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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 2004 Commission file number 33-00152
AMRECORP REALTY FUND III
(Exact name of registrant as specified in its charter)
TEXAS 75-2045888
(State or other jurisdiction of (IRS Employer
incorporation or organization Identification
Number)
2800 N Dallas Pkwy Suite 100
Plano, Texas 75093-5994
(Address of principal executive offices)
Registrant's telephone number, including area code: (972) 836-8000.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or 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: Y No:
REGISTRANT IS A LIMITED PARTNERSHIP
TABLE OF CONTENTS
Item 1. Financial Statements
The following Unaudited financial statements are filed herewith:
Consolidated Balance Sheet as of September 30, 2004 and
December 31, 2003 Page 3
Consolidated Statements of Operations for the Three
And Nine Months Ended September 30, 2004 and 2003 Page 4
Consolidated Statements of Cash Flows for the Nine months
Ended September 30, 2004 and 2003 Page 5
Item 2. Results of Operations and Management's Discussion and
Analysis of Financial Condition Page 6
Liquidity and Capital Resources Page 9
Other Information Page 12
Signatures Page 14
The statements, insofar as they relate to the period subsequent
to December 31, 2003 are Unaudited.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
AMRECORP REALTY FUND III
Condensed Consolidated Balance Sheets
September 30 December 31,
2004 2003
(Unaudited)
ASSETS
Real Estate assets, at cost
Land $1,000,000 $1,000,000
Buildings and improvements 7,180,636 7,180,636
8,180,636 8,180,636
Less: Accumulated depreciation (5,259,023) (4,983,023)
2,921,613 3,197,613
Cash including cash investments 45,743 19,115
Escrow deposits 113,396 149,208
Deferred Financing Costs 65,035 71,881
Other assets 67,704 29,787
TOTAL ASSETS $3,213,491 $3,467,604
LIABILITIES AND PARTNERS' EQUITY:
LIABILITIES
Mortgage and notes payable $3,953,893 $3,999,545
Note Payable - Affiliates 483 1,338
Real estate taxes payable 110,625 136,892
Security deposits 57,333 57,788
Accounts payable & accrued expenses 121,100 116,175
expenses
4,243,434 4,311,738
Partners Capital (Deficit)
Limited Partners (2,035,379) (1,940,528)
Special Limited Partner 1,161,735 1,251,735
General Partner (156,299) (155,341)
Total Partners Capital (1,029,943) (844,134)
(Deficit)
Total Liability And Partners Equity $3,213,491 $3,467,604
See notes to Condensed Consolidated Financial Statements
AMRECORP REALTY FUND III
Condensed Consolidated Statement of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
REVENUES 2004 2003 2004 2003
Rental income 415,116 $390,549 $1,212,37 $1,155,141
Other property 32,590 25,170 86,013 67,919
Total revenues 447,706 415,719 1,298,387 1,223,060
EXPENSES
Salaries & wages 88,185 76,577 243,199 223,831
Maintenance & repairs 62,485 65,502 187,438 215,665
Utilities 47,912 39,790 117,642 128,258
Real estate taxes 36,500 37,500 111,500 112,500
General administrative 14,942 16,691 42,516 46,164
Contract services 26,641 29,867 82,186 75,804
Insurance 29,186 29,630 77,618 89,891
Interest 61,232 62,065 184,331 186,793
Depreciation and amortization 94,282 85,282 282,846 255,846
Property management fees 22,386 20,786 64,920 61,153
Total expenses 483,751 463,690 1,394,196 1,395,905
NET INCOME (LOSS) ($36,045) ($47,971) ($95,809) ($172,845)
NET INCOME PER SHARE $(15.13) $(20.14) $(40.22) $(72.56)
See Notes to Condensed Consolidated Financial Statements
AMRECORP REALTY FUND III
Condensed Consolidated Statement of Cash Flows
Unaudited
Nine Months Ended
September 30,
2004 2003
CASH FLOWS FROM OPERATING ACTIVITY
Net income (loss) ($95,809) ($172,845)
Adjustments to reconcile net income
(loss) to net cash
provided by operating activities:
Depreciation and amortization 276,000 249,000
Net Effect of changes in operating accounts
Escrow deposits 35,812 24,147
Capital replacement reserve 0 284
Accrued real estate taxes (26,267) (37,034)
Security deposits (455) 3,260
Accounts payable 4,925 17,840
Deferred Financing Costs 6,846 8,567
Other assets (37,917) 6,846
Net cash provided by operating activities 163,135 100,065
CASH FLOWS FROM INVESTING ACTIVITIES
Repayment of mortgage notes payable (45,652) (42,923)
Note payable - affiliates (855) 2,122
Distribution to special limited partner (90,000) (40,000)
Net cash used by investing activities (136,507) (80,801)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 26,628 19,264
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 19,115 23,824
CASH AND CASH EQUIVALENTS, END OF PERIOD $45,743 $43,088
See Notes to Condensed Consolidated Financial Statements
Basis of Presentation:
The accompanying unaudited condensed consolidated
financial statements have been prepared by Amrecorp Realty
Fund III (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission. The
financial statements reflect all adjustments that are, in
the opinion of management, necessary to fairly present such
information. All such adjustments are of a normal recurring
nature. Although the Company believes that the disclosures
are adequate to make the information presented not
misleading, certain information and footnote disclosures,
including a description of significant accounting policies
normally included in financial statements prepared in
accordance with accounting principles generally accepted in
the United States of America, have been condensed or omitted
pursuant to such rules and regulations.
