FORM 10-QSB.--QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
(As last amended by 34-32231, eff. 6/3/93.)
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
For the transition period.........to.........
Commission file number 0-18419
BRUNNER COMPANIES INCOME PROPERTIES L.P. III
(Exact name of small business issuer as specified in its charter)
Delaware 31-1266850
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (864) 239-1000
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) BRUNNER COMPANIES INCOME PROPERTIES L.P. III
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 1996
Assets
Cash and cash equivalents:
Unrestricted $ 819
Restricted-tenant security deposits 4
Accounts receivable 140
Escrows for taxes and insurance 95
Other assets 98
Investment properties:
Land $ 1,525
Buildings and related personal property 12,901
14,426
Less accumulated depreciation (2,952) 11,474
$12,630
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 20
Tenant security deposits 6
Accrued taxes 78
Other liabilities 25
Mortgage notes payable 11,989
Partners' Capital (Deficit)
General partner $ (55)
Class A Limited Partners - (850,900 units) 545
Class B Limited Partners - (8,600 units) 22 512
$12,630
See Accompanying Notes to Financial Statements
b) BRUNNER COMPANIES INCOME PROPERTIES L.P. III
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 461 $ 609 $ 890 $ 1,215
Other income 7 21 16 31
Total revenues 468 630 906 1,246
Expenses:
Operating 69 63 143 141
General and administrative 18 30 50 62
Depreciation 107 149 213 298
Interest 279 407 559 817
Property taxes 26 40 48 81
Write-down of property (Note C) -- -- -- 415
Total expenses 499 689 1,013 1,814
Gain on foreclosure (Note C) -- -- -- 844
Net (loss) income $ (31) $ (59) $ (107) $ 276
Net (loss) income allocated
to general partner (1%) $ -- $ (1) $ (1) $ 3
Net (loss) income allocated
to Class A limited
partners (98.01%) (31) (58) (105) 270
Net (loss) income allocated
to Class B limited
partners (.99%) -- (--) (1) 3
$ (31) $ (59) $ (107) $ 276
Net (loss) income per Class A
limited partnership unit $ (.04) $ (.07) $ (.12) $ .32
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
c) BRUNNER COMPANIES INCOME PROPERTIES L.P. III
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
General Limited Partners
Partner Class A Class B Total
<S> <C> <C> <C> <C>
Original capital contributions $ 1 $ 8,420 $ 86 $ 8,507
Partners' capital (deficit) at
December 31, 1995 $ (54) $ 650 $ 23 $ 619
Net loss for the six months
ended June 30, 1996 (1) (105) (1) (107)
Partners' capital (deficit)
at June 30, 1996 $ (55) $ 545 $ 22 $ 512
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
d) BRUNNER COMPANIES INCOME PROPERTIES L.P. III
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (107) $ 276
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation 213 298
Gain on foreclosure -- (844)
Write-down of property -- 415
Amortization of intangible assets 8 14
Change in accounts:
Restricted cash -- 5
Accounts receivable 108 (3)
Escrows for taxes and insurance (25) 64
Other assets 1 (37)
Accounts payable (1) (9)
Tenant security deposit liabilities 2 (4)
Accrued taxes 22 (27)
Other liabilities 6 58
Net cash provided by
operating activities 227 206
Cash flows from investing activities: -- --
Cash flows from financing activities:
Loan extension costs -- (82)
Payment on mortgage notes payable (108) (16)
Net cash used in financing activities (108) (98)
Net increase in cash and cash equivalents 119 108
Cash and cash equivalents at beginning of period 700 733
Cash and cash equivalents at end of period $ 819 $ 841
Supplemental disclosure of cash flow information:
Cash paid for interest $ 557 $ 810
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
BRUNNER COMPANIES INCOME PROPERTIES L.P. III
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
Foreclosure
During the first quarter of 1995, Forest Ridge Shopping Center was foreclosed
upon by the lender. In connection with this foreclosure, the following accounts
were adjusted by the non-cash amounts noted below.
1995
Accounts receivable $ (25)
Other assets (32)
Investment properties (7,587)
Accumulated depreciation 1,163
Accrued taxes 67
Other liabilities 58
Mortgage notes payable 7,200
Gain on disposal of property $ 844
See Accompanying Notes to Financial Statements
e) BRUNNER COMPANIES INCOME PROPERTIES L.P. III
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements for Brunner Companies Income
Properties LP. III (the "Partnership"), have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Managing General Partner (Brunner Management Limited
Partnership), all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and six month periods ended June 30, 1996, are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1996. For further information, refer to the financial
statements and footnotes thereto included in the Partnership's annual report on
Form 10-KSB for the fiscal year ended December 31, 1995.
