through that
date was retired in full pursuant to an assumption agreement between the
Partnership, SIR Partners III, and James R. Hoyt. In exchange for payment of the
note (and excess costs/fees described in Note G), the Managing General Partner
assumed full responsibility for the matured second mortgage on Greenhills
Bicycle Club Apartments. The Partnership was provided with an executed release
of the note and second deed of trust relating to the Greenhills mortgage.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONT'D
NOTE F--RELATED PARTY--NOTE RECEIVABLE--CONT'D
Funds advanced to Secured Investment Resources Fund, L.P. are being repaid
beginning May 1, 1995 including 9% interest. No principal or interest payments
were received in 1997. Interest accrued on the note balance was $7,349.
Amounts due from related parties consist of the following:
December 31,
1997 1996
-------- -------
Secured Investment Resources Fund, L.P. $85,694 $78,345
NOTE G--SYNDICATION FEES AND ACQUISITION FEES
Because of many factors, the Partnership did not raise the level of capital
anticipated during the offering period. As a result, syndication and acquisition
costs and the Related Party Note Receivable, outlined in Note F, exceeded the
amount allowed per the Partnership Agreement. The General Partners are obligated
to reimburse these excess costs/fees. James R. Hoyt has agreed to reimburse the
excess costs/fees to the Partnership (as described in Item 11 (c)).
SIR Partners III, L.P., a General Partner of the Partnership (or its assignee),
has been paid an acquisition fee of $680,000. This fee was for selecting,
evaluating, negotiating, and closing services on the acquisition of KC Club
Apartments and Greenhills Bicycle Club Apartments. As stated in the Prospectus,
acquisition fees may not exceed 11.5% of the gross proceeds of limited
partnership interests issued ($556,888). The General Partners are obligated to
reimburse these excess costs/fees.
On December 28, 1995, the excess costs and fees were reduced to $21,751 pursuant
to an assumption agreement between the Partnership, SIR Partners III, and James
R. Hoyt. In exchange for payment of the excess costs and fees (as well as the
note receivable described in Note F), the Managing General Partner assumed full
responsibility for the matured second mortgage on Greenhills Apartments. The
Partnership was provided with an executed release of the note and second deed of
trust relating to the Greenhills mortgage. Subsequent to December 31, 1997, the
remainder of the excess costs and fees was paid in full.
December 31,
1997 1996
--------- ---------
General Partners--Excess
Syndication Costs:
Paid by the Partnership $21,751 $21,751
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONT'D
NOTE H--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
December 31,
1997 1996
------ ------
Vendor Accounts Payable .......................... $ 19,601 $ 15,417
Property Taxes ................................... 198,901 127,938
Professional Fees ................................ 33,804 55,986
Utilities ........................................ 25,713 25,054
Insurance ........................................ 8,429 8,352
Payroll Reimbursement ............................ 14,205 11,506
-------- --------
$300,653 $244,253
======== ========
As of December 31, 1997, unpaid Property Taxes include $134,900 of delinquent
1995-96 taxes and $57,600 of 1997 taxes related to the KC Club Apartments.
NOTE I--INCOME TAXES
The Partners' capital accounts differ for financial reporting purposes and
federal income tax purposes. The primary differences result from depreciation.
The effect of these items is summarized as follows:
December 31,
1997 1996
------ ------
Financial Reporting Basis:
Total assets $ 11,617,003 $ 12,749,343
Total liabilities (12,906,608) (13,834,772)
------------- ------------
Total Partners' (deficit) capital $ (1,289,605) $(1,085,429)
============= ============
Tax Basis:
Total assets $ 12,000,633 $ 13,139,467
Total liabilities (11,798,061) (12,710,475)
------------- -------------
Total Partners' capital $ 202,572 $ 428,992
============ =============
Years Ended December 31,
1997 1996 1995
------ ------ ------
Partnership loss-financial
reporting purposes $ (204,176) $ (378,007) $(171,559)
----------- ----------- ----------
Book versus tax differences
due to:
Depreciation and
amortization (10,694) (37,354) (57,303)
Other (11,550) 8,821 27,037
--------- ------------ --------
(22,244) (28,533) (30,266)
--------- ---------- --------
Partnership loss-federal
income tax purposes $ (226,420) $ (406,540) $(201,825)
=========== ============ ==========
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONT'D
NOTE J--CASH DISTRIBUTIONS
No distributions have been made since July 1990. Future distributions will only
be made from excess cash flow not needed for working capital reserves.
