FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT of 1934
For the transition period from.........to.........
Commission file number 0-18419
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)
(864) 239-1000
Issuer's telephone number
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)
June 30, 1998
(in thousands, except unit data)
Assets
Cash and cash equivalents $ 1,184
Receivables and deposits 153
Other assets 189
Investment properties:
Land $ 1,525
Buildings and related personal property 12,917
14,442
Less accumulated depreciation (3,802) 10,640
$ 12,166
Liabilities and Partners' Capital (Deficit)
Liabilities
Tenant security deposit liabilities $ 8
Accrued property taxes 52
Other liabilities 106
Mortgage notes payable 11,528
Partners' Capital (Deficit)
General partner's $ (55)
Class A limited partners' (850,900 units
issued and outstanding) 506
Class B limited partners' (8,600 units
issued and outstanding) 21 472
$ 12,166
See Accompanying Notes to Financial Statements
b)
BRUNNER COMPANIES INCOME PROPERTIES L.P. III
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Revenues:
Rental income $ 420 476 $ 827 $ 911
Other income 501 10 510 20
Total revenues 921 486 1,337 931
Expenses:
Operating 75 143 148 221
General and administrative 28 15 52 34
Depreciation 105 107 210 212
Interest 268 273 536 549
Property taxes 26 26 50 49
Total expenses 502 564 996 1,065
Net income (loss) $ 419 $ (78) $ 341 $ (134)
Net income (loss) allocated
to general partner (1%) $ 4 $ (1) $ 4 $ (1)
Net income (loss) allocated to Class A
limited partners (98.01%) 411 (76) 334 (132)
Net income (loss) allocated to Class B
limited partners (.99%) 4 (1) 3 (1)
$ 419 $ (78) $ 341 $ (134)
Net income (loss) per Class A limited
partnership unit $ .48 $ (.09) $ .39 $ (.16)
See Accompanying Notes to Financial Statements
c)
BRUNNER COMPANIES INCOME PROPERTIES L.P. III
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands)
General Limited Partners'
Partner's Class A Class B Total
Original capital contributions $ 1 $8,420 $ 86 $8,507
Partner's (deficit) capital at
December 31, 1997 $ (59) $ 172 $ 18 $ 131
Net income for the six
months ended June 30, 1998 4 334 3 341
Partners' (deficit) capital at
June 30, 1998 $ (55) $ 506 $ 21 $ 472
See Accompanying Notes to Financial Statements
d)
BRUNNER COMPANIES INCOME PROPERTIES L.P. III
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1998 1997
Cash flows from operating activities:
Net income (loss) $ 341 $ (134)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation 210 212
Amortization of loan costs and leasing
Commissions 8 6
Change in accounts:
Receivables and deposits 96 29
Other assets 3 2
Accounts payable (17) (19)
Tenant security deposit liabilities 1 2
Accrued property taxes (4) (5)
Other liabilities (59) 25
Net cash provided by operating activities 579 118
Cash flows from investing activities:
Property improvements and replacements (5) --
Lease commissions paid (99) (6)
Net cash used in investing activities (104) (6)
Cash flows from financing activities:
Mortgage principal payments (128) (117)
Net cash used in financing activities (128) (117)
Net increase (decrease) in cash and cash equivalents 347 (5)
Cash and cash equivalents at beginning of period 837 964
Cash and cash equivalents at end of period $1,184 $ 959
Supplemental disclosure of cash flow information:
Cash paid for interest $ 537 $ 548
See Accompanying Notes to Financial Statements
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 104 Management, Inc. (the "Managing General Partner"), an Ohio
corporation, 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, 1998, are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1998. 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, 1997.
Certain reclassifications have been made to the 1997 information to conform to
the 1998 presentation.
NOTE B - 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. A majority of the outstanding stock of the Managing
General Partner is owned by IBGP, Inc., an affiliate of Insignia Financial
Group, Inc. ("Insignia"). The partnership agreement provides for certain
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 during the six months ended
June 30, 1998 and 1997 (in thousands):
1998 1997
Property management fees
(included in operating expense) $38 $29
Reimbursement for services of affiliates
(included in general and administrative expense) 25 10
Additionally, the Partnership paid approximately $97,000 and $6,000 during the
six months ended June 30, 1998 and 1997, respectively, to an affiliate of the
Managing General Partner for lease commissions at the Partnership's commercial
properties. These lease commissions are included in other assets and are
amortized over the terms of the respective leases.