These financial statements should be read in conjunction
with the financial statements and notes thereto included in
the Company's 2003 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The results of
operations for interim periods are not necessarily
indicative of the results for any subsequent quarter or the
entire fiscal year ending December 31, 2004.
Item 2. RESULTS OF OPERATIONS AND MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
Results of Operations
At September 30, 2004 the Partnership owned Las Brisas
Apartments, a 376-unit apartment community located at 2010 South
Clark Street, Abilene, Taylor County, Texas 79606. The
Partnership purchased a fee simple interest in Las Brisas
Apartments on July 30, 1986. The property contains approximately
312,532 net rentable square feet, one clubhouse, and five laundry
facilities located on approximately 19.11 acres of land.
The occupancy of Las Brisas averaged 97.4% during the third
quarter of 2004 as compared to 97.4% for the third quarter of
2003.
THIRD QUARTER 2004 COMPARED TO THIRD QUARTER 2003
Revenue from property operations increased $31,987, or 7.69%, for
the third quarter of 2004, as compared to the third quarter of
2003. Rental income increased $24,567 or 6.29% due to higher
rental rates. Other property income increased $7,420 or 29.48%
mainly due to increased fee collections. The following table
illustrates the components:
Increase Percent
(Decrease) Change
Rental income 24,567 6.29%
Other property 7,420 29.48%
Net Increase 31,987 7.69%
(Decrease)
Property operating expenses: decreased by $20,061 or 4.33% for
the third quarter of 2004 compared to the third quarter of 2003
due primarily to increased utilities. Utilities increased $8,122
or 20.41% due to higher electric rates. Salaries increased
$11,608 or 15.16% due to higher maintenance labor. General &
administrative costs decreased $1,749 or 10.48% due to decreased
mailing costs. The following table illustrates the components:
Increase Percent
(Decrease) Change
Salaries & wages 11,608 15.16%
Maintenance & repairs (3,017) 4.61%
Utilities 8,122 20.41%
Real estate taxes (1,000) 2.67%
General administrative (1,749) 10.48%
Contract services (3,226) 10.80%
Insurance (444) 1.50%
Interest (833) 1.34%
Depreciation and amortization 9,000 10.55%
Property management fees 1,600 7.70%
Net Increase 20,061 4.33%
(Decrease)
FIRST NINE MONTHS 2004 COMPARED TO FIRST NINE MONTHS 2003
Revenue from property operations increased $75,327, or 6.16%, for
the first nine months of 2004, as compared to the same period of
2003. Rental income increased $57,233 or 4.95% due to higher
rental rates. Other property income increased $18,094 or 26.64%
mainly due to increased fee collections. The following table
illustrates the components:
Increase Percent
(Decrease) Change
Rental income 57,233 4.95%
Other property 18,094 26.64%
75,327 6.16%
Property operating expenses: decreased by $1,709 or 0.12% for the
first nine months of 2004 compared to the same period of 2003 due
primarily to decreased insurance. Insurance decreased $12,273 or
13.65% due to lower premiums for flood insurance. Maintenance
and repairs decreased $28,227 or 13.09% due to fewer exterior
building projects during 2004. Salaries increased $19,368 or
8.65% due to higher maintenance labor. The following table
illustrates the components:
Increase Percent
(Decrease) Change
Salaries & wages 19,368 8.65%
Maintenance & repairs (28,227) 13.09%
Utilities (10,616) 8.28%
Real estate taxes (1,000) 0.89%
General administrative (3,648) 7.90%
Contract services 6,382 8.42%
Insurance (12,273) 13.65%
Interest (2,462) 1.32%
Depreciation and amortization 27,000 10.55%
Property management fees 3,767 6.16%
Net Increase (Decrease) (1,709) 0.12%
THIRD QUARTER 2003 COMPARED TO THIRD QUARTER 2002
Revenue from property operations decreased $2,282, or 0.55%, for
