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 September 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)
September 30, 1996
Assets
Cash:
Unrestricted $ 896
Restricted-tenant security deposits 6
Accounts receivable 89
Escrows for taxes and insurance 75
Other assets 102
Investment properties:
Land $ 1,525
Buildings and related personal property 12,901
14,426
Less accumulated depreciation (3,059) 11,367
$12,535
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 5
Tenant security deposits 6
Accrued taxes 77
Other liabilities 26
Mortgage notes payable 11,933
Partners' Capital (Deficit)
General partner $ (55)
Class A Limited Partners - (850,900 units) 521
Class B Limited Partners - (8,600 units) 22 488
$12,535
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 Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 432 $ 605 $ 1,322 $ 1,820
Other income 12 8 28 39
Total revenues 444 613 1,350 1,859
Expenses:
Operating 56 68 199 209
General and administrative 4 24 54 86
Depreciation 106 150 319 448
Interest 277 406 836 1,223
Property taxes 25 40 73 121
Write-down of property (Note C) -- -- -- 415
Total expenses 468 688 1,481 2,502
Net loss before extraordinary item (24) (75) (131) (643)
Extraordinary gain on foreclosure
(Note C) -- -- -- 844
Net (loss) income $ (24) $ (75) $ (131) $ 201
Net (loss) income allocated
to general partner (1%) $ -- $ (1) $ (1) $ 2
Net (loss) income allocated
to Class A limited
partners (98.01%) (24) (73) (129) 197
Net (loss) income allocated
to Class B limited
partners (.99%) -- (1) (1) 2
$ (24) $ (75) $ (131) $ 201
Net loss before extraordinary
item per Class A limited
partnership unit $ (.03) $ (.09) $ (.15) $ (.74)
Extraordinary gain per Class A
limited partnership unit -- -- -- .97
Net (loss) income per Class A
limited partnership unit $ (.03) $ (.09) $ (.15) $ .23
<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)
<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 nine months
ended September 30, 1996 (1) (129) (1) (131)
Partners' capital (deficit)
at September 30, 1996 $ (55) $ 521 $ 22 $ 488
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
d) BRUNNER COMPANIES INCOME PROPERTIES L.P. III
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1996 1995
Cash flows from operating activities:
Net (loss) income $ (131) $ 201
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation 319 448
Extraordinary gain on foreclosure -- (844)
Write-down of property -- 415
Amortization of intangible assets 16 19
Change in accounts:
Restricted cash (2) 4
Accounts receivable 159 (19)
Escrows for taxes and insurance (5) --
Other assets (10) (41)
Accounts payable (16) (16)
Tenant security deposit liabilities 2 (4)
Accrued taxes 20 13
Other liabilities 7 --
Net cash provided by
operating activities 359 176
Cash flows from investing activities:
Deposits to restricted escrow -- (88)
Net cash used in investing activities -- (88)
Cash flows from financing activities:
Loan extension costs -- (91)
Payment on mortgage notes payable (163) (67)
Net cash used in financing activities (163) (158)
Net increase (decrease) in cash 196 (70)
Cash at beginning of period 700 733
Cash at end of period $ 896 $ 663
Supplemental disclosure of cash flow information:
Cash paid for interest $ 834 $ 1,214
See Accompanying Notes to Financial Statements
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 (6,424)
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 L.P. 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 nine month periods ended September 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 an extraordinary 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:
Nine Months Ended
September 30,
1996 1995
Property management fees $42 $53
Reimbursement for services of affiliates 20 27
Additionally, the Partnership paid $7,000 and $27,000 during the nine months
ended September 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 each of
the nine months ended September 30, 1996 and 1995:
Average
Occupancy
1996 1995
Gateway Plaza
Mt. Sterling, Kentucky 96% 94%
Highpoint Village
Bellefontaine, Ohio 94% 95%
Wal-Mart, an anchor tenant, vacated 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 $131,000 for the nine months ended
September 30, 1996, compared to net income of $201,000 for the nine months ended
September 30, 1995. The Partnership realized a net loss of $24,000 for the
three months ended September 30, 1996, compared to a net loss of $75,000 for the
corresponding period of 1995. The decrease in net income for the nine month
period ended September 30, 1996, is primarily due to the foreclosure of Forest
Ridge Shopping Center in January 1995. This foreclosure resulted in an
extraordinary 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 nine
month periods ended September 30, 1996, in rental income, depreciation, interest
expense and property taxes were primarily a result of the foreclosure of Bay
Village in December 1995. General and administrative expenses decreased for the
three and nine months ended September 30, 1996, due to a decrease in the annual
audit expense of $17,000 and an $8,000 decrease in legal expenses due to non-
recurring legal costs in 1995 relating to the refinancing of Gateway and
Highpoint. Other income decreased for the nine months ended September 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 in 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 an extraordinary gain on the foreclosure of $844,000.
At September 30, 1996, the Partnership held unrestricted cash of $896,000
compared to $663,000 at September 30, 1995. Net cash provided by operations
increased primarily due to increased collections in the second quarter of 1996
of common area maintenance reimbursements from tenants at both properties. Net
cash used in investing activities decreased as a result of a deposit to a
restricted escrow for Bay Village in 1995. No restricted escrow fundings have
been required during 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
increased monthly principal payments beginning in June of 1995. Offsetting this
increase was the absence of non-recurring 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 nine
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 September 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: November 8, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Brunner
Companies Income Properties L.P. III 1996 Third 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 896
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 14,426
<DEPRECIATION> 3,059
<TOTAL-ASSETS> 12,535
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 11,933
0
0
<COMMON> 0
<OTHER-SE> 488
<TOTAL-LIABILITY-AND-EQUITY> 12,535
<SALES> 0
<TOTAL-REVENUES> 1,350
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,481
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 836
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (131)
<EPS-PRIMARY> (.15)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