NOTE K--PARTNERSHIP LIQUIDITY
The Partnership operates within the real estate industry and is subject to its
economic forces, which contributes additional liquidity risk to the
Partnership's investment portfolio. These risks include, but are not limited to,
changes in general or local economic conditions, changes in interest rates and
the availability of permanent mortgage financing which may render the
acquisition, sale or refinancing of the property difficult or unattractive,
changes in real estate and zoning laws, increases in real estate taxes, federal
or local economic or rent controls, floods, earthquakes and other acts of God
and other factors beyond the control of the Partnership's management. The
illiquidity of real estate investments generally may impair the ability of the
Partnership to respond promptly to changing economic conditions.
The General Partners believe that sufficient working capital will be available
to fund known, ongoing operating and capital expenditure requirements of the
Partnership during 1998. The anticipated working capital sources are payments
received on notes and miscellaneous receivables and cash flow from operations
during 1998, which is expected to improve over that of the previous year.
Several factors which could positively affect 1998 operations are the
implementation of rental rate increases and decreases in the amount of
promotional rent discounts allowed for the leasing of apartment units.
Accomplishment of these objectives is partially predicated on the real estate
economic conditions discussed above, which are beyond the control of the
Partnership, and will influence the achieved results.
As a result of the foreclosure of the KC Club Apartments (as described in Note
L), the liquidity and financial condition of the partnership is expected to
improve. The cash generated from operations for the KC Club Apartments was
insufficient to service the mortgage on the property. The 1997 Net Operating
Income after interest expense of the remaining property, The Greenhills Bicycle
Club Apartments, was $395,000.
NOTE L--SUBSEQUENT EVENT
As of December 31, 1997, the Partnership was in negotiations with the mortgage
holder on KC Club Apartments concerning a restructure of that debt. More
favorable interest rates and possible principal write downs were under
consideration. Due to the inability to restructure the debt, on January 7, 1998
the property was lost to foreclosure.
The assets and liabilities as of December 31, 1997 that were applicable to the
foreclosed property approximated the following:
Investment properties, net of accumulated depreciation $3,388,000
Other assets 84,000
Mortgage payable, including accrued interest (3,992,000)
Other liabilities (259,000)
Rental revenue for the KC Club Apartments for the year ended December 31, 1997
was $853,000 while operating expenses (including interest) were $1,160,000.
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONT'D
NOTE M--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values reflected in the balance sheets at December 31, 1997
reasonably approximate the fair values for cash and cash equivalents. The
Partnership cannot estimate the fair value of its borrowings collateralized by
the KC Club Apartments at December 31, 1997 as there is no readily available
market value for instruments with similar characteristics. The estimated fair
value of the borrowings collateralized by the Bicycle Club Apartments
approximate the carrying values.
(The remainder of this page is left blank intentionally)
28
<PAGE>
Item 9. Changes in and Disagreements with Registrant's Certifying Accountants
on Accounting and Financial Disclosure.
None.
Part III
Item 10. Directors and Executive Officers of the Registrant.
The General Partners of the Partnership are James R. Hoyt (individual), SIR
Partners III, L.P. (partnership) and Nichols Resources, Ltd. (corporation).
Nichols Resources, Ltd. (a corporate General Partner) is a Missouri corporation
formed on August 22, 1988 for the purpose of acting as a general partner of
public real estate programs and otherwise investing in and dealing with limited
partnerships, property management and the real estate syndication business.
