UNITED STATES

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 (FEE REQUIRED)

 

For the fiscal year ended December 31, 2010

 

OR

 

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

 

For the transition period from                   to                  

 

Commission file no. 0-16851

 

DEL TACO RESTAURANT PROPERTIES III

(a California limited partnership)

(Exact name of registrant as specified in its charter)

 

 

 

Registrant’s telephone number, including area code: (949) 462-9300

 

Securities registered pursuant to section 12(b) of the Act: None

 

Securities registered pursuant to section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes        No  X 

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes        No  X 

 

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  X   No      

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes      No      

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s 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. o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes           No X

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s Form S-11 Registration Statement filed December 17, 1982 are incorporated by reference into Part IV of this report.

 

PART I

Item 1.    Business

Del Taco Restaurant Properties III (the Partnership, us, we or our) is a publicly-held limited Partnership organized under the California Uniform Limited Partnership Act. The Partnership’s General Partner is Del Taco LLC, a California limited liability company (Del Taco or the General Partner). The Partnership sold 48,000 units totaling $12 million through an offering of limited partnership units from February 1986 through June 1987. The term of the partnership agreement is until December 31, 2025, unless terminated earlier by means provided in the partnership agreement.

The business of the Partnership is ownership and leasing of restaurants in California to Del Taco. The Partnership acquired land and constructed ten Mexican-American restaurants for long-term lease to Del Taco. Each property is leased for 35 years on a triple net basis. Rent is equal to twelve percent of gross sales of the restaurants. The restaurant originally built in Twentynine Palms was sold in November 1997 and net proceeds from the sale were distributed to the partners. As of December 31, 2010, the Partnership had a total of nine properties leased to Del Taco.

The Partnership has no full time employees. The Partnership agreement assigns full authority for general management and supervision of the business affairs of the Partnership to the General Partner. The General Partner has a one percent interest in the profits or losses and distributions of the Partnership. Limited partners have no right to participate in the day to day management or conduct of the Partnership’s business affairs.

Item 1A.   Risk Factors

None.

Item 2.    Properties

The Partnership acquired ten properties with proceeds obtained from the sale of limited partnership units:

								Date of
				Date of		Restaurant		Commencement of
Address		City, State		Acquisition		Constructed		Operation (1)
Rancho California Plaza		Rancho California, CA		December 23, 1986		60 seat with drive through service window		July 14, 1987
East Vista Way		Vista, CA		February 24, 1987		60 seat with drive through service window		September 10, 1987
4th Street		Perris, CA		June 24, 1987		60 seat with drive through service window		December 16, 1987
Foothill Boulevard		Upland, CA		August 3, 1987		60 seat with drive through service window		January 12, 1988
Plaza at Puente Hills		Industry, CA		May 12, 1987		60 seat with drive through service window		February 24, 1988
Twentynine Palms Highway		Twentynine Palms, CA		December 14, 1987		60 seat with drive through service window		May 17, 1988 (2)
East Valley Boulevard		Walnut, CA		April 29, 1988		60 seat with drive through service window		August 31, 1988
West Sepulveda Boulevard		Los Angeles, CA		July 8, 1988		60 seat with drive through service window		January 12, 1989 (3)
Lassen Street		Chatsworth, CA		January 27, 1989		60 seat with drive through service window		August 21, 1989
Hesperia Road		Victorville, CA		December 29, 1989		100 seat with drive through service window		July 5, 1990

See also Schedule III – Real Estate and Accumulated Depreciation included in Item 8.

Item 2.    Properties — (Continued)

Item 3.    Legal Proceedings

The Partnership is not a party to any material pending legal proceedings.

Item 4.    [Reserved]

PART II

Item 5.    Market for the Partnership’s Common Equity, Related Security Holder Matters and Issuer Purchases of Equity Securities

The Partnership sold 48,000 ($12,000,000) limited partnership units during the public offering period ended June 1, 1987 and currently has 1,132 limited partners of record. There is no public market for the trading of the units. Distributions made by the Partnership to the limited partners during the past three fiscal years are described in Notes 6 and 8 to the Notes to the Financial Statements contained under Item 8.

Item 6.    Selected Financial Data

The selected financial data presented as of and for the years ended December 31, 2010, 2009, 2008, 2007 and 2006, has been derived from the audited financial statements and should be read in conjunction with the financial statements and related notes and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 6.    Selected Financial Data — (Continued)

		Years Ended December 31,
		2010				2009				2008				2007				2006
Rental revenues		$	1,036,594			$	1,053,770			$	1,050,381			$	1,044,591			$	1,051,407
General and administrative expense			76,117				79,945				79,794				79,273				80,994
Depreciation expense			112,737				113,240				113,240				113,240				113,240
Interest and other income			4,289				3,082				9,770				10,367				14,217
Net income			852,029				863,667				867,117				862,445				871,390
Net income per limited partnership unit			17.85				18.09				18.16				18.07				18.25
Cash distributions per limited partnership unit			20.23				20.48				20.58				20.48				20.93
Total assets			5,331,937				5,456,531				5,565,286				5,679,975				5,808,219
Long-term obligations			577,510				577,510				577,510				577,510				577,510

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis of financial condition, results of operations, liquidity and capital resources, and off balance sheet arrangements and contractual obligations contained within this report on Form 10-K is more clearly understood when read in conjunction with the notes to the financial statements. The notes to the financial statements elaborate on certain terms that are used throughout this discussion and provide information about the Partnership and the basis of presentation used in this report on Form 10-K.