For the period from January 1, 1997 to August 31, 1997, the Partnership insured
its properties under a master policy through an agency affiliated with the
Managing General Partner, but with an 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 master policy. The
agent assumed the financial obligations to the affiliate of the Managing General
Partner which received payments on these obligations from the agent. The amount
of the Partnership's insurance premiums that accrued to the benefit of the
affiliate of the Managing General Partner by virtue of the agent's obligations
was 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 physical occupancy of the properties for
each of the six months ended June 30, 1998 and 1997:
Average Occupancy
1998 1997
Gateway Plaza
Mt. Sterling, Kentucky 56% 54%
Highpoint Village
Bellefontaine, Ohio 93% 95%
Wal-Mart, an anchor tenant, vacated Gateway Plaza in May of 1996. Prior to May
of 1998, this tenant was liable for its rental payments through the year 2008
when its lease was scheduled to expire. However, during May of 1998, the
Partnership entered into a buyout agreement with Wal-Mart whereby the lease was
terminated and Wal-Mart paid a lease termination fee in lieu of the remaining
lease obligation. As a result of the Wal-Mart lease termination, the Partnership
has negotiated a new lease with J. C. Penney. The term of the new lease is
fifteen years, and allows J. C. Penney to relocate into 50,000 square feet of
the Wal-Mart space. The Partnership will pay approximately $300,000 toward the
costs incurred by J. C. Penney to retrofit the new space, and the General
Partner anticipates J. C. Penney will move into its new space in October 1998.
The average rental rate for the term of the new lease is $4.10 per square foot.
The Managing General Partner is currently trying to locate a tenant(s) to occupy
the current J. C. Penney space and the remaining Wal-Mart space. Once J. C.
Penney moves into their new space, occupancy at Gateway will increase to 73%.
The Partnership's net income was approximately $341,000 for the six months ended
June 30, 1998, compared to a net loss of approximately $134,000 for the six
months ended June 30, 1997. The Partnership's net income was approximately
$419,000 for the three months ended June 30, 1998, compared to a net loss of
approximately $78,000 for the corresponding period of 1997. The increase in net
income for the three and six month periods ended June 30, 1998 is primarily due
to an increase in other income and a decrease in operating expenses. The
increase in other income is primarily due to a lease termination fee received in
connection with the Wal-Mart lease buyout, as discussed above. The decrease in
operating expenses is primarily due to a decrease in maintenance expense at
Highpoint Village resulting from significant parking lot repairs being made
during 1997. Partially offsetting the increase in other income and the decrease
in operating expenses was a decrease in rental revenue and an increase in
general and administrative expenses. The decrease in rental revenue is
primarily attributable to a decrease in rental rates and occupancy at Highpoint
Village and the absence of rental collections from Gateway Plaza's anchor
tenant, Wal-Mart, beginning in the second quarter of 1998, as a result of the
lease termination agreement in May 1998. General and administrative expenses
increased primarily due to increased expense reimbursements to an affiliate of
the Managing General Partner.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expense. As part of
this plan, the Managing General Partner attempts to protect the Partnership from
the burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
General Partner will be able to sustain such a plan.
At June 30, 1998, the Partnership held cash and cash equivalents of
approximately $1,184,000 compared to approximately $959,000 at June 30, 1997.
The net increase in cash and cash equivalents for the six months ended June 30,
1998 was approximately $347,000 compared to a net decrease of approximately
$5,000 for the six months ended June 30, 1997. Net cash provided by operating
activities increased primarily due to the collection of a lease termination fee
and decreased operating expenses, as discussed above, and an increase in cash
provided by receivables and deposits relating to the timing of receipts. The
increase in net cash provided by operating activities was partially offset by an
increase in cash used for other liabilities relating to the timing of payments.
Net cash used in investing activities increased primarily due to an increase in
lease commissions. Net cash used in financing activities increased due to an
increase in principal payments made on the mortgage notes.
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 other operating needs of the Partnership. Such assets are currently
thought to be sufficient for any near term needs of the Partnership. The
mortgage indebtedness of approximately $11,528,000 matures in 2008 with balloon
payments due at maturity at which time the properties will either be refinanced
or sold. No distributions were made in 1997 or during the first six months of
1998. Future cash distributions will depend on the levels of net cash generated
from operations, refinancings, property sales, and the availability of cash
reserves. At this time, the Managing General Partner does not anticipate making
a cash distribution during 1998.
Year 2000
The Partnership is dependent upon the Managing General Partner and Insignia for
management and administrative services. Insignia has completed an assessment
and will have to modify or replace portions of its software so that its 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 December 31, 1998, which is prior to any anticipated impact on its
operating systems. The Managing General Partner believes that with
modifications to existing software and conversions to new software, the Year
2000 Issue will not pose significant operational problems for its computer
systems. However, if such modifications and conversions are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Partnership.
Other
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance, or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date
of this quarterly report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates of revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
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, 1998.
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,
By: Brunner Management Limited Partnership
Its General Partner
By: 104 Management, Inc.
Its Managing General Partner
By: /s/Carroll D. Vinson
Carroll D. Vinson
President and Director
By: /s/Robert D. Long, Jr.
Robert D. Long, Jr.
Vice President and Chief Accounting
Officer
Date: August 7, 1998
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Brunner Companies Income Properties L.P. III 1998 Second Quarter 10-QSB
and is qualified in its entirety by reference to such 10-QSB filing.
</LEGEND>
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<NAME> BRUNNER COMPANIES INCOME PROPERTIES L.P. III
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,184
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<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 14,442
<DEPRECIATION> 3,802
<TOTAL-ASSETS> 12,166
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 11,528
0
0
<COMMON> 0
<OTHER-SE> 472
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