Nichols Resources, Ltd. was a wholly-owned subsidiary of the J.C. Nichols
Company until January, 1998. It is now a wholly-owned subsidiary of MJS
Associates, Inc., a Missouri corporation with executive offices located at 1100
Main Street, Ste 2100 Kansas City, Missouri 64105. MJS Associates, Inc. acquired
all of the outstanding stock of Nichols Resources, Ltd. in January 1998 from
J.C. Nichols company. Nichols Resources, Ltd. issued 15,000 shares of common
stock for $1,500,000 on August 22, 1988.
James R. Hoyt ( Managing General Partner), age 60, holds a Bachelor's Degree in
Business Administration and is a licensed real estate broker in two states. Mr.
Hoyt has been actively involved for more than the past twenty years in various
real estate endeavors including development, syndication, property management
and brokerage.
Mr. Hoyt is the Managing General Partner and sponsor of Secured Investment
Resources Fund, L.P. (S.I.R.) and Secured Investment Resources Fund. L.P. II
(S.I.R. II). Since 1983, Mr. Hoyt has been involved as the Individual General
Partner in ten specified real estate private placement offerings. As of December
31, 1997, these partnerships, including Secured Investment Resources Fund, L.P.
III, have raised a total of $60,709,750.
SIR Partners III, L.P. f/k/a Hoyt Partners III, L.P., (a limited partnership
General Partner) is a limited partnership organized on February 23, 1988 under
the statutes of the State of Missouri. James R. Hoyt is the General Partner. The
Partnership was formed for the purpose of acting as a general partner and
acquisition agent of Secured Investment Resources Fund, L.P. III.
Item 11. Management Compensation
During 1997, The Partnership paid $137,445 in fees to related parties for
property management services. The Partnership also paid $42,707 to related
parties for professional services as described in Note E.
29
<PAGE>
Item 12. Security ownership of Certain Beneficial owners and Management.
(a) Security Ownership of certain beneficial owners.
No individual or group as defined by Section 13 (b) (3) of the Securities
Exchange Act of 1934, known to the registrant is the beneficial owner of more
than 5 percent of the registrant's securities.
(b) Security ownership of Management.
The General Partners do not own any limited partner units, although together
they own a 1% general partnership interest in the Partnership. As of September
1, 1998, officers and directors of Nichols Resources, Ltd. as a group
beneficially own 20 limited partnership units of the Partnership, which
represent less than 1% of the outstanding limited partner units.
(c ) Change in Control.
On July 21st, 1998, Nichols Resources Ltd., a general partner of the Partnership
("Nichols"), Bond Purchase, L.L.C. ("Bond") and David L. Johnson ("Johnson ")
and other affiliates of Johnson, along with the Partnership, SIR Partners III,
L.P., general partner of the Partnership ("SIR Partners III"), SPECS, Inc., the
company which provides the Partnership management and investor services
("SPECS") and James R. Hoyt, Managing General Partner of the Partnership
("Hoyt"), entered into a certain Settlement Agreement and Mutual Release (the
"Agreement"). The Agreement settled a dispute which had arisen between Nichols,
SIR Partners III and Hoyt, general partners of the Partnership over the proper
course of action to be taken for the Partnership. This dispute resulted in the
filing of a civil action in the Circuit Court of Jackson County, Missouri.
Pursuant to the Agreement, Nichols has agreed (i) to pay $100,000 in cash to SIR
Partners III and Hoyt, $21,751 of which will be paid by Hoyt to the Partnership
to pay a receivable owed by the general partners of the Partnership for unpaid
excess syndication costs and expenses currently shown on the Partnership's
financial statements and (ii) to dismiss the civil actions filed. In exchange
for the $100,000 in cash and the dismissal of the civil actions, SIR Partners
III and Hoyt have agreed (i) to transfer their General Partnership interests to
Nichols and (ii) to withdraw as Managing General Partner and general partners.
