SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission File Number 0-20151
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
and
FFCA/PIP III INVESTOR SERVICES CORPORATION
-------------------------------------------------
(Exact Name of Co-Registrants as Specified in Their
Organizational Documents)
Delaware 86-0665681
- --------------------- -----------------------
(Partnership State of (Partnership I.R.S.
Organization) Employer Identification
No.)
Delaware 86-0555605
- --------------------- -----------------------
(Corporation State of (Corporation I.R.S.
Incorporation) Employer Identification
No.)
The Perimeter Center
17207 North Perimeter Drive
Scottsdale, Arizona 85255
- ---------------------------------------- -----------------------
(Address of Principal Executive Offices) (Zip Code)
Co-Registrants' telephone number, including area code: (602) 585-4500
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Limited Partnership Assignment Units
------------------------------------
(Title of Class)
Indicate by check mark whether the Co-Registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Co-Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
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 the Co-Registrants' 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]
State the aggregate market value of the voting stock held by
non-affiliates of the Co-Registrants: Not applicable.
The limited partnership assignment units (the "Units") are not
currently traded in any market. Therefore, there is no market price or average
bid and asked price for the Units within 60 days prior to the date of this
filing.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PART I
Item 1. Business.
Participating Income Properties III Limited Partnership, a Delaware
limited partnership (the "Partnership"), was organized on July 9, 1990 under the
Delaware Revised Uniform Limited Partnership Act. The Partnership was organized
primarily to purchase new but also existing travel plaza facilities, including
land, buildings and equipment, and to lease such facilities on a net basis to
one or more qualified operators. The general partner of the Partnership is FFCA
Participating Management Company Limited Partnership, a Delaware limited
partnership (the "General Partner"). The managing general partner of the General
Partner is Franchise Finance Corporation of America III, a Delaware corporation
("FFCA III"). Travel Plaza Management, Inc. ("TMI"), a subsidiary of PaineWebber
Group, Inc., and Morton H. Fleischer and Paul Bagley are general partners of the
General Partner.
FFCA/PIP III Investor Services Corporation, a Delaware corporation, was
incorporated on June 23, 1986 to serve as the initial limited partner of the
Partnership and the owner of record of the limited partnership interests in the
Partnership, the rights and benefits of which are assigned by FFCA/PIP III
Investor Services Corporation to investors in the Partnership. FFCA/PIP III
Investor Services Corporation conducts no other business activity. The
Partnership and FFCA/PIP III Investor Services Corporation are referred to
collectively as the "Co-Registrants."
The statements contained in this report, if not historical, are
forward-looking statements and involve risks and uncertainties that could cause
actual results to differ materially from the results, financial or otherwise, or
other expectations described in such forward-looking statements. These
statements are identified with the words "anticipated" or "expected". Therefore,
forward-looking statements should not be relied upon as a prediction of actual
future results or occurrences.
On April 10, 1991, the Co-Registrants commenced a public offering of
$100,000,000 of limited partnership assignment units (the "Units") in the
Partnership pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933, as amended. The Co-Registrants sold a total of 26,709
Units to investors at $1,000 per Unit for a total of $26,709,000. Purchasers of
the Units (the "Holders") acquired the following number of Units from FFCA/PIP
III Investor Services Corporation on each of the following dates: 14,119 Units
on August 30, 1991 and 12,590 Units on February 28, 1992. Subsequent to that
date, no Holder has made any additional capital contribution. The Holders share
in the benefits of ownership of the Partnership's assets, including its real and
personal property investments, according to the number of Units held in
substantially the same manner as limited partners in the Partnership.
After deducting organizational and offering expenses, including sales
commissions, the net proceeds of the offering of the Units totaled $23,236,830.
During the fiscal years ended December 31, 1993, 1992 and 1991, the Partnership
distributed cash to the limited partners aggregating $957,268, which represents
a partial return of the limited partners' initial $1,000 per
<PAGE>
unit capital contribution. After deducting this return of capital from the net
proceeds of the offering of units, the remaining cash proceeds were fully
invested by the Partnership in three "Flying J Travel Plazas", one located in
Wytheville, Virginia, one located in Bakersfield, California and one located in
Ehrenberg, Arizona. "Flying J Travel Plaza" facilities offer a full-service
operation, generally including fuel facilities, a restaurant, convenience store
and other amenities for use by the trucking industry and traveling public in
general. The Wytheville property was acquired in December 1991, the Bakersfield
property was acquired in January 1993 and the Ehrenberg property was acquired in
June 1993. With respect to the Ehrenberg property, the travel plaza was acquired
by purchasing the land and making a loan to the franchisee for financing the
travel plaza building.
The Partnership's principal objectives are to (i) preserve, protect and
enhance Partnership capital, (ii) provide partially tax-deferred cash
distributions to investors, (iii) provide the potential for increased income and
protection against inflation through participation in the operating revenues of
travel plaza facilities owned by the Partnership, and (iv) to provide potential
long-term appreciation in the value of its properties through real estate
ownership.
Real estate owned by the Partnership is leased for a term of 20 years.
If a franchisee-lessee, however, ceases to be a franchisee of Flying J Inc.
prior to the expiration of its 20-year lease term, the Partnership is entitled
in its sole discretion to terminate the lease with such franchisee-lessee. Two
of the travel plazas also lease equipment for a term of eight years. Lessees
must pay the Partnership annual rental payments (in monthly installments) equal
to a percentage of the Partnership's total investment in the property. With
respect to the property located in Ehrenberg, the Partnership leases the land to
the travel plaza operator and made a loan for the travel plaza building. The
loan provides for monthly installments of interest at a rate of 7% per annum
until June 30, 2003 at which time the entire principal balance is due. The loan
may not be prepaid in full or in part, except upon exercise of the purchase
option on the related travel plaza land. As additional rent under the terms of
the lease, the Partnership is entitled to receive a portion of the operating
revenues from the travel plazas subject to the lease equal to (i) up to 3.5% of
annual gross receipts derived from the non-fuel sales of such travel plaza
facility and (ii) up to 3/10 of $.01 per gallon of fuel sold. Reference is made
to Note (3) of the notes to the financial statements filed with this Report for
a schedule of the minimum future lease payments to be received by the
Partnership on its properties.
In connection with leases to CFJ Properties and franchisees of Flying J
Inc., the General Partner granted to the lessee and to Flying J Inc. an option
(the "Option Agreement") to purchase the leased equipment and real estate. The
Option Agreement generally provides that upon expiration of its equipment lease,
and if the lessee is not in default under its lease, a lessee will have an
option to purchase its leased equipment at its appraised fair market value. In
addition, provided that the lessee is not in default under its lease at the time
of exercise, a lessee will have an option exercisable from the end of the tenth
year until the end of the fifteenth year of the lease term to purchase its
leased real estate at the greater of (i) the appraised fair market value of
land, building and equipment, or (ii) the Partnership's total investment in the
property plus a pro rata portion of certain fees and less any amounts paid by
such lessee to the Partnership for equipment under the Option Agreement.
As of March 14, 1997, two of the travel plazas owned by the Partnership
were leased to
2
<PAGE>
CFJ Properties, a general partnership formed pursuant to a joint venture between
Flying J Inc., through its subsidiary Big West Oil Company ("Big West"), and
Douglas Oil Company of California, a subsidiary of Conoco Inc. ("Douglas Oil").
With respect to the remaining travel plaza, the land is leased to TFJ, a Utah
general partnership. In addition, the Partnership made a loan to TFJ to finance
the travel plaza building. TFJ is a partnership owned 49.9% by Flying J and
50.1% by Pacific Sunstone, Inc., an affiliate of Flying J. The operation of this
travel plaza represents TFJ's sole business activity. The Partnership is not
affiliated with CFJ Properties, TFJ, Flying J Inc. or Flying J Franchise Inc.
("FJFI"), a subsidiary of Flying J Inc.
The Partnership is dependent upon CFJ Properties and TFJ, its lessees,
since an adverse change in the financial condition of CFJ Properties and TFJ
could materially affect their ability to make lease and loan payments.
On February 1, 1991, Flying J Inc., through its subsidiary Big West,
entered into a joint venture with Douglas Oil to form CFJ Properties. Flying J
Inc. (and subsidiaries) is a fully integrated oil and gas company and is engaged
in the production, refining, transportation, wholesaling and retail marketing of
petroleum products and other services through its travel plazas and gasoline
stations. CFJ Properties is the franchisor and operator of the Flying J network
of interstate travel plazas, which included 66 properties as of January 31,
1996. The Partnership owns two of these properties. Under the terms of the joint
venture agreement, Big West sold to Douglas Oil certain Flying J Travel Plazas,
which Douglas Oil contributed back to CFJ Properties. In addition to this
initial contribution, Douglas Oil also made additional contributions to CFJ
Properties. As its initial contribution, Big West transferred to CFJ Properties
certain leasehold interests and Flying J Travel Plazas, and subsequently
contributed to CFJ Properties various assets including working capital,
inventories and future development sites. Flying J Inc. assigned its leasehold
interests in the travel plazas owned by the Partnership to CFJ Properties and
was released by the Partnership with respect to its obligations under those
leases.