the third quarter of 2003, as compared to the third quarter of
2002 Other property income decreased $954 or 3.65% mainly due to
decreased fee collections. The following table illustrates the
components:
Increase Percent
(Decreasse) Change
Rental income (1,328) 0.34%
Other property (954) 3.65%
Net Increase (2,282) 0.55%
(Decrease)
Property operating expenses: increased by $9,190 or 2.02% for the
third quarter of 2003 compared to the third quarter of 2002 due
primarily to increased maintenance and repair costs. Maintenance
& repairs increased $6,733 or 11.46% due to increased turnover
costs. General & administrative increased $2,273 or 15.77 due to
increased mailing costs. Utilities increased $1,589 or 4.16%
from higher electric. The following table illustrates the
components:
Increase Percent
(Decrease) Change
Salaries & wages (2,148) 2.73%
Maintenance & repairs 6,733 11.46%
Utilities 1,589 4.16%
Real estate taxes 1,166 3.21%
General administrative 2,273 15.77%
Contract services 1,462 5.15%
Insurance (994) 3.25%
Interest (784) 1.25%
Property management fees (107) 0.51%
Net Increase 9,190 2.02%
(Decrease)
FIRST NINE MONTHS 2003 COMPARED TO FIRST NINE MONTHS 2002
Revenue from property operations decreased $18,403, or 1.53%, for
the first nine months of 2003, as compared to the same period of
2002 Other property income decreased $11,238 or 14.20% due to
decreased fee collections. The following table illustrates the
components:
Increase Percent
(Decrease) Change
Rental income 29,641 2.63%
Other property (11,238) 14.20%
18,403 1.53%
Property operating expenses: increased by $46,798 or 3.47% for
the first nine months of 2003 compared to the same period of 2002
due primarily to increased utilities. Utilities increased
$17,078 or 15.36% due to increased gas and electric costs.
Maintenance and repairs increased $11,629 or 5.70% due to
increased turnover costs. The following table illustrates the
components:
Increas Percent
(Decrease) Change
Salaries & wages 11,062 5.20%
Maintenance & repairs 11,629 5.70%
Utilities 17,078 15.36%
Real estate taxes 4,664 4.33%
General administrative 222 0.48%
Contract services 2,414 3.29%
Insurance 1,115 1.26%
Interest (2,316) 1.22%
Property management fees 930 1.54%
Net Increase (Decrease) 46,798 3.47%
LIQUIDITY AND CAPITAL RESOURCES
On July 31, 1986 the Partnership purchased the Las Brisas
Apartments. The purchase provided for the sellers to receive cash
at closing and notes totaling $660,000. On September 30, 1987 the
principal balance due totaled $210,000. In order to obtain the
necessary proceeds to finally retire these notes the General
Partners offered 254 Units of the Partnership to two investors at
the price of $200,660. No commissions were taken nor did the
General Partner receive any fees in connection with these
interests. The Partnership then obtained short term financing
from Resource Savings Association totaling $260,000, bearing
interest at the rate of 2% over prime and payable quarterly
together with principal payments of $15,000 each. Security for
the loan was provided by a $100,000 certificate of deposit and
the personal guaranties of the Partnership's General Partners.
The Resource Savings Association loan matured December 31,1983.
In September 1991 Mr. Werra paid $40,750 in satisfaction of his
personal guaranty of the Partnership loan.
The Partnership defaulted in its debt obligations in August
1988. The Partnership was forced to seek protection under Chapter
11 of the United States Bankruptcy Code in December, 1988 when
negotiations with Aetna Life Insurance Company, ("Aetna") the
holder of the two underlying first mortgage notes and Las Brisas
Apartments, Ltd. and Abilene Associates, Ltd., the holders of
respective wrap mortgage notes ("Wrap Note Holders") failed to
provide any relief.