Reclassifications
Certain reclassifications have been made to the 1995 information to conform to
the 1996 presentation.
Note B - Mortgage Notes Payable
The mortgage notes payable for Highpoint ($6,600,000) and Gateway ($5,616,000)
matured on March 1, 1995. The Partnership successfully obtained a long-term
extension related to the Highpoint and Gateway notes in May of 1995. The
Highpoint note matures October 1, 2008, and the Gateway note matures January 1,
2008. Both notes are cross-collateralized, cross-defaulted and have an interest
rate of 9.25%.
Note C - Foreclosure of Forest Ridge
On January 5, 1995, the lender foreclosed on Forest Ridge Shopping Center. The
$7,200,000 mortgage matured January 1, 1994, and was in default. The lender
granted forebearances through June 30, 1994, while refinancing discussions
continued between the Partnership and the lender. These discussions did not
ultimately produce an agreement to either refinance or sell the property and the
Partnership did not contest the lender's foreclosure. In the Managing General
Partner's opinion, it was not in the Partnership's best interest to contest the
foreclosure action or file for reorganization under bankruptcy laws. On January
5, 1995, the Partnership recorded a valuation write-down of $415,000, to reduce
the carrying costs of the Forest Ridge assets to their estimated market value
resulting in a gain on the foreclosure of $844,000.
Note D - Foreclosure of Bay Village
On December 4, 1995, the lender foreclosed on the Bay Village Shopping Center.
The $5,300,000 mortgage matured January 1, 1994, and had been in default since
that date. The lender granted forebearances through June 30, 1994, while
refinancing discussions continued between the Partnership and the lender. These
discussions did not ultimately produce an agreement to either refinance or sell
the property and the lender foreclosed on the property. In the Managing General
Partner's opinion, it was not in the Partnership's best interest to contest the
foreclosure action or file bankruptcy. The estimated fair value of Bay Village
approximated the amount payable to the mortgage holder; therefore, a gain on the
disposal of the property through foreclosure of $16,000, the difference between
the carrying value of the property and the debt to the mortgage holder, was
recorded.
Note E - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The partnership agreement provides for payments to
affiliates for services and for reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. The following payments were made to
affiliates of the Managing General Partner in 1996 and 1995:
Six Months Ended June 30
1996 1995
Property management fees $27 $36
Reimbursement for services of affiliates 13 19
Additionally, the Partnership paid $7,000 and $25,000 during the six months
ended June 30, 1996 and 1995, respectively, to an affiliate of the Managing
General Partner for lease commissions related to new leases of the Partnership's
commercial properties. These lease commissions are included in other assets and
amortized over the term of the respective leases.
The Partnership insures its properties under a master policy through an agency
and insurer unaffiliated with the Managing General Partner. An affiliate of the
Managing General Partner acquired, in the acquisition of a business, certain
financial obligations from an insurance agency which was later acquired by the
agent who placed the current year's master policy. The current agent assumed
the financial obligations to the affiliate of the Managing General Partner who
receives payments on these obligations from the agent. The amount of the
Partnership's insurance premiums accruing to the benefit of the affiliate of the
Managing General Partner by virtue of the agent's obligations is not
significant.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership's investment properties consist of two retail centers. The
following table sets forth the average occupancy of the properties for the six
months ended June 30, 1996 and 1995:
Average
Occupancy
1996 1995
Gateway Plaza
Mt. Sterling, Kentucky 85% 94%
Highpoint Village
Bellefontaine, Ohio 94% 95%
Wal-Mart, an anchor tenant, vacated the Gateway Plaza in May of 1996. This
tenant is liable for, and the Partnership expects that it will pay, its rental
payments through the year 2008 when its lease expires. Certain tenants in the
shopping center have the option to pay a reduced rental rate based on tenant
sales due to the vacancy of this anchor tenant. It is unknown at this time to
what extent this vacancy will negatively impact the performance of the shopping
center.
The Partnership realized a net loss of $107,000 for the six months ended June
30, 1996, compared to net income of $276,000 for the six months ended June 30,
1995. The Partnership realized a net loss of $31,000 for the three months ended
June 30, 1996, compared to a net loss of $59,000 for the corresponding period of
1995. The decrease in net income for the six month period ended June 30, 1996,
is primarily due to the foreclosure of Forest Ridge Shopping Center in January
1995. This foreclosure resulted in a gain on foreclosure in 1995 of $844,000,
offset by a write-down of the property of $415,000. In addition, the decreases
for the three and six month periods ended June 30, 1996, in rental income,
depreciation, interest expense and property taxes were primarily a result of the
foreclosure of Bay Village in December 1995. Other income decreased for the
three and six month periods ended June 30, 1996, as a result of a non-recurring
easement fee paid by Wal-Mart at Gateway Plaza in 1995.