The Partnership's leases with CFJ Properties are with full recourse to
the assets of CFJ Properties, but without recourse to Big West or Douglas Oil. A
default on one lease constitutes a default on all other leases to the same
lessee by the Partnership and two prior partnerships sponsored by affiliates of
the General Partner, all of whose travel plazas are leased to Flying J Inc., CFJ
Properties or franchisees of FJFI. These three properties comprise substantially
all of the Partnership's assets, and therefore their unit-level operating
performance and economic fundamentals are important.
For the fiscal year ended January 31, 1996, CFJ Properties reported
earnings of $17.2 million on revenues of $937.4 million. Revenue rose 33.3% from
$703.4 million the prior year. The higher revenues resulted from the opening of
twelve new units and increases in average unit volumes. As a result of higher
revenues, net income increased to $17.2 million from $16.1 million in the fiscal
year ended January 31, 1995.
During the fiscal year ended January 31, 1996, CFJ Properties reported
$35.8 million in net cash provided by operating activities. This cash, along
with the cash provided by financing activities, was used to make capital
expenditures. As of January 31, 1996, CFJ Properties reported cash balances of
approximately $2.3 million, with liquidity supported by net cash
3
<PAGE>
provided by operating activities and a $70 million revolving line of credit with
a bank. As of January 31, 1996, CFJ Properties reported partners' capital of
$137.7 million and total assets of $369.4 million.
CFJ Properties leases travel plazas and equipment under non-cancelable
operating leases, which expire at various dates over the next 15 to 20 years.
Payments under these leases were $13.3 million in both 1996 and 1995. Future
minimum annual rent obligations under non-cancelable leases, as projected
through 2001, remain comparable to 1996 expense amounts.
The two travel plaza properties operated by CFJ Properties and Flying J
Inc. generated a combined fuel and non-fuel gross profit (including other
income) of approximately $7.4 million during the year ended January 31, 1996 as
compared to $7.6 million in 1995. Total travel plaza unit-level income for these
two properties (before depreciation and allocated corporate overhead) totaled
approximately $1.4 million in 1996 with both of these properties reporting
positive unit-level income. The combined result of the travel plaza unit-level
income before depreciation and allocated corporate overhead decreased from $1.5
million the prior year due to a decrease in fuel sales volume at the
Bakersfield, California travel plaza and decreased fuel gross profit margins at
the Wytheville, Virginia travel plaza. For CFJ Properties' fiscal year ended
January 31, 1996, the average unit-level base and participating rents
approximated 13.2% of the original cost of these properties.
The Partnership's third property, which is operated by TFJ, had an
increase in fuel and non-fuel gross profits and other income to $6.4 million in
1996 from $6.3 million in 1995 due to increased fuel and non-fuel sales volume.
The property's income before depreciation and allocated corporate overhead for
1996 remained comparable to 1995 at $1.3 million. Base and participating rents
remained comparable to 1995 at approximately 9% of the original cost of the
property during TFJ's fiscal year ended January 31, 1996.
The travel plaza/truckstop industry, although highly fragmented, is
highly competitive. The Partnership's lessees are competing with, among others,
National Auto/Truckstops, Petro and Pilot Corporation, as well as other
national, regional and local truckstop operators, some of which may have
substantially greater financial resources than the lessees. The Partnership's
lessees also compete with other entities which provide hospitality goods and
services to the trucking industry and traveling public in general. The major
competitive factors include, among others, location, ease of access, brand
identification, pricing, product and service selections, customer service, store
appearance, cleanliness and safety. The Flying J Travel Plaza facilities owned
by the Partnership offer a full-service operation, generally including fuel
facilities, a restaurant, a convenience store and other amenities for use by the
trucking industry and traveling public in general. Flying J Inc. reports that
the Flying J Travel Plaza network consists of more than 100 facilities across
the U.S. interstate highway system. The travel plaza sites have been selected
based on traffic patterns and volumes, and access to interstate highways, among
other criteria.
According to the American Trucking Association, the trucking industry
grosses more than $340 billion annually, representing 78% of the nation's
freight bill. The 20 million commercial trucks registered in the United States
consume approximately 39 billion gallons of fuel annually. The Partnership
believes that the trucking industry is sensitive to certain aspects of
4
<PAGE>
the general economic environment, such as retail sales; the level, direction and
rate of change in inventories; international trade; vendor performance; the cost
and availability of fuel; labor issues; and technology. The trucking industry is
also affected by various government policies, including economic regulations;
vehicle size and weight regulations; and health, safety and environmental
protection regulations. These factors also may influence the competitive posture
of one mode of transportation compared to others; however, the trucking industry
has presented itself as an affordable and timely alternative to other methods of
transportation such as air freight and rail, particularly for short hauls.
Through ownership of the travel plazas, the Partnership is subject to
the risks associated with the underground storage of petroleum products such as
gasoline. In this regard, the Partnership's lessees are subject to various
federal, state and local regulations and environmental laws. These laws and
regulations affect the storing, dispensing and discharge of petroleum and other
wastes and affect the lessees both in the securing of permits for fueling
operations and in the ongoing conduct of such operations.
Federal, state and local regulatory agencies have adopted regulations
governing underground storage tanks ("UST's") that require the Partnership's
lessees to make certain expenditures for compliance. In particular, at the
federal level, the Resource Conservation and Recovery Act requires the
Environmental Protection Agency ("EPA") to establish a comprehensive regulatory
program for the detection, prevention and cleanup of leaking UST's. Regulations
enacted by the EPA in 1988 established requirements for (i) installing UST
systems; (ii) upgrading UST systems; (iii) taking corrective action in response
to releases; (iv) closing UST systems; (v) keeping appropriate records; and (vi)
maintaining evidence of financial responsibility for taking corrective action
and compensating third parties for bodily injury and property damage resulting
from releases. These regulations permit states to develop, administer and
enforce their own regulatory programs, incorporating requirements which are at
least as stringent as the federal standards. By 1998, all UST's must be
corrosion protected, overfill/spill protected and have leak detection. These
environmental laws impose strict liability for owners and operators of faulty
and leaking storage tanks resulting in damage to the environment or third
parties.
The General Partner has taken various steps to (i) ensure that the
lessees comply with applicable rules and regulations; (ii) mitigate any
potential liabilities, including the establishment of storage tank monitoring
procedures; and (iii) require that lessees indemnify the Partnership for all
such liabilities and obtain liability insurance, if reasonably available. The
General Partner requires each lessee to obtain an annual environmental audit,
performed by an environmental consulting and engineering firm, which includes
the following procedures, among others: month-end cumulative fuel inventory
variance analysis; tank tightness tests; automatic tank gauging and leak
detection system operation and calibration tests; UST excavation zone
groundwater and/or soil vapor monitoring well analysis; piping system tightness
tests; piping excavation zone groundwater and/or soil vapor monitoring well
analysis; pipe leak detector inspection and calibration tests; corrosion
protection system tests; on-site sanitary sewer treatment plant effluent
analysis; and oil/water separator inspections. The consulting and engineering
firm hired by the General Partner to conduct such audits also reviews on-site
environmental correspondence; visually inspects the UST system, tank and piping
excavation zone monitoring wells, areas adjacent to all petroleum above-ground
tanks, the stormwater and
5
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wastewater control systems, and the travel plaza facility; and discusses
employee training procedures, recent significant environmental events (if any),
repair and maintenance activities, and regulatory compliance with travel plaza
personnel.
The Partnership believes that its lessees are in compliance with all
applicable regulatory requirements and that its lessees have all governmental
licenses and permits required for their business operations. Management knows of
no pending or threatened proceedings or investigations, under federal or state
environmental laws; however, management cannot predict the impact on the
Partnership's lessees of new governmental regulations and requirements. Although
the General Partner has taken necessary steps to ensure lessee compliance with
environmental regulations, there can be no assurance that significant cleanup or
compliance costs may not be incurred which may affect the lessees' ability to
make their scheduled lease payments to the Partnership.
As of February 24, 1997, the Partnership has invested in real estate
located in one state in the southeastern portion of the United States and two
states in the western United States, and no real estate investments are located
outside of the United States. The Partnership does not segregate revenues or
assets by geographic region, as such a presentation is not applicable and would
not be material to an understanding of the Partnership's business taken as a
whole.
The Partnership does not believe that any aspect of its business is
significantly seasonal in nature.
No portion of the Partnership's business is subject to renegotiation of
profits or termination of contracts or subcontracts at the election of the
United States Government. The Partnership does not manufacture any products and
therefore do not require any raw materials in order to conduct its business.
The Partnership and FFCA/PIP III Investor Services Corporation have no
employees.
Item 2. Properties.
As of December 31, 1996, the Partnership had acquired or financed three
travel plaza properties: one located in Wytheville, Virginia which was acquired
in 1991, one located in Bakersfield, California which was acquired in January
1993, and one located in Ehrenberg, Arizona which was acquired in June 1993. On
June 30, 1993, the Partnership became fully invested in travel plazas.