The Partnership emerged from bankruptcy on May 15, 1990,
having negotiated a modification of its debt with its major
creditors. In June 1989 an affiliate of the individual General
Partner provided $401,910.77 to bring the Aetna notes current. At
the same time the Wrap Note Holders agreed to reduced the
payments due on their respective wrap notes in order to mirror
the payments made on the underlying Aetna notes. The term of each
wrap note will be extended from July 31, 1995 to July 1, 2002 and
July 1, 2007 respectively. The $401,910.77 note is collateralized
by junior mortgage on the property. In addition, the affiliate
has the option to purchase the wrap notes for $85,000 at any time
prior to the respective maturity dates of the wrap notes.
Commencing on July 1,1992, payments on the notes reverted to
the original amounts of $19,442 and $15,454. During the prior two
years the Partnership deferred $214,460 in debit service
payments. The modification gave the Partnership room to deal
with the economic difficulties experienced in the market at the
time.
In February 1991, Amrecorp Realty Inc. resigned as the
Managing General Partner of the Partnership. As was communicated
to all limited partners, this step was taken in order to minimize
any effect that Amrecorp's financial difficulties might have on
the partnership. Management of the Partnership's assets is
performed by Univesco, Inc., a Texas corporation, Robert J.
Werra, CEO.
On November 12, 1993 the Partnership refinanced the
properties secured debt with an 8.15%, ten year, mortgage loan
from Lexington Mortgage Company. The $3,250,000 mortgage loan
provides for monthly payments of $415,000 based on an amortized
schedule of 300 months with a final payment of the entire
remaining principal balance in December 2003. The proceeds of
this new loan were used to pay off the $2,500,000 and $2,300,000
mortgage notes which previously held the first mortgage position.
The old first mortgagee provided a discount of approximately ten
percent of the outstanding principal balances of two old notes.
The balance of funds needed to retire the old notes
(approximately $100,000) was provided by Robert J. Werra. In
addition Robert J. Werra exercised his option in the property's
wrap mortgage notes. The new lender prohibited subordinate debt.
To meet this requirement the subordinate debt held by Mr. Werra
was converted to a class of equity with the same terms and
conditions as it possessed as debt. The wrap mortgage lender
would not agree to the change in status so Mr. Werra paid $85,000
to complete his purchase of the wrap notes and now holds an
equity position in the partnership as a Special Limited partner.
The partnership agreement was amended by vote of the limited
partners to include the appointment of a new corporate general
partner, LBAL, Inc., a Texas corporation wholly owned by Robert
J. Werra.
While it is the General Partners primary intention to
operate and manage the existing real estate investment, the
General Partner also continually evaluates this investment in
light of current economic conditions and trends to determine if
this asset should be considered for disposal. At this time, there
is no plan to dispose of Las Brisas Apartments.
As of September 30, 2004, the Partnership had $45,743 in
cash and cash equivalents as compared to $19,115 as of December
31, 2003. The net increase in cash of $26,628 was cash flow from
operations.
The property is encumbered by a non-recourse mortgage with a
principal balance of $3,953,893 as of September 30, 2004. During
the year ended December 31, 2001, the Partnership refinanced the
mortgage payable. The mortgage payable bears interest at a rate
of 6.18% and is payable in monthly installments of principal and
interest of $25,058 through December 2011, at which time a lump
sum payment of approximately $3,447,000 is due. This mortgage
note is secured by real estate with a net book value of
$3,169,117.
For the foreseeable future, the Partnership anticipates that
mortgage principal payments (excluding balloon mortgage
payments), improvements and capital expenditures will be funded
by net cash from operations. The primary source of capital to
fund future Partnership acquisitions and balloon mortgage
payments will be proceeds from the sale financing or refinancing
of the Property.
The special limited partner distribution preference arises
from a preferred return on certain special limited partnership
contributions made in prior years in conjunction with the
refinancing of the mortgage debt. The total unpaid amount due to
the special limited partners at September 30, 2004 is
approximately $2,082,000 of which $903,000 is the remaining
distribution preference and $1,179,000 is the original
contribution. Any additional available cash will then be
distributed in accordance with the partnership agreement. During
2004, 2003, and 2002, distributions of $90,000, $110,000, and
$523,560, respectively, were made to the special limited partners
in accordance with this agreement.
Item 3 - Quantitative and Qualitative Disclosure about Market
Risk
The Partnership is exposed to interest rate changes
primarily as a result of its real estate mortgages. The
Partnerships interest rate risk management objective is to limit
the impact of interest rate changes on earnings and cash flows
and to lower it's overall borrowing costs. To achieve its
objectives, the Partnership borrows primarily at fixed rates.
The Partnership does not enter into derivative or interest rate
transactions for any purpose.