Under the Partnership's Amended and Restated Agreement of Limited Partnership
dated December 6, 1988 (the "Partnership Agreement"), such transfers and
withdrawals are subject to the
30
<PAGE>
Item 12. Security ownership of Certain Beneficial owners and Management
--Cont'd
majority vote of the Partnership's limited partners (the "Limited Partners").
Hoyt and SIR Partners III have also agreed that Nichols, as general partner of
the Partnership, shall have the right to designate the management company to
manage the assets of the Partnership and to execute all documents to effectuate
the release of the current management contract.
Nichols, as a general partner of the Partnership, intends to call for a vote
without a meeting of the Limited Partners, file a proxy statement with the
Securities and Exchange Commission and solicit proxies from the Limited Partners
to seek approval from the Limited Partners to the transfer of the general
partnership interests, the withdrawal of Hoyt and SIR Partners III as general
partners of the Partnership and the replacement of Hoyt as Managing General
Partner in favor of Nichols. Hoyt and SIR Partners III have agreed to use their
best efforts to assist in obtaining approval from the limited partners of the
withdrawal of Hoyt and SIR Partners III as General Partners of the partnership.
In the event the majority approval is obtained, Nichols shall be the sole
general partner of the Partnership.
Item 13. Certain Relationships and Related Transactions.
See Notes to Financial Statements, Notes E, F and G appearing in Item 8.
(The remainder of this page left blank intentionally)
31
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1) The following Financial Statements of Secured Investment Resources
Fund, L.P. III, are included in Item 8:
SECURED INVESTMENT RESOURCES FUND, L.P. III Page
(i) Independent Auditors' Report 12
(ii) Consolidated Balance Sheets -
December 31, 1997 and 1996 13-14
(iii) Consolidated Statements of Operations -
Years Ended December 31, 1997,
1996, and 1995 15
(iv) Consolidated Statements of Partnership
Deficit - Years Ended December 31,
1997, 1996, and 1995 16
(v) Consolidated Statements of Cash Flows -
Years Ended December 31, 1997,
1996, and 1995 17-18
(vi) Notes to Consolidated Financial
Statements 19-28
(a)(2) The following Financial Statement Schedules as
part of this report:
(i) Schedule II - Allowance For Doubtful
Accounts Information 36
(ii) Schedule III - Real Estate and
Accumulated Depreciation 37-38
All schedules other than those indicated in the index have been omitted as the
required information is presented in the financial statements, related notes or
is inapplicable.
32
<PAGE>
(a)(3) The following Exhibits are Incorporated by Reference and are an
integral part of this Form 10-K.
Exhibit Number Description
(3) (a) Amended and Restated Agreement of Limited
Partnership. (iii)
(b) Certificate of Limited Partnership. (i)
(4) (a) Form of Subscription Agreement. (iii)
(b) Form of Certificate evidencing units. (i)
(10) (a) Property Management Agreement As amended. (ii)
(b) Escrow Agreement between the Partnership and
The Mission Bank. (i)
(c) Real Estate Contract of Sale for the Brywood Hills
Apartments. (iv)
(d) Real Estate Contract of Sale for The Greenhills Bicycle
Club (formerly Candlewyck Apartments). (v)
(e) Deed of Trust and Promissory Note for Brywood Hills
Apartments. (vii)
(f) Deed of Trust and Promissory Notes for Greenhills
Bicycle Club (formerly Candlewyck Apartments). (vii)
(16) (a) Letter regarding change in certifying accountant. (vi)
(25) (a) Power of Attorney. (i)
(27) (a) Secured Investment Resources Fund, L.P. III Financial
Data Schedule at December 31, 1997 and for the year
then ended.
(28) (b) Guarantee of General Partners. (i)
33
<PAGE>
(i) Previously filed on September 13, 1988 as an Exhibit to the
Registration Statement on Form S-11 (file no. 3324235) such
Exhibit and Registration Statement incorporated herein by
reference.