The Partnership's travel plazas, divided into sections which serve both
the commercial and non-commercial traveler, generally offer a multi-use, full
service operation including fuel facilities for the storage and sale of
automotive and diesel fuels, a 24-hour restaurant, a convenience store, restroom
facilities with private showers, and other amenities designed to meet the needs
of the trucking industry and the traveling public in general. All three of the
Partnership's properties represent over 10% of the Partnership's total assets:
6
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Location Approximate % of Total Assets
-------- -----------------------------
Wytheville, Virginia 31%
Bakersfield, California 23%
Ehrenberg, Arizona 43%
The following is a description of the properties acquired by the Partnership:
Wytheville, Virginia
The Wytheville travel plaza is a full-service travel plaza, built on a
parcel consisting of approximately 16.831 acres located at the interchange of
Frontage Road and Interstates 81 and 77.
Bakersfield, California
The Bakersfield travel plaza is an existing full-service travel plaza,
opened in January 1992, located on a parcel consisting of approximately 15.4
acres at the Merced Avenue exit of California Highway 99.
Ehrenberg, Arizona
Located at the Arizona/California border on Interstate 10, the
Ehrenberg travel plaza is an existing operation opened in May 1988. The
two-story travel plaza is situated on an approximate 11.7 acre tract of land in
the County of La Paz (formerly Yuma), Arizona.
Independent of the Partnership, FFCA/PIP III Investor Services
Corporation has no interest in any real or personal property.
Reference is made to the Annual Portfolio Valuation prepared by Cushman
& Wakefield which is filed with this Report as an exhibit for the properties'
appraised value as of December 31, 1996.
Item 3. Legal Proceedings.
Neither the Co-Registrants nor their properties are parties to, or
subject to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Securities Holders.
No matter was submitted to a vote of the Holders through the
solicitation of proxies or otherwise during the fourth quarter of fiscal year
1996.
7
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PART II
Item 5. Market for Registrant's Units and Related Security Holder Matters.
Market Information. During 1996, there was no established public
trading market for the Units, and it is not anticipated that an established
public trading market for the Units will develop.
Holders. As of March 14, 1997, there were 1,581 record holders of the
Units.
Distributions. For the two most recent fiscal years, the Partnership
made the following cash distributions to the Holders:
<TABLE>
<CAPTION>
1996
Per Unit
Distribution Total
------------ -----
Date of Number Cash From Cash From
Distribution of Units Operations Capital Operations Capital
------------ -------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
March 31 26,709 $21.70 - $579,585 -
June 30 26,709 21.69 - 579,318 -
September 30 26,709 21.70 - 579,585 -
December 31 26,709 21.69 - 579,318 -
</TABLE>
<TABLE>
<CAPTION>
1995
Per Unit
Distribution Total
------------ -----
Date of Number Cash From Cash From
Distribution of Units Operations Capital Operations Capital
------------ -------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
March 31 26,709 $21.70 - $579,585 -
June 30 26,709 21.70 - 579,585 -
September 30 26,709 21.69 - 579,318 -
December 31 26,709 21.69 - 579,318 -
</TABLE>
Cash from operations, defined as disbursable cash in the agreement of
limited partnership which governs the Partnership, is distributed to the
Holders. Cash proceeds from the sale of property are distributed to the Holders
as a return of capital. The Adjusted Capital Contribution of a Holder is
generally the Holder's initial capital contribution reduced by the cash
distributions to the Holders of proceeds from the sale of Partnership properties
and reduced by any other cash distributions other than from operations. The
Adjusted Capital Contribution per Unit of the Holders, as defined in the
agreement of limited partnership which governs the Partnership, was $964.16 as
of December 31, 1996.
Any differences in the amounts of distributions set forth in the above
tables from the
8
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information contained in Item 6 below are due to rounding the amount of
distributions payable per Unit down to the nearest whole cent and carrying any
fractional cents forward from one period to the next. The Partnership expects to
continue making cash distributions to the Holders pursuant to the provisions of
the agreement of limited partnership which governs the Partnership. The General
Partner knows of no material restrictions that would limit the Partnership's
ability to pay distributions to the Holders in the future.
Item 6. Selected Financial Data.
The following selected financial data should be read in conjunction
with the Financial Statements and related notes attached as an exhibit to this
Report.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $2,636,853 $2,648,938 $2,634,461 $2,219,419 $1,373,808
Net Income 1,891,905 1,889,914 1,889,998 1,536,414 $953,618
Net Income Per Unit 70.13 70.05 70.05 56.95 38.20
Total Assets 21,078,466 21,516,076 21,985,630 22,349,710 22,690,060
Distributions of Cash from
Operations to Holders 2,317,702 2,317,771 2,317,855 1,742,185 1,163,266
Distributions of Cash from
Operations Per Unit 86.78 86.78 86.78 65.23 47.07*
Return of Capital to Holders - - - 127,500 688,854
Return of Capital Per Unit - - - 4.77 27.87*
</TABLE>
- --------------------
* Per Unit distributions to Holders are calculated using the weighted average
Units of 24,714 in 1992. Distributions of $47.64 and $21.08 from operations and
capital, respectively, per Unit were paid to each Holder who acquired Units at
the closing on August 30, 1991. Distributions of $38.96 and $31.06 from
operations and capital, respectively, per Unit were paid to each Holder who
acquired Units at the closing on February 28, 1992.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Liquidity and Capital Resources
The Partnership received $26,709,000 in gross proceeds from its public
offering of the Units. After deducting organizational and offering expenses,
including sales commissions, the Partnership had $23,236,830 in net proceeds for
investment in properties. As of June 30, 1993, the Partnership had used
approximately $22,390,000 to acquire or finance three travel plazas. The rental
and mortgage interest payments from lessees of the travel plazas are the
Partnership's primary sources of income.
As of December 31, 1996, the Partnership had cash and marketable
securities aggregating $651,261 of which $579,318 was paid out to the Holders in
January 1997 as their fourth quarter distribution for fiscal year 1996. The
Partnership uses the rental and mortgage interest revenues from its properties
to meet its cash needs, and it is anticipated that such revenues will be
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sufficient to meet all of the Partnership's expenses and provide cash for
distributions to the Limited Partners.
The General Partner knows of no trends, demands, commitments, events or
uncertainties that will result in or that are reasonably likely to result in the
Partnership's liquidity increasing or decreasing in any material way.
FFCA/PIP III Investor Services Corporation serves as the initial
limited partner of the Partnership and the owner of record of the limited
partner interests in the Partnership, the rights and benefits of which are
assigned by FFCA/PIP III Investor Services Corporation to investors in the
Partnership. FFCA/PIP III Investor Services Corporation has no other business
activity and has no capital resources.
Results of Operations
The Partnership began acquiring travel plaza properties using the net
proceeds of the offering in 1991. As of June 30, 1993, the Partnership was fully
invested in travel plazas. The Partnership received or accrued 100% of the lease
and interest payments due it from its lessees in 1996, 1995 and 1994.
Fiscal Year Ended December 31, 1996 Compared to
Fiscal Year Ended December 31, 1995
The Partnership's total revenues for the fiscal year ended December 31,
1996 decreased to $2,636,853 from $2,648,938 for the fiscal year ended December
31, 1995. Revenues decreased between years as a result of a decrease in
participating rental revenue of $10,707 which is attributable to decreased
overall travel plaza sales. In June 1996, a credit card issuer to Flying J
Travel Plaza customers terminated its relationship with the travel plazas. As a
result, volumes and margins at many Flying J Travel Plaza locations decreased
during the latter part of 1996. CFJ Properties expects the situation to
stabilize and volumes to be restored by early 1997.
Expenses for 1996 were $744,948 as compared to $759,024 for 1995 . This
decrease was primarily the result of decreased operating expenses in 1996. Also,
as described more fully in the Partnership agreement, the General Partner's
management fee is subordinated to a 9% return to the Holders on their Adjusted
Capital Contribution, as defined. The decrease in the General Partner's
Management fee resulted directly from the decrease in the Partnership's
disbursable cash (generally, cash receipts from operations less cash operating
expenses).
Net income for 1996 was $1,891,905 as compared to net income of
$1,889,914 for 1995. Total cash and cash equivalents increased to $651,261 in
1996 from $638,406 in 1995. This increase is primarily attributable to an
increase in the payable to the general partner.
Fiscal Year Ended December 31, 1995 Compared to
Fiscal Year Ended December 31, 1994
The Partnership's total revenues for the fiscal year ended December 31,
1995 increased to $2,648,938 from $2,634,461 for the fiscal year ended December
31, 1994. The increase in
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revenues was primarily the result of an increase in participating rentals to
$503,098 in fiscal year 1995 from $495,692 in fiscal year 1994 resulting from
increased travel plaza sales.
Expenses for fiscal year 1995 were $759,024 as compared to $744,463 for
fiscal year 1994. This increase was primarily the result of an increase in the
General Partner's management fee in 1995. As described more fully in the
Partnership agreement, the General Partner's management fee is subordinated to a
9% return to the Holders on their Adjusted Capital Contribution, as defined. The
increase in the General Partner's Management fee resulted directly from the
increase in the Partnership's disbursable cash (generally, cash receipts from
operations less cash operating expenses).