The Partnerships' activities do not contain material risk
due to changes in general market conditions. The partnership
invests only in fully insured bank certificates of deposits, and
mutual funds investing in United States treasury obligations.
Item 4 - Controls and Procedures
Based on their most recent evaluation, which was completed
within 90 days of the filing of this Form 10-Q, our Acting
Principal Executive Officer and Chief Financial Officer, believe
our disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) are effective. There were not any
significant changes in internal controls or in other factors that
could significantly affect these controls subsequent to the date
of their evaluation, and there has not been any corrective action
with regard to significant deficiencies and material weaknesses.
PART II
Other Information
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(A) The following documents are filed herewith or incorporated
herein by reference as indicated as Exhibits:
Exhibit Designation Document Description
3 Certificate of Limited Partnership,
Incorporated by reference to
Registration Statement No. 33-00152
Effective November 26, 1985.
4 Certificate of Limited Partnership,
Incorporated by reference to
Registration Statement No. 33-00152
Effective November 26, 1985
9 Not Applicable.
10 None.
11 Not Applicable.
12 Not Applicable.
13 Not Applicable.
18 Not Applicable.
19 Not Applicable.
22 Not Applicable.
23 Not Applicable.
24 Not Applicable.
25 Power of Attorney,
Incorporated by reference to
Registration Statement No. 33-
00152
Effective November 26, 1985
28 None.
31.1 Certification Pursuant to
Rules 13a-14 and 15d-14 Under
the Securities Exchange Act of
1934, as Adopted Pursuant to
Section 302 of the Sarbanes-
Oxley Act of 2002, filed
herewith.
32.1 Certification Pursuant to 18
U.S.C. Section 1350, as
Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act
of 2002, filed herewith.
(B) Reports on form 8-K for quarter ended September 30, 2004.
1. None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
AMRECORP REALTY FUND III
A Texas limited partnership
By: /s/ Robert J. Werra
Robert J. Werra,
General Partner
Date: October 30, 2004
Exhibit 31.1
CERTIFICATION PURSUANT TO RULES 13a-14 AND 15d-14 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I Robert J. Werra, Acting Principal Executive Officer and Chief
Financial of Amrecorp Realty Fund III ("the Company"), certify
that:
1. I have reviewed this quarterly report on Form 10-Q of the
Company;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements
made, in light of the circumstances under which such
statements were made, not misleading with respect to the
period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and
other financial information included in this quarterly
report, fairly present in all material respects the
financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented
in this quarterly report;
4. I am responsible for establishing and maintaining
disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the Company and
have:
a. designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under my supervision, to ensure that material
information relating to the company and its consolidated
subsidiaries is made known to me by others within those
entities, particularly for the periods presented in this
quarterly report;
b. designed such internal control over financial reporting,
or caused such internal control over financial reporting
to be designed under my supervision, to provide
reasonable assurance regarding the reliability of
financial reporting and the preparation of financial
statements for external purposes in accordance with
generally accepted accounting principles.
c. evaluated the effectiveness of the Company's disclosure
controls and procedures and presented in this report my
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
CERTIFICATION PURSUANT TO RULES 13a-14 AND 15d-14 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - continued
d. disclosed in this report any change in the Company's
internal control over financial reporting that occurred
during the Company's most recent fiscal quarter that
has materially affected, or is reasonably likely to
materially affect, the Company's internal control over
financial reporting; and
5. I have disclosed based on my most recent evaluation of
internal control over financial reporting, to the
Company's auditors and Audit Committee of the Board of
Directors (or persons fulfilling the equivalent
function):
a. all significant deficiencies and material weaknesses in
the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the Company's ability to record,
process, summarize, and report financial data; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant
role in the Company's internal control over financial
reporting.
/s/ Robert J. Werra
Robert J. Werra
Acting Principal Executive Officer and Chief Financial
Officer
October 30, 2004
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Amrecorp Realty
Fund III ("the Company") on Form 10-Q for the period ending
September 30, 2004 as filed with the Securities and Exchange
Commission on the date hereof ("the Report"), I, Robert J.
Werra, Acting Principal Executive Officer and Chief
Financial Officer of the Company, certify, pursuant to 18
U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-
Oxley Act of 2002, that:
(1) The report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended; and
(2) The information contained in the Report fairly presents,
in all material respects, the financial condition and results
of operations of the Company.
/s/ Robert J. Werra
Robert J. Werra
Acting Principal Executive Officer and Chief Financial
Officer
October 30, 2004