(ii) Previously filed on December 7, 1988 as an Exhibit to
Amendment #1 to registration Statement of Form S-11 such
Exhibit and Registration Statement incorporated herein by
reference.
(iii) Previously filed on December 7, 1988 as part of
Amendment #1 to Registration Statement and
incorporated herein by reference.
(iv) Previously filed as an exhibit to a current report on Form
8-K dated June 12, 1989 which exhibit and Form is
incorporated herein by reference.
(v) Previously filed as an exhibit to a current report on Form
8-K dated October 30, 1989 which exhibit and Form is
incorporated herein by reference.
(vi) Previously filed as an exhibit to a current report on Form
8-K dated December 4, 1989 which exhibit and Form
incorporated herein by reference.
(vii) Filed herewith.
(b) Report of Form 8-K filed during the fourth quarter.
A Form 8-K was filed on July 31, 1998 (file no.
000-18475), such Form 8-K incorporated herein by
reference.
(c) See Exhibit Index contained herein.
(d) See (a)(2) above.
34
<PAGE>
SIGNATURES
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 hereunto duly authorized.
Secured Investment Resources
Fund, L.P., III, a Missouri limited
partnership (Registrant)
Date: March 3, 1999 By: Nichols Resources, Ltd., its
general partner
By: /s/ Christine A. Robinson
Christine A. Robinson
President
Pursuant to the requirements of the Securities Exchanged Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated:
No annual report of proxy material has been sent to security holders during the
Registrant's last fiscal year, but an annual report and proxy material will be
furnished to security holders subsequent to the filing of the annual report on
this form.
/s/ James R. Hoyt Individual general March 5, 1999
James R. Hoyt partner of the Registrant
/s/ David L. Johnson Director of Nichols March 3, 1999
David L. Johnson Resources, Ltd., a
corporate general partner
of the Registrant
/s/ John W. Alvey Director of Nichols March 3, 1999
John W. Alvey Resources, Ltd., a
corporate general partner
of the Registrant
/s/ Daniel W. Pishny Director of Nichols March 3, 1999
Daniel W. Pishny Resources, Ltd., a
corporate general partner
of the Registrant
35
<PAGE>
Secured Investment Resources Fund L.P. III
Schedule II - Allowance for Doubtful Accounts
December 31, 1997
Balance at Bad Debt Write Balance at
Beginning of Charged to Offs Deducted End
Period Operations From Allowance of Period
For Years Ended
December 31,
1995 $ 7,814 $ (664) $ -- $ 7,150
1996 $ 7,150 $ 4,850 $ -- $ 12,000
1997 $12,000 $ 62,400 $ 58,200 $ 16,200
(the remainder of this page left blank intentionally)
36
<PAGE>
<TABLE>
Secured Investment Resource Fund , LP III
Schedule III - Real Estate & Accumulated Depreciation
December 31, 1997
<CAPTION>
Initial Cost to Partnership (a) Subsequent to Acquisition
----------------------------------- ---------------------------
Building & Furniture Reduction
Encumbrances Land Improvement Equipment Improvements of Basis (b)
------------ ------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Garden Apartments:
KC Club Apartments 3,922,211 0 4,775,465 295,527 195,464 (216,021)
Kansas City, MO
Green Hills Bike Club 8,422,249 430,937 9,988,057 832,619 379,597 (576,842)
Kansas City, MO
Other Equipment 0 0 0 0 12,180 0
---------- -------- ---------- --------- --------- --------
TOTAL 12,344,460 430,937 14,763,522 1,128,146 587,241 (792,863)
=========== ======== =========== ========== ======== =========
<CAPTION>
Gross Amount at Which
Carried at Close of Period
--------------------------------------------------------------
Building & Furniture Accumulated Date Depreciation
Land Improvements Equipment Total Depreciation Acquired Life
------ ------------- ---------- ------ ------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Garden Apartments:
KC Club Apartments 0 4,641,246 409,189 5,050,435 1,662,423 06/30/89 30 Yrs(1)
Kansas City, MO 5 Yrs(2)
Green Hills Bike Club 407,226 9,542,531 1,095,611 11,045,368 3,599,391 10/27/89 30 Yrs(1)
Kansas City, MO 5 Yrs(2)
Other Equipment 0 0 12,180 12,180 12,180 5 Yrs(2)
--------- ------------ ----------- ----------- -----------
TOTAL 407,226 14,183,777 1,516,980 16,107,983 5,273,994
========= =========== =========== =========== =============
</TABLE>
[FN]
(1) Estimated useful life of buildings
(2) Estimated useful life of furniture and fixtures
NOTES:
(a) The initial cost to the Partnership represents the original purchase
price of the properties, including $205,562 and $145,578 of
improvements incurred in 1988 and 1987, respectively, which were
contemplated at the time the property was acquired.