Net income for 1995 was $1,889,914 which remained unchanged from net
income of $1,889,998 for 1994. Total cash and cash equivalents decreased from
$654,948 in 1994 to $638,406 in 1995. This decrease is primarily attributable to
a decrease in other liabilities.
Item 8. Financial Statements and Supplementary Data.
The financial statements of the Co-Registrants required by Regulation
S-X are attached to this Report. Reference is made to Item 14 below for an index
to the financial statements and financial statement schedules.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers.
The Partnership has no directors or executive officers. The managing
general partner of the General Partner is Franchise Finance Corporation of
America III, a Delaware corporation ("FFCA III"). Travel Plaza Management, Inc.
("TMI"), a subsidiary of PaineWebber Group, Inc., and Morton H. Fleischer and
Paul Bagley are general partners of the General Partner. FFCA III was organized
in Delaware in July 1990 for the purpose of sponsoring limited partnerships such
as the Partnership. Set forth below are the directors and executive officers of
FFCA III, TMI and FFCA/PIP III Investor Services Corporation, and the year they
were elected or appointed to their respective offices:
FFCA III
Directors
Name Position Held Since
---- -------------------
Morton H. Fleischer, Chairman 1990
Paul Bagley 1990
11
<PAGE>
John R. Barravecchia 1993
Christopher H. Volk 1993
Officers
Associated
With
FFCA III
Name Positions Held Since
---- -------------- -----
Morton H. Fleischer Chairman of the Board, President and Chief 1990
Executive Officer
John R. Barravecchia Executive Vice President, Chief Financial 1990
Officer, Treasurer and Assistant Secretary
Christopher H. Volk Executive Vice President, Chief Operating 1990
Officer, Secretary and Assistant Treasurer
Dennis L. Ruben Executive Vice President, General Counsel and 1993
Assistant Secretary
Stephen G. Schmitz Executive Vice President, Chief Investment 1995
Officer and Assistant Secretary
Catherine F. Long Senior Vice President-Finance, Principal 1990
Accounting Officer, Assistant Secretary and
Assistant Treasurer
Travel Plaza Management, Inc.
Directors
Name Position Held Since
---- -------------------
Gerald F. Goertz, Jr. 1994
Stephen R. Dyer 1994
Joseph P. Ciavarella 1994
Officers
Name Positions Held Position Held Since
---- -------------- -------------------
Gerald F. Goertz, Jr. President 1994
Stephen R. Dyer Vice President and Secretary 1994
Joseph P. Ciavarella Vice President, Treasurer, Assistant 1994
Secretary and Chief Financial and
Accounting Officer
12
<PAGE>
FFCA/PIP III Investor Services Corporation
Director
Name Position Held Since
---- -------------------
Morton H. Fleischer 1986
Officers
Name Positions Held Position Held Since
---- -------------- -------------------
Morton H. Fleischer Chairman of the Board of Directors 1986
John R. Barravecchia President, Secretary and Treasurer 1990
Christopher H. Volk Vice President, Assistant Secretary and 1994
Assistant Treasurer
All of the foregoing directors and officers have been elected to serve
a one year term and until their successors are elected and qualified. There are
no arrangements or understandings between or among any of the officers or
directors and any other person pursuant to which any officer or director was
selected as such. There are no family relationships among any directors and
officers.
Business Experience
The business experience during the past five years of each of the above
directors and officers is as follows:
FFCA III and FFCA/PIP III Investor Services Corporation
Paul Bagley, age 54, has served as a director of FFCA III since 1990.
Mr. Bagley is a founding partner of Stone Pine Capital LLC (1994), and is
chairman of FCM Fiduciary Management Co. LLC (1989 to date), the advisor to a
mezzanine and private equity fund. For more than twenty years prior to 1990, Mr.
Bagley was engaged in investment banking activities with Shearson Lehman Hutton
Inc. and its predecessor, E.F. Hutton & Company Inc., where he was responsible
for the creation and management of over $5 billion of direct investment
activities. Mr. Bagley has served on the boards of a number of public and
private companies. Currently he is on the boards of America First Financial
Fund, Fiduciary Capital, EurekaBank, Hollis-Eden Pharmaceuticals, Lithium
Technology, Consolidated Capital, Logan Machinery Corp. and Pacific Consumer
Funding.
Morton H. Fleischer, age 60, has served as Chairman of the Board of
Directors of
13
<PAGE>
FFCA/PIP III Investor Services Corporation since 1990 and has served as
President, Chief Executive Officer and a Director of FFCA III since its
formation in 1990. He was elected Chairman of the Board of FFCA III in 1994. Mr.
Fleischer currently serves as President, Chief Executive Officer and Chairman of
the Board of Franchise Finance Corporation of America, a Delaware corporation
("FFCA"), having previously served as President, Chief Executive Officer and a
Director of Franchise Finance Corporation of America I ("FFCA I"), a predecessor
of FFCA, from 1980 to 1994. Mr. Fleischer is also an individual general partner
of the Partnership, and is a general partner (or general partner of a general
partner) of the following public limited partnerships: Participating Income
Properties 1986, L.P.; Participating Income Properties II, L.P; and Scottsdale
Land Trust Limited Partnership.
John R. Barravecchia, age 41, has served as President, Secretary and
Treasurer of FFCA/PIP III Investor Services Corporation since 1990. He has
served as Senior Vice President and Chief Financial Officer of FFCA III since
1990, was named Treasurer in December 1993 and was named Assistant Secretary in
1994. In 1995, Mr. Barravecchia was named Executive Vice President of FFCA III.
Mr. Barravecchia currently serves as Executive Vice President, Chief Financial
Officer, Treasurer and Assistant Secretary of FFCA and served in various
capacities for FFCA I from 1984 to 1994. He was appointed Vice President and
Chief Financial Officer of FFCA I in December 1986, and Senior Vice President in
October 1989. Mr. Barravecchia was elected as a Director of FFCA I in March 1993
and Treasurer in December 1993. Prior to joining FFCA I, Mr. Barravecchia was
associated with the international public accounting firm of Arthur Andersen LLP.
Christopher H. Volk, age 40, has served as Vice President, Assistant
Secretary and Assistant Treasurer of FFCA/PIP III Investor Services Corporation
since January 1996. During 1995, Mr. Volk was named Chief Operating Officer and
Executive Vice President of FFCA III. Mr. Volk served as Vice President-Research
of FFCA III from 1990 to 1993 and was named Senior Vice President- Underwriting
and Research and Secretary in December 1993. He currently serves as Executive
Vice President, Chief Operating Officer, Secretary and Assistant Treasurer to
FFCA. He joined FFCA I in 1986 and has served in various capacities in FFCA I's
capital preservation and underwriting areas prior to being named Vice
President-Research in October 1989. In December 1993, he was appointed Secretary
and Senior Vice President-Underwriting and Research of FFCA I, and he was
elected as a Director of FFCA I in March 1993. Prior to joining FFCA I, Mr. Volk
was employed for six years with the National Bank of Georgia, where his last
position was Assistant Vice President and Senior Correspondent Banking Credit
Officer. Mr. Volk is a member of the Association for Investment Management and
Research and the Phoenix Society of Financial Analysts.
Dennis L. Ruben, age 44, was named Senior Vice President and General
Counsel of FFCA III in December 1993. Mr. Ruben was named Executive Vice
President, General Counsel and Assistant Secretary in February 1997. He
currently serves in the same capacity for FFCA. In 1991, he joined FFCA I as
attorney and counsel. In December 1993, he was appointed Senior Vice President
and General Counsel of FFCA I. Prior to joining FFCA I, Mr. Ruben was
14
<PAGE>
associated with the law firm of Kutak Rock from 1980 until March 1991. Mr. Ruben
became a partner of Kutak Rock in 1984. Mr. Ruben has been admitted to the Iowa,
Nebraska and Colorado bars.
Stephen G. Schmitz, age 42, has served as Senior Vice
President-Corporate Finance of FFCA III since January 1996. Mr. Schmitz was
named Executive Vice President, Chief Investment Officer and Assistant Secretary
in February 1997. He currently serves in the same capacity for FFCA. Mr. Schmitz
served in various positions as an officer of FFCA I from 1986 to June 1, 1994.
Prior to joining FFCA I, Mr. Schmitz was a commercial lender with Mellon Bank in
Pittsburgh, where his last position was Vice-President and Section Manager.
Catherine F. Long, age 40, has served as Vice President-Finance of FFCA
III since 1990 and was named Principal Accounting Officer in December 1993.
During 1994, Ms. Long was named Assistant Secretary and Assistant Treasurer. In
February 1997, she was also named Senior Vice President. She currently serves as
Senior Vice President-Finance, Principal Accounting Officer, Assistant Secretary
and Assistant Treasurer for FFCA. In June 1990, she joined FFCA I as Vice
President-Finance. In December 1993, she was appointed Principal Accounting
Officer of FFCA I. From December 1978 to May 1990, Ms. Long was associated with
the international public accounting firm of Arthur Andersen LLP. Ms. Long is a
certified public accountant and is a member of the Arizona Society of Certified
Public Accountants.
Travel Plaza Management, Inc.