The nine restaurants leased to Del Taco make up all of the income producing assets of the Partnership. Therefore, the business of the Partnership is entirely dependent on the success of the Del Taco as the operator of the restaurants located at our properties. The success of the restaurants is dependent on a large variety of factors, including, but not limited to, consumer demand and preference for fast food, in general, and for Mexican-American food in particular.

Liquidity and Capital Resources

Del Taco Restaurant Properties III (the Partnership or the Company) offered limited partnership units for sale between February 1986 and June 1987. In total, $12 million was raised through the sale of limited partnership units and used to acquire sites, build ten restaurants, pay commissions to brokers and to reimburse Del Taco LLC (the General Partner or Del Taco) for offering costs incurred. In February of 1992, approximately $281,000 raised during the offering but not required to acquire sites and build restaurants was distributed to the limited partners. One restaurant was sold in November 1997.

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued)

Liquidity and Capital Resources – (Continued)

As described in note 6 to the Notes to the Financial Statements contained under Item 8, the Partnership has a death and disability redemption fund totaling $86,017 at December 31, 2010. Investors should contact the General Partner with all questions regarding the eligibility of a limited partner or the estate of a deceased limited partner to participate in the redemption fund. A limited partner has the right, under certain circumstances involving such limited partner’s death or disability, to tender to the Partnership for redemption all of the units owned of record by such limited partner. The redemption price will be equal to the partners’ capital account balance as of the redemption date. The death and disability fund was established in 1987. The fund was limited to two percent of the gross proceeds from sale of the limited partnership units. Requests for redemption made after the funds in the death and disability fund are depleted will not be accepted.

The Partnership’s only source of cash flow is rental income from the properties from the triple net leases. Such operating income has historically been and is expected to continue to be sufficient to fund the Partnership’s operating expenses. Net cash provided by operating activities in excess of the Partnership’s ongoing needs is distributed to the partners.

Off Balance Sheet Arrangements and Contractual Obligations

None.

Results of Operations

The Partnership owns nine properties that are under long-term lease to Del Taco for restaurant operations.

The following table sets forth rental revenues earned by restaurant by year:

		Years Ended December 31,
		2010				2009				2008
Rancho California Plaza, Rancho California, CA		$	174,756			$	176,565			$	171,811
East Vista Way, Vista, CA			102,004				101,276				94,149
Plaza at Puente Hills, Industry, CA			74,052				78,647				81,273
4th Street, Perris, CA			119,456				123,968				130,386
Foothill Blvd., Upland, CA			121,698				128,435				130,619
East Valley Blvd., Walnut, CA			74,553				73,549				74,034
Lassen Street, Chatsworth, CA			146,181				151,600				148,970
Hesperia Road, Victorville, CA			139,331				137,635				143,923
W. Sepulveda Blvd., Los Angeles, CA			84,563				82,095				75,216
Total		$	1,036,594			$	1,053,770			$	1,050,381

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued)

Results of Operations – (Continued)

The Partnership earns rental revenues equal to 12 percent of gross sales from the restaurants. The Partnership earned rental revenues of $1,036,594 during the year ended December 31, 2010, which represents a decrease of $17,176 from 2009. The changes in rental revenues between 2009 and 2010 are directly attributable to changes in sales levels at the restaurants under lease due to local competitive and industry factors.

The Partnership earned rental revenues of $1,053,770 during the year ended December 31, 2009, which represents an increase of $3,389 from 2008. The changes in rental revenues between 2008 and 2009 are directly attributable to changes in sales levels at the restaurants under lease due to local competitive and industry factors.

The following table breaks down general and administrative expenses by type of expense:

Percentage of Total General and Administrative Expense

		Years Ended December 31,
		2010				2009				2008
Accounting fees			57.26	%			54.93	%			61.27	%
Distribution of information to limited partners			39.64				41.16				37.69
Independent appraisals			—				—				—
Other			3.10				3.91				1.04
			100.00				100.00				100.00

General and administrative costs decreased by $3,828 from 2009 to 2010. The decrease was caused primarily by decreased printing costs.

General and administrative costs increased by $151 from 2008 to 2009. The increase was caused primarily due to increased printing costs and bank charges, partially offset by decreased accounting and tax preparation costs.

Depreciation expense decreased by $503 in 2010 because certain assets became fully depreciated. Depreciation expense and was the same in 2009 and 2008.

Net income decreased by $11,638 from 2009 to 2010 primarily due to the decrease in revenues of $17,176, partially offset by the decrease in general and administrative expenses of $3,828, the increase in interest and other income of $1,207 and the decrease in depreciation expense of $503.