(b) Receipts received under the terms of certain guarantee agreement are
recorded by the Partnership as a reduction of the basis of the property
to which guaranteed income relates.
37
<PAGE>
Secured Investment Resource Fund , LP III
Schedule III - Real Estate & Accumulated Depreciation
December 31, 1997 --CONT'D
(c) reconciliation of Real Estate Owned:
<TABLE>
<CAPTION>
Buildings & Furniture &
Total Land Improvement Equipment
-------------- ------------ ---------------- ---------------
<S> <C> <C> <C> <C>
Balance at January 1, 1995 15,775,013 407,226 14,132,554 1,235,233
Additions during year:
Reclassification 0 0 0 0
Improvements 164,484 0 21,756 142,728
-------------- ------------ ------------- -----------
Balance at December 31, 1995 15,939,497 407,226 14,154,310 1,377,961
Additions during year:
Improvements 102,145 0 8,163 93,982
-------------- ------------ ------------- -----------
Balance at December 31, 1996 16,041,642 407,226 14,162,473 1,471,943
Additions during year:
Improvements 66,341 0 21,304 45,037
-------------- ------------ ------------- -----------
Balance at December 31, 1997 16,107,983 407,226 14,183,777 1,516,980
============== ============ ============= ===========
(d) Reconciliation of Accumulated Depreciation:
Balance at January 1, 1995 3,695,423 0 2,574,786 1,120,637
Additions during year:
Depreciation Expenses 507,242 437,578 69,664
-------------- ------------ ------------- -----------
Balance at December 31, 1995 4,202,665 0 3,012,364 1,190,301
Additions during year:
Depreciation Expenses 529,408 435,991 93,417
-------------- ------------ ------------- -----------
Balance at December 31, 1996 4,732,073 0 3,448,355 1,283,718
Additions during year:
Depreciation Expenses 541,921 462,547 79,374
-------------- ------------ ------------- -----------
Balance at December 31, 1997 5,273,994 0 3,910,902 1,363,092
============== ============ ============= ===========
(e) The total gross amount of real estate at December 31, 1997 includes
$566,888 of acquisition fees paid to affiliates.
</TABLE>
38
<TABLE> <S> <C>
<S> <C>
<ARTICLE>5
<MULTIPLIER>1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 317,315
<SECURITIES> 0
<RECEIVABLES> 23,547
<ALLOWANCES> 16,200
<INVENTORY> 0
<CURRENT-ASSETS> 689,461
<PP&E> 16,107,983
<DEPRECIATION> 5,273,994
<TOTAL-ASSETS> 11,617,003
<CURRENT-LIABILITIES> 562,148
<BONDS> 12,344,460
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,617,003
<SALES> 0
<TOTAL-REVENUES> 2,986,744
<CGS> 0
<TOTAL-COSTS> 1,473,324
<OTHER-EXPENSES> 605,175
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,112,421
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (204,176)
<EPS-PRIMARY> (20.87)
<EPS-DILUTED> 0
</TABLE>