Gerald F. Goertz, Jr., age 39, is President and a Director of Travel
Plaza Management, Inc. Mr. Goertz joined PaineWebber Incorporated in December
1990 and holds the position of Senior Vice President and Director of Private
Investments. Prior to joining PaineWebber Incorporated, Mr. Goertz was
associated with CG Realty Advisors and The Freeman Company.
Stephen R. Dyer, age 37, is a Vice President, Secretary and Director of
Travel Plaza Management, Inc. He joined PaineWebber Incorporated in June 1988 as
a Divisional Vice President and is currently a Corporate Vice President. Prior
to joining PaineWebber Incorporated, Mr. Dyer had been employed, since June
1987, as an Assistant Vice President in the Retail National Products Group of
L.F. Rothschild & Co. Incorporated. Prior to joining L.F. Rothschild he was
employed, beginning in January 1985, as an Associate in the Real Estate
Department of Thomson McKinnon Securities Inc. From July 1981 to August 1983,
Mr. Dyer was on the audit staff of the accounting firm of Arthur Young &
Company. Mr. Dyer is a Certified Public Accountant.
Joseph P. Ciavarella, age 41, is a Vice President, Treasurer, Assistant
Secretary, Chief Financial Officer, Chief Accounting Officer and Director of
Travel Plaza Management, Inc. He joined PaineWebber Incorporated in May 1994 as
Corporate Vice President. Prior to joining PaineWebber Incorporated, Mr.
Ciavarella was affiliated with Aviation Capital Group in the area of aircraft
finance. He was associated with Integrated Resources, Inc. from 1983 to 1993 as
Vice
15
<PAGE>
President and First Vice President, as well as Chief Financial Officer of
various subsidiaries in the equipment leasing, aircraft finance and venture
capital areas. Mr. Ciavarella is a Certified Public Accountant.
Travel Plaza Management, Inc. was named as a defendant in a class
action lawsuit against PaineWebber Incorporated ("PaineWebber") and a number of
its affiliates relating to PaineWebber's sale of 70 direct investment offerings,
including the offering of the Units of the Partnership. In January 1996,
PaineWebber signed a memorandum of understanding with the plaintiffs in the
class action outlining the terms under which the parties have agreed to settle
the case. Pursuant to that memorandum of understanding, PaineWebber irrevocably
deposited $125 million into an escrow fund under the supervision of the United
States District Court for the Southern District of New York to be used to
resolve the litigation in accordance with a definitive settlement agreement and
plan of allocation, which the parties subsequently submitted to the court for
its consideration and approval. The court held hearings on the fairness of the
settlement in October and November 1996, but has not yet issued a decision.
Until a definitive settlement and plan of allocation is approved by the court,
there can be no assurance what, if any, payment or non-monetary benefits will be
made available to unitholders in the Partnership.
In February 1996, approximately 150 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiff's purchase of various limited partnership interests. The complaint
alleges, among other things, that PaineWebber and its related entities committed
fraud and misrepresentations and breached fiduciary duties allegedly owed to the
plaintiffs by selling or promoting limited partnership investments that were
unsuitable for the plaintiffs and by overstating the benefits, understating the
risks and failing to state material facts concerning the investments. The
complaint seeks compensatory damages of $15 million plus punitive damages. The
parties have an agreement in principle to settle the matter. The Partnership
will not contribute to the settlement if and when finalized.
Compliance with Section 16(a) of the
Securities Exchange Act of 1934
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Co-Registrants during fiscal year 1996 and Forms 5 and
amendments thereto furnished to the Co-Registrants with respect to the fiscal
year ended December 31, 1996 (the "Forms"), and any written representations by
the directors and executive officers of FFCA/PIP III Investor Services
Corporation and FFCA III, the Co-Registrants have not identified herein any such
person that failed to file on a timely basis the Forms required by Section 16(a)
of the Securities Exchange Act of 1934 for fiscal year 1996.
Item 11. Executive Compensation.
The Partnership is required to pay an acquisition fee and a
subordinated real estate
16
<PAGE>
disposition fee to the General Partner or its affiliate, and the General Partner
is entitled to receive a share of cash distributions, when and as made to the
Holders, a share of profits and losses and a subordinated share of any sale
proceeds. Reference is made to Note (1) and Note (6) of the Notes to Financial
Statements which are filed with this report for a description of the fees and
distribution paid in 1996, 1995 and 1994.
FFCA/PIP III Investor Services Corporation serves as assignor and
initial limited partner without compensation from the Partnership. It is not
entitled to any share of the profits, losses or cash distributions of the
Partnership. The director and officers of FFCA/PIP III Investor Services
Corporation serve without compensation from FFCA/PIP III Investor Services
Corporation or the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of March 14, 1997, no person or group was known by the Partnership
to own directly or beneficially more than 5% of the outstanding Units of the
Partnership.
Neither the General Partner, the general partners of the General
Partner, FFCA/PIP III Investor Services Corporation nor any director or officer
of FFCA/PIP III Investor Services Corporation owned any Units as of March 14,
1997. The directors and officers of FFCA III, as a group, owned less than 1% of
the Units as of March 14, 1997.
FFCA/PIP III Investor Services Corporation has an interest in the
Partnership as a limited partner and it serves as the owner of record of all of
the limited partnership interests assigned by it to the Holders; however, it has
no right to vote its interest on any matter and it must vote the assigned
interests as directed by the Holders.
Item 13. Certain Relationships and Related Transactions.
Since the beginning of the last fiscal year of both of the
Co-Registrants, there have been no significant transactions or business
relationships among the Co-Registrants, the General Partners or their affiliates
or their management, other than as described in Items 1, 10 and 11 above.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as part of this Report:
1. Financial Statements. The following financial statements
are included in the response to item 8 of this report:
17
<PAGE>
The Partnership
Report of independent public accountants
Balance Sheets as of December 31, 1996 and 1995
Statements of Income for the year ended December 31, 1996,
1995 and 1994
Statements of Changes In Partners' Capital for the
years ended December 31, 1996, 1995 and 1994
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Financial Statements
FFCA/PIP III Investor Services Corporation
Report of independent public accountants
Balance Sheet as of December 31, 1996
Notes to Balance Sheet
2. Financial Statement Schedules.
Schedule III-Schedule of Real Estate and Accumulated
Depreciation as of December 31, 1996
All other schedules are omitted since they are not
required, are inapplicable, or the required
information is included in the financial
statements or notes thereto.
3. Exhibits.
99. Annual Portfolio Valuation of Cushman & Wakefield as of
December 31, 1996
Pursuant to Rule 12b-32 under the Securities Exchange Act
of 1934, as amended, the following documents, filed with the
Securities and Exchange Commission as exhibits to the
Co-Registrants' Form 10-K for the fiscal year ended December
31, 1991, Commission File No. 0-20151, are incorporated herein
by this reference.
1991 Form 10-K
Exhibit No.
-----------
The Agreement of Limited Partnership of
the General Partner 3-A
18
<PAGE>
The Certificate of Incorporation of 3-B
FFCA/PIP III Investor Services
Corporation, as filed with the Secretary
of State Delaware on December 5, 1988
Bylaws of FFCA/PIP III Investor Services
Corporation 3-C
Pursuant to Rule 12b-32 under the Securities Exchange Act
of 1934, as amended, the following documents, filed with the
Securities and Exchange Commission with the Co-Registrants'
Registration Statement on Form S-11, Registration No.
33-35868, is incorporated herein by this reference.
The Amended and Restated Agreement of Limited Partnership
of the Partnership.
Reports on Form 8-K.
No reports on Form 8-K were filed by the Co-Registrants during
the last quarter of the fiscal year ended December 31, 1996.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Partnership has duly caused this Report to
be signed on its behalf of the undersigned, thereunto duly authorized.
PARTICIPATING INCOME PROPERTIES III LIMITED
PARTNERSHIP
By: FFCA PARTICIPATING MANAGEMENT
COMPANY LIMITED PARTNERSHIP,
General Partner
By: FRANCHISE FINANCE CORPORATION
OF AMERICA III, Managing
General Partner
Date: March 19, 1997 By /s/ Morton H. Fleischer
-----------------------------
Morton H. Fleischer, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Partnership and in the capacities and on the dates indicated.
SIGNATURES OF REQUIRED OFFICERS AND DIRECTORS OF FRANCHISE FINANCE
CORPORATION OF AMERICA III, MANAGING GENERAL PARTNER OF FFCA
PARTICIPATING MANAGEMENT COMPANY LIMITED PARTNERSHIP, GENERAL PARTNER
OF PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP.
Date: March 19, 1997 By /s/ Morton H. Fleischer
----------------------------------
Morton H. Fleischer, President,
Chief Executive Officer and Director
Date: March 10, 1997 By /s/ Paul Bagley
----------------------------------
Paul Bagley, Director
<PAGE>
Date: March 19, 1997 By /s/ John R. Barravecchia
----------------------------------
John R. Barravecchia, Executive Vice
President, Chief Financial Officer,
Treasurer, Assistant Secretary and
Director
Date: March 19, 1997 By /s/ Christopher H. Volk
----------------------------------
Christopher H. Volk, Executive Vice
President, Chief Operating Officer,
Secretary, Assistant Treasurer and
Director
Date: March 19, 1997 By /s/ Catherine F. Long
----------------------------------
Catherine F. Long, Senior Vice
President-Finance, Principal
Accounting Officer, Assistant
Secretary and Assistant Treasurer
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Co-Registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized.