On December 4, 1995, the lender foreclosed on the Bay Village Shopping Center.
The $5,300,000 mortgage matured January 1, 1994, and had been in default since
that date. The lender granted forebearances through June 30, 1994, while
refinancing discussions continued between the Partnership and the lender. These
discussions did not ultimately produce an agreement to either refinance or sell
the property and the lender foreclosed on the property. In the Managing General
Partner's opinion, it was not in the Partnership's best interest to contest the
foreclosure action or file bankruptcy. The estimated fair value of Bay Village
approximated the amount payable to the mortgage holder; therefore, a gain on the
disposal of the property through foreclosure of $16,000, the difference between
the carrying value of the property and the debt to the mortgage holder, was
recorded.
On January 5, 1995, the lender foreclosed on Forest Ridge Shopping Center. The
$7,200,000 mortgage matured January 1, 1994, and was in default. The lender
granted forebearances through June 30, 1994, while refinancing discussions
continued between the Partnership and the lender. These discussions did not
ultimately produce an agreement to either refinance or sell the property and the
Partnership did not contest the lender's foreclosure. In the Managing General
Partner's opinion, it was not in the Partnership's best interest to contest the
foreclosure action or file for reorganization under bankruptcy laws. On January
5, 1995, the Partnership recorded a valuation write-down of $415,000, to reduce
the carrying costs of the Forest Ridge assets to their estimated market value
and a gain on the foreclosure of $844,000.
At June 30, 1996, the Partnership held unrestricted cash and cash equivalents of
$819,000 compared to $841,000 at June 30, 1995. Net cash provided by operations
increased primarily due to increased receipts in the second quarter of 1996 of
common area maintenance reimbursements from tenants at both properties.
Offsetting this increase of cash were significant prepaid rent collections in
the first half of 1995 that did not recur in the corresponding period of 1996.
Net cash used in financing activities increased due to the extension on the
Highpoint and Gateway notes in May of 1995, which led to monthly principal
payments beginning in June of 1995. Offsetting this increase was the absence of
nonrecurring loan costs which were paid in 1995 relating to the loan extension.
The mortgage notes payable for Highpoint ($6,600,000) and Gateway ($5,616,000)
matured on March 1, 1995. The Partnership successfully obtained a long-term
extension related to the Highpoint and Gateway notes in May of 1995. The
Highpoint note matures October 1, 2008, and the Gateway note matures January 1,
2008. Both notes are cross-collateralized and cross-defaulted and have an
interest rate of 9.25%.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and meet other operating needs of the Partnership. Due to the successful
closing of the long-term financing on Highpoint and Gateway, the level of
existing liquid assets is believed to be sufficient to meet any near term needs
of the Partnership. No distributions were made in 1995 or during the first six
months of 1996. Future cash distributions will depend on the levels of net cash
generated from operations, refinancings, property sales, and the availability of
cash reserves.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27 - Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K:
None filed during the quarter ended June 30, 1996.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BRUNNER COMPANIES INCOME PROPERTIES L. P. III,
a Delaware limited partnership
By: Brunner Management Limited
Partnership, an Ohio limited Partnership,
its General Partner
By: 104 Management, Inc., an Ohio corporation,
its Managing General Partner
By: /s/Carroll D. Vinson
Carroll D. Vinson
President
By: /s/Robert D. Long, Jr.
Robert D. Long, Jr.
Vice President/CAO
Date: August 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Brunner
Companies Income Properties LP III 1996 Second Quarter 10-QSB and is qualified
in its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000847319
<NAME> BRUNNER COMPANIES INCOME PROPERTIES LP III
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 819
<SECURITIES> 0
<RECEIVABLES> 140
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 14,426
<DEPRECIATION> 2,952
<TOTAL-ASSETS> 12,630
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 11,989
0
0
<COMMON> 0
<OTHER-SE> 512
<TOTAL-LIABILITY-AND-EQUITY> 12,630
<SALES> 0
<TOTAL-REVENUES> 906
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,013
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 559
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (107)
<EPS-PRIMARY> (.12)<F2>
<EPS-DILUTED> 0
<FN>
<F1>The Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