FFCA/PIP III INVESTOR SERVICES
CORPORATION
Date: March 19, 1997 By /s/ Morton H. Fleischer
----------------------------------
Morton H. Fleischer, Sole Director
Date: March 19, 1997 By /s/ John R. Barravecchia
----------------------------------
John R. Barravecchia, President,
Secretary, Treasurer, Principal
Financial Officer and Principal
Accounting Officer
<PAGE>
Report of Independent Public Accountants
To Participating Income Properties III Limited Partnership:
We have audited the accompanying balance sheets of PARTICIPATING INCOME
PROPERTIES III LIMITED PARTNERSHIP (a Delaware limited partnership) as of
December 31, 1996 and 1995, and the related statements of income, changes in
partners' capital and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements and the schedule referred to below
are the responsibility of the partnership's general partner. Our responsibility
is to express an opinion on these financial statements and schedule based on 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 are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Participating Income
Properties III Limited Partnership as of December 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of Real Estate and
Accumulated Depreciation is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a required part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
Phoenix, Arizona,
January 3, 1997.
<PAGE>
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
-------------------------------------------------------
BALANCE SHEETS - DECEMBER 31, 1996 AND 1995
-------------------------------------------
1996 1995
------------ ------------
ASSETS
------
CASH AND CASH EQUIVALENTS $ 651,261 $ 638,406
RECEIVABLES FROM LESSEES 38,000 39,257
MORTGAGE LOAN INTEREST RECEIVABLE 45,208 45,208
MORTGAGE LOAN RECEIVABLE (Note 4) 7,750,000 7,750,000
PROPERTY SUBJECT TO OPERATING LEASES (Note 3) 12,593,997 13,043,205
------------ ------------
Total assets $ 21,078,466 $ 21,516,076
============ ============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
DISTRIBUTION PAYABLE TO LIMITED PARTNERS $ 579,450 $ 579,556
PAYABLE TO GENERAL PARTNER 7,720 --
RENTAL DEPOSITS AND OTHER 255,504 251,520
------------ ------------
Total liabilities 842,674 831,076
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General partner (17,210) (12,718)
Limited partners 20,253,002 20,697,718
------------ ------------
Total partners' capital 20,235,792 20,685,000
------------ ------------
Total liabilities and partners' capital $ 21,078,466 $ 21,516,076
============ ============
The accompanying notes are an integral part of these balance sheets.
<PAGE>
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
-------------------------------------------------------
STATEMENTS OF INCOME
--------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
----------------------------------------------------
1996 1995 1994
---------- ---------- ----------
REVENUES:
Rental $1,579,480 $1,579,480 $1,579,480
Participating rentals 492,391 503,098 495,692
Mortgage loan interest 542,500 542,500 542,500
Interest and other 22,482 23,860 16,789
---------- ---------- ----------
2,636,853 2,648,938 2,634,461
---------- ---------- ----------
EXPENSES:
General partner fees (Note 6) 209,535 212,053 188,357
Depreciation 449,208 451,269 451,270
Operating 86,205 95,702 104,836
---------- ---------- ----------
744,948 759,024 744,463
---------- ---------- ----------
NET INCOME $1,891,905 $1,889,914 $1,889,998
========== ========== ==========
NET INCOME ALLOCATED TO (Note 1):
General partner $ 18,919 $ 18,899 $ 18,900
Limited partners 1,872,986 1,871,015 1,871,098
---------- ---------- ----------
$1,891,905 $1,889,914 $1,889,998
========== ========== ==========
NET INCOME PER LIMITED PARTNERSHIP
UNIT (based on 26,709 units held by
limited partners) $ 70.13 $ 70.05 $ 70.05
========== ========== ==========
The accompanying notes are an integral part of these statements.
<PAGE>
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
-------------------------------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
----------------------------------------------------
General Limited
Partner Partners Total
------------ ------------ ------------
BALANCE, December 31, 1993 $ (3,692) $ 21,591,231 $ 21,587,539
Net income 18,900 1,871,098 1,889,998
Distributions to partners (23,413) (2,317,855) (2,341,268)
------------ ------------ ------------
BALANCE, December 31, 1994 (8,205) 21,144,474 21,136,269
Net income 18,899 1,871,015 1,889,914
Distributions to partners (23,412) (2,317,771) (2,341,183)
------------ ------------ ------------
BALANCE, December 31, 1995 (12,718) 20,697,718 20,685,000
Net income 18,919 1,872,986 1,891,905
Distributions to partners (23,411) (2,317,702) (2,341,113)
------------ ------------ ------------
BALANCE, December 31, 1996 $ (17,210) $ 20,253,002 $ 20,235,792
============ ============ ============
The accompanying notes are an integral part of these statements.
<PAGE>
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
-------------------------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
----------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,891,905 $ 1,889,914 $ 1,889,998
Adjustments to net income:
Depreciation 449,208 451,269 451,270
Change in assets and liabilities:
Decrease (increase) in receivables from lessees 1,257 1,743 (6,000)
Increase in payable to general partner 7,720 -- --
Increase (decrease) in rental deposits
and other 3,984 (18,250) 23,041
----------- ----------- -----------
Net cash provided by operating activities 2,354,074 2,324,676 2,358,309
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partner distributions declared (Note 1) (2,341,113) (2,341,183) (2,341,268)
Increase (decrease) in distribution payable (106) (35) 64,149
----------- ----------- -----------
Net cash used in financing activities (2,341,219) (2,341,218) (2,277,119)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 12,855 (16,542) 81,190
CASH AND CASH EQUIVALENTS,
beginning of year 638,406 654,948 573,758
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 651,261 $ 638,406 $ 654,948
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
-------------------------------------------------------
Notes to Financial Statements
-----------------------------
December 31, 1996 and 1995
--------------------------
1) ORGANIZATION:
-------------
Participating Income Properties III Limited Partnership (the
Partnership) was formed on July 9, 1990 under the Delaware Revised Uniform
Limited Partnership Act to purchase new and existing "Flying J Travel Plaza"
facilities, including land, buildings and equipment to be leased on a net basis
to affiliates of Flying J Inc. The Partnership has also made a loan to an
affiliate of Flying J Inc. to provide financing for a travel plaza building and
equipment (the underlying land is owned by the Partnership and leased to the
affiliate). The "Flying J Travel Plaza" facilities offer a full-service
operation, generally including fuel facilities, a restaurant, convenience store
and other amenities for use by the trucking industry and traveling public in
general. The general partner of the Partnership is FFCA Participating Management
Company Limited Partnership, a Delaware limited partnership (the General
Partner). The Partnership will expire December 31, 2030, or sooner, in
accordance with the terms of the Partnership agreement.
Investors acquired units of assigned limited partnership interest (the
limited partnership units) in the Partnership from FFCA/PIP III Investor
Services Corporation (the Initial Limited Partner), a Delaware corporation
wholly-owned by an affiliate of the General Partner. Holders of the units have
all of the economic benefits and substantially the same rights and powers of
limited partners; therefore, they are referred to herein as "limited partners."
The Partnership agreement provides for allocation of profits and losses
and cash distributions among its partners as follows:
Profits and Losses: Allocated 99% to the limited partners and 1% to the
General Partner.
Cash Distributions: All cash from operations, as defined, after payment
of fees to the General Partner is allocated 99% to the limited partners
and 1% to the General Partner. In addition to cash distributed from
operations, a portion of the limited partners' initial capital
contributions has been distributed as return of capital, therefore, the
limited partner Adjusted Capital Contribution, as defined in the
Partnership agreement, at December 31, 1996 is $964.16 per unit.
The following is a reconciliation of net income to cash distributions
from operations as defined in the Partnership agreement:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net income $1,891,905 $1,889,914 $1,889,998
Adjustment to reconcile net income to cash
distributions declared:
Depreciation 449,208 451,269 451,270
---------- ---------- ----------
Cash distributions declared from operations $2,341,113 $2,341,183 $2,341,268
========== ========== ==========
</TABLE>
2) SIGNIFICANT ACCOUNTING POLICIES:
--------------------------------
Financial Statements - The financial statements of the Partnership are
prepared on the accrual basis of accounting. The preparation of the 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 at the date of the financial statements and the reported
amounts of revenues and expenses during the
<PAGE>
reporting period. Although management believes its estimates are reasonable,
actual results could differ from those estimates.
Cash and Cash Equivalents - Investment securities that are highly
liquid and have maturities of three months or less at the date of purchase are
classified as cash equivalents. Cash equivalents include United States Treasury
securities of $474,865 and $476,709 at December 31, 1996 and 1995, respectively.
Short-term investments are recorded at cost plus accrued interest, which
approximates market value.
Leases - The Partnership leases its property under long-term net leases
which are classified as operating leases. Rental revenue from operating leases
is recognized as it is earned.
Depreciation - Depreciation on buildings is provided using the
straight-line method based upon an estimated useful life of 32 years. Equipment
is depreciated over an estimated useful life of eight years, assuming a 12.5%
salvage value at the end of its useful life. The cost of properties includes
miscellaneous acquisition and closing costs.
3) PROPERTY SUBJECT TO OPERATING LEASES:
-------------------------------------
The following is an analysis of the Partnership's investment, at cost,
in property subject to operating leases by major class at December 31, 1996 and
1995:
1996 1995
----------- -----------
Land $ 2,684,138 $ 2,684,138
Buildings 11,010,862 11,010,862
Equipment 947,838 947,838
----------- -----------
14,642,838 14,642,838
Less - Accumulated depreciation 2,048,841 1,599,633
----------- -----------
$12,593,997 $13,043,205
=========== ===========
Lease agreements provide for monthly base rentals equal to a percentage
of the property's cost. As additional rent, the Partnership receives a portion
of the operating revenues of the lessee equal to a percentage of gross receipts
(participating rentals) from travel plaza facilities and fuel sales. The term of
the leases is eight years for equipment and 20 years for land and buildings.
Generally, the lessee has the option to purchase equipment (at fair market
value) at the end of the lease term and land and buildings (at the greater of
fair market value or cost) at any time after the first ten years of the lease.
All Partnership property is leased to affiliates of Flying J Inc.
Minimum future rentals (excluding participating rentals) under
noncancellable operating leases as of December 31, 1996, are as follows:
Year Ending December 31,
------------------------
1997 $ 1,579,000
1998 1,579,000
1999 1,579,000
2000 1,579,000
2001 1,579,000
Thereafter 16,727,000
------------
Total minimum future rentals $24,622,000
===========
4) MORTGAGE LOAN RECEIVABLE:
-------------------------
At December 31, 1996, the Partnership had a first mortgage loan on the
building and equipment of a Partnership travel plaza located in Ehrenberg,
Arizona. The loan provides for monthly installments of interest at a
<PAGE>
rate of 7% per annum until June 30, 2003 at which time the entire principal
balance is due. The loan may not be prepaid in full or in part, except upon
exercise of the purchase option on the related travel plaza land. The cost of
the mortgage for Federal income tax purposes is the same as the cost for
financial reporting purposes.
The fair value of the first mortgage loan is estimated by discounting
the future cash flows using the prevailing interest rate at December 31, 1996,
and is lower than its carrying amount by $400,000. Changes in the fair value of
the first mortgage loan do not result in the realization or expenditure of cash
unless the loan is actually prepaid.
5) INCOME TAXES:
-------------
The Partnership is not directly subject to income taxes; rather, each
partner is subject to income taxes on his distributable share of taxable income.
The Partnership tax returns and the amount of distributable partnership profits
or losses are subject to examination by Federal and state taxing authorities. If
examinations by taxing authorities result in changes to distributable
partnership profits or losses, the tax liabilities of the partners could be
changed accordingly.
The following is a reconciliation of net income for financial reporting
purposes to income reported for Federal income tax purposes for the years ended
December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net income for financial reporting purposes $1,891,905 $1,889,914 $1,889,998
Differences for tax purposes in:
Depreciation 67,797 28,828 (45,620)
Organization cost amortization and other (10,719) (11,552) (11,552)
---------- ---------- ----------
Taxable income to partners $1,948,983 $1,907,190 $1,832,826
========== ========== ==========
</TABLE>
For Federal income tax reporting purposes, taxable income to partners is
reported on the accrual basis of accounting and is classified as ordinary
income.
At December 31, 1996, the tax bases of the Partnership's assets and
liabilities exceed the amounts recorded for financial reporting purposes by
$128,032. This difference results primarily from differences in depreciation
methods and treatment of property acquisition costs for financial reporting and
tax reporting purposes.
6) TRANSACTIONS WITH RELATED PARTIES:
----------------------------------
Under the terms of the Partnership agreement, the General Partner is
entitled to compensation for certain services performed in connection with
managing the affairs of the Partnership. During 1996, 1995 and 1994, fees paid
to the General Partner were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Disbursable cash fee $104,960 $107,050 $ 83,650
Property management fee (4% of the
Partnership's gross annual property revenues) 104,575 105,003 104,707
-------- -------- --------
$209,535 $212,053 $188,357
======== ======== ========
</TABLE>
The General Partner is entitled to a disbursable cash fee equal to nine
percent of all revenues received by the Partnership less Partnership operating
expenses, only to the extent the limited partners have received an annual return
of nine percent on their Adjusted Capital Contribution, as defined. The General
Partner or its affiliate will also be entitled to a subordinated real estate
disposition fee and an incentive share of sale proceeds, as defined in the
Partnership agreement.
<PAGE>
An affiliate of the General Partner incurs expenses on behalf of the
Partnership for maintenance of the books and records and for computer, investor
and legal services performed for the Partnership. These expenses are
reimbursable in accordance with the Partnership agreement and are less than the
amount which the Partnership would have paid to independent parties for
comparable services. The Partnership reimbursed the affiliate $22,689 in 1996,
$23,777 in 1995 and $21,866 in 1994 for such expenses.
<PAGE>
SCHEDULE III
Page 1 of 2
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
-------------------------------------------------------
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
----------------------------------------------------
AS OF DECEMBER 31, 1996
-----------------------
<TABLE>
<CAPTION>
Initial Cost to Partnership and
Gross Amount at December 31, 1996 Accumulated Depreciation
---------------------------------------------------- --------------------------------------
Date
Restaurant Location Land Buildings Equipment Total Buildings Equipment Total Acquired
- -------------------- ----------- ----------- ---------- ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EHRENBERG, ARIZONA $ 1,250,000 $ -- $ -- $ 1,250,000 $ -- $ -- $ -- June 1993
BAKERSFIELD, CALIFORNIA 101,050 5,195,950 495,838 5,792,838 649,494 240,208 889,702 Jan. 1993
WYTHEVILLE, VIRGINIA 1,333,088 5,814,912 452,000 7,600,000 923,723 235,416 1,159,139 Dec. 1991
----------- ----------- ---------- ----------- ----------- ---------- -----------
TOTAL $ 2,684,138 $11,010,862 $ 947,838 $14,642,838 $ 1,573,217 $ 475,624 $ 2,048,841
=========== =========== ========== =========== =========== ========== ===========
</TABLE>
<PAGE>
SCHEDULE III
Page 2 of 2
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
-------------------------------------------------------
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
----------------------------------------------------
AS OF DECEMBER 31, 1996
-----------------------
NOTES:
(1) There are no encumbrances on properties.
(2) Cost for Federal income tax purposes is the same as cost for financial
reporting purposes.
(3) All buildings and equipment are depreciated over estimated useful lives
of 32 and eight years, respectively. The buildings and equipment were
purchased as new properties.
(4) Transactions in real estate, equipment and accumulated depreciation
during 1996, 1995 and 1994 are summarized as follows:
Accumulated
Cost Depreciation
----------- ------------
Balance, December 31, 1993 $14,642,838 $ 697,094
Depreciation expense - 451,270
----------- ----------
Balance, December 31, 1994 14,642,838 1,148,364
Depreciation expense - 451,269
----------- ----------
Balance, December 31, 1995 14,642,838 1,599,633
Depreciation expense - 449,208
----------- ----------
Balance, December 31, 1996 $14,642,838 $2,048,841
=========== ==========
<PAGE>
Report of Independent Public Accountants
To FFCA/PIP III Investor Services Corporation:
We have audited the accompanying balance sheet of FFCA/PIP III
INVESTOR SERVICES CORPORATION (a Delaware corporation) as of December 31, 1996.
This financial statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents
fairly, in all material respects, the financial position of FFCA/PIP III
Investor Services Corporation as of December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Phoenix, Arizona,
January 3, 1997.
<PAGE>
FFCA/PIP III INVESTOR SERVICES CORPORATION
------------------------------------------
BALANCE SHEET - DECEMBER 31, 1996
---------------------------------
ASSETS
Cash $100
Investment in Participating Income Properties III Limited
Partnership, at cost 100
----
Total Assets $200
====
LIABILITY
Payable to Parent (Note 2) $100
----
STOCKHOLDER'S EQUITY
Common Stock; $l par value; 100 shares authorized,
issued and outstanding 100
----
Liability and Stockholder's Equity $200
====
The accompanying notes are an integral part of this balance sheet.
<PAGE>
FFCA/PIP III INVESTOR SERVICES CORPORATION
------------------------------------------
NOTES TO BALANCE SHEET
----------------------
DECEMBER 3l, l996
-----------------
(l) Operations:
FFCA/PIP III Investor Services Corporation (a Delaware corporation)
(the Corporation) was incorporated on December 5, 1988, and amended on July 9,
l990 to act as the assignor limited partner in Participating Income Properties
III Limited Partnership (PIP III).
The assignor limited partner is the owner of record of the limited
partnership units of PIP III. All rights and powers of the Corporation have been
assigned to the holders, who are the registered and beneficial owners of the
units. Other than to serve as assignor limited partner, the Corporation has no
other business purpose and will not engage in any other activity or incur any
debt.
(2) Related Parties:
Morton H. Fleischer is the sole stockholder of the Corporation.
<PAGE>
PARTICIPATING INCOME PROPERTIES III
LIMITED PARTNERSHIP
and
FFCA/PIP III INVESTOR SERVICES CORPORATION
__________________________
Exhibit Index
__________________________
Sequentially
Exhibit Numbered Page
99. Annual Portfolio Valuation of Cushman &
Wakefield as of December 31, 1996
Pursuant to Rule 12b-32 under the Securities Exchange Act of
1934, as amended, the following documents, filed with the Securities
and Exchange Commission as exhibits to the Co-Registrants' Form 10-K
for the fiscal year ended December 31, 1991, Commission File No.
0-20151, are incorporated herein by this reference.
1991 Form 10-K
Exhibit No.
-----------
The Agreement of Limited Partnership of 3-A
the General Partner
The Certificate of Incorporation of 3-B
FFCA/PIP III Investor Services
Corporation, as filed with the Secretary of
State Delaware on December 5, 1988
Bylaws of FFCA/PIP III Investor Services 3-C
Corporation
Pursuant to Rule 12b-32 under the Securities Exchange Act of
1934, as amended, the following documents, filed with the Securities
and Exchange Commission with the Co-Registrants' Registration Statement
on Form S-11, Registration No. 33-35868, is incorporated herein by this
reference.
The Amended and Restated Agreement of Limited
Partnership of the Partnership.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE BALANCE SHEET AS OF
DECEMBER 31, 1996 AND THE STATEMENT OF INCOME FOR
THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000865828
<NAME> PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 651,261
<SECURITIES> 0
<RECEIVABLES> 38,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 14,642,838
<DEPRECIATION> 2,048,841
<TOTAL-ASSETS> 21,078,466
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 20,235,792
<TOTAL-LIABILITY-AND-EQUITY> 21,078,466
<SALES> 0
<TOTAL-REVENUES> 2,636,853
<CGS> 0
<TOTAL-COSTS> 744,948
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,891,905
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,891,905
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,891,905
<EPS-PRIMARY> 70.13
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE BALANCE SHEET AS OF DECEMBER 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH BALANCE SHEET.
</LEGEND>
<CIK> 0000865829
<NAME> FFCA/PIP III INVESTOR SERVICES CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 100
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 200
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 200
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
Cushman & Wakefield, Inc. CUSHMAN &
51 West 52nd Street WAKEFIELD(R).
New York, NY 10019-6178 Improving your place
(212) 841-7500 In the world.
February 6, 1997
Participating Income Properties III, Limited Partnership
FFCA Participating Management Company, LP.
17207 North Perimeter Drive
Scottsdale, Arizona 85255
Attn: Morton H. Fleischer
General Partner
Re: Annual Portfolio Valuation
Participating Income Properties III,
Limited Partnership
Gentleman:
Pursuant to your request, we have completed our analysis of properties
contained in Participating Income Properties III, Limited Partnership. The
purpose of our analysis is twofold: to report on the physical condition of the
premises and determine the lessee's compliance with the terms of the net
leases/mortgage agreement; and to estimate the market value of the properties on
a going concern basis subject to existing leases/mortgage encumbrances for the
purpose of determining the value of the leased fee and mortgagee's interests.
The valuation includes equipment lease income for most of the properties. Our
opinion of value for the real properties will then be adjusted for cash on hand,
net receivables, distributions payable and other liabilities, which information
is provided by the General Partner. It should be noted that Cushman &
Wakefield's opinion is restricted to the market value of the Partnership's
interest in the real properties; we are not opining as to the value of the other
assets or liabilities of the Partnership. Furthermore, our opinion is subject to
the attached Certification and Assumptions and Limiting Conditions which have
been retained in our files. The date of value was December 31, 1996.
According to the Dictionary of Real Estate Appraisal, Third Edition,
published by the Appraisal Institute, market value may be defined as:
"The most probable price, as of a specified date, in cash, or in terms
equivalent to cash, or in other precisely revealed terms for which the specified
property rights should sell after reasonable exposure in a competitive market
under all conditions requisite to a fair sale, with the buyer and seller each
acting prudently, knowledgeably, and for self-interest, and assuming that
neither is under undue duress."
The real properties that are the subject of this valuation have been
inspected by members of Cushman & Wakefield's Valuation Advisory Services Group
operating under the supervision of the undersigned. Overall, the properties were
viewed to be in good physical condition and generally in compliance with the net
lease requirements. Individual property data relating to our re-inspections will
be delivered to you under separate cover and is part of our valuation.
Our valuation addresses the market value of the leased fee/mortgagee's
interest in these properties as a going concern and considers the various net
leases/mortgage in effect. The vast majority of the data used for this analysis
has been supplied to us by FFCA Participating Management Company, LP., and we
have relied upon their database input , various reports and financial
statements. We have visited their offices in Scottsdale, Arizona and have had
complete and unrestricted access to all pertinent information, and have assumed
all such information to be accurate and complete. We have verified certain data
and resolved any discrepancies by reconciling to Cushman & Wakefield's database.
The individual property-by-property database and cash flow projections have been
delivered under separate cover and are a part of our valuation.
For the purposes of our valuation, we have determined that the highest
and best use of the real properties is their continued use as travel plazas. The
Income Approach to the value is relied upon as the primary appraisal technique
based upon the properties' capabilities to generate net income and to be bought
and sold in the investment marketplace. Neither the Cost Approach nor the Sales
Comparison Approach were considered directly
<PAGE>
Cushman & Wakefield, Inc.
Mr. Morton H. Fleischer
General Partner -2- February 6, 1997
relevant in the analysis of a travel plaza under long term lease/mortgage.
Within the Income Approach, the discounted cash flow method was employed,
whereby anticipated future income streams over a 10 year holding period and a
reversionary value (sale at the end of the tenth year) are discounted via a
market derived rate to a net present value estimate utilizing a proprietary cash
flow model. Anticipated rental income as well as deductions for management fees
and administrative expenses are analyzed over the holding period. Consideration
has also been given to direct capitalization of estimated 1997 net income.
Participating Income Properties III, Limited Partnership contains three
travel plaza properties that are net leased to CFJ Properties and TFJ that
operate Flying J Travel Plazas. Gross proceeds originally raised by this
Partnership amounted to $26,709,000 (26.709 units @ $1,000 per unit). As of
December 31, 1996, $957,269 of capital was returned to the partners, making the
adjusted gross proceeds raised $25,751,731 or $964.16 per unit. Of this amount,
adjusted net proceeds invested in the properties contained in this Partnership
amounted to $22,392,838 after adjusting for organization costs, sales
commissions and capital returned. The Partnership was fully invested as of June
1993.
Considering all of the above factors, it is our opinion that the market
value of the leased fee and mortgagee's interests in the three properties an a
going concern basis subject to existing lease/mortgage encumbrances, as of
December 31, 1996 was:
TWENTY SEVEN MILLION TWO HUNDRED TWENTY THOUSAND DOLLARS
$27,220,000
The aggregate market value of the leased fee and mortgagee's interests
in the three properties is $27,220,000 as adjusted by cash on hand and net
receivables of $734,469, less distributions payable and other liabilities of
$842,674 as provided by the General Partner resulting in a total of $27,111,795.
This total as of December 31, 1996 represents an 21.07 percent increase above
the adjusted net proceeds. Dividing the total value by the 26,709 outstanding
units results in an indicated value per unit investment of $1,015.08 which
represents an increase of 5.28 percent from the adjusted unit investment of
$964.16.
The continued favorable performance of the Partnership, in our opinion,
is directly attributable to the quality of management and the numerous
safeguards built into the acquisition and management program. Our due diligence
has revealed that when problems arise, management has acted prudently in
avoiding defaults and delinquent rent payments, working effectively with
franchisees and franchisors.
We certify that neither Cushman & Wakefield, Inc. nor the undersigned
have any present or prospective interest in the Partnership's properties, and we
have no personal interest or bias with respect to the parties involved. To the
best of our knowledge and belief, the facts upon which the analysis and
conclusions were based are materially true and correct. No one other than the
undersigned assisted by members of our staff who performed inspections of the
properties, performed the analyses and reached the conclusions resulting in the
opinion expressed in this letter. Our fee for this assignment was not contingent
on any action or event resulting from the analysis, opinions or conclusions in,
or the use of, this analysis. Our analysis has been prepared subject to the
Departure Provision of the Uniform Standards of Professional Practice of the
Appraisal Foundation and the Code of Professional Ethics and the Standards of
Professional Appraisal Practice of the Appraisal Institute. The use of this
report is subject to the requirements of the Appraisal Institute relating to
review by its duly authorized representatives. As of the date of this report,
the undersigned have completed the requirements of the continuing education
program of the Appraisal Institute.
Respectfully submitted;
CUSHMAN & WAKEFIELD, INC.
<TABLE>
<S> <C> <C>
/s/ Matthew C. Mondanile /s/ Brian R. Corcoran /s/ Frank P. Liantonio
Matthew C. Mondanile, MAI Brian R. Corcoran, MAI, CRE Frank P. Liantonio, MAI, CRE
Senior Director Executive Managing Director Executive Managing Director
Valuation Advisory Services Valuation Advisory Services Valuation Advisory Services
</TABLE>