Net income decreased by $3,450 from 2008 to 2009 primarily due to the $151 increase in general and administrative expenses and the decrease in other income of $6,689, partially offset by the increase in revenues of $3,389.

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued)

Recent Accounting Pronouncements

None that applies to the Partnership.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations, as well as disclosures included elsewhere in this report on Form 10-K are based upon the Partnership’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Partnership believes the critical accounting policies that most impact the financial statements are described below. A summary of the significant accounting policies of the Partnership can be found in Note 1 to the Financial Statements which is included in Item 8 of this Form 10-K.

Property and Equipment: Property and equipment is stated at cost. Depreciation is computed using the straight-line method over estimated useful lives which are 20 years for land improvements, 35 years for buildings and improvements, and 10 years for machinery and equipment.

The Partnership accounts for property and equipment in accordance with authoritative guidance issued by the Financial Accounting Standards Board that requires long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. In evaluating long-lived assets held for use, an impairment loss is recognized if the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying value of the asset. Once a determination has been made that an impairment loss should be recognized for long-lived assets, various assumptions and estimates are used to determine fair value including, among others, estimated costs of construction and development, recent sales of comparable properties and the opinions of fair value prepared by independent real estate appraisers. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.

Revenue Recognition: Rental revenue is recognized based on 12 percent of gross sales of the restaurants for the corresponding period, and is earned at the point of sale.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

None.

Item 8.    Financial Statements and Supplementary Data

PART I. INFORMATION

INDEX		PAGE NUMBER
Report of Independent Registered Public Accounting Firm – Squar, Milner, Peterson, Miranda & Williamson, LLP			10
Balance Sheets at December 31, 2010 and 2009			11
Statements of Income for the years ended December 31, 2010, 2009 and 2008			12
Statements of Partners’ Equity for the years ended December 31, 2010, 2009 and 2008			13
Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008			14
Notes to Financial Statements			15-20
Schedule III – Real Estate and Accumulated Depreciation			27

Report of Independent Registered Public Accounting Firm

To the Partners
Del Taco Restaurant Properties III:

We have audited the accompanying balance sheets of Del Taco Restaurant Properties III (a California Limited Partnership) as of December 31, 2010 and 2009 and the related statements of income, partners’ equity, and cash flows for each of the three years in the period ended December 31, 2010. Our audits also included the financial statement schedule of the Partnership listed in Item 15. These financial statements and financial statement schedule are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 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 Del Taco Restaurant Properties III as of December 31, 2010 and 2009 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ Squar, Milner, Peterson, Miranda & Williamson, LLP

Newport Beach, California

March 29, 2011

DEL TACO RESTAURANT PROPERTIES III

		December 31,
		2010				2009
ASSETS
CURRENT ASSETS:
Cash		$	309,131			$	321,805
Receivable from Del Taco LLC			88,135				87,661
Deposits			2,440				2,097
Total current assets			399,706				411,563
RESTRICTED CASH			86,017				86,017
PROPERTY AND EQUIPMENT:
Land and improvements			4,405,966				4,405,966
Buildings and improvements			2,954,959				2,954,959
Machinery and equipment			1,522,922				1,522,922
			8,883,847				8,883,847
Less—accumulated depreciation			4,037,633				3,924,896
			4,846,214				4,958,951
		$	5,331,937			$	5,456,531
LIABILITIES AND PARTNERS’ EQUITY
CURRENT LIABILITIES:
Payable to limited partners		$	62,605			$	70,204
Accounts payable			14,543				15,714
Total current liabilities			77,148				85,918
OBLIGATION TO GENERAL PARTNER			577,510				577,510
PARTNERS’ EQUITY:
Limited partners; 47,261 units outstanding at December 31, 2010 and 2009			4,725,920				4,840,585
General partner-Del Taco LLC			(48,641	)			(47,482	)
			4,677,279				4,793,103
		$	5,331,937			$	5,456,531

See accompanying notes to financial statements.

DEL TACO RESTAURANT PROPERTIES III

		Years Ended December 31,
		2010				2009				2008
RENTAL REVENUES		$	1,036,594			$	1,053,770			$	1,050,381
EXPENSES:
General and administrative			76,117				79,945				79,794
Depreciation			112,737				113,240				113,240
			188,854				193,185				193,034
Operating income			847,740				860,585				857,347
OTHER INCOME:
Interest			1,114				607				3,300
Other			3,175				2,475				6,470
Net income		$	852,029			$	863,667			$	867,117
Net income per limited partnership unit (note 2)		$	17.85			$	18.09			$	18.16
Number of limited partnership units used in computing per unit amounts			47,261				47,261				47,261

See accompanying notes to financial statements.

DEL TACO RESTAURANT PROPERTIES III

STATEMENTS OF PARTNERS’ EQUITY

Years Ended December 31, 2010, 2009, and 2008

		Limited Partners								General
		Units				Amount				Partner				Total
Balance, December 31, 2007			47,261			$	5,069,543			$	(45,169	)		$	5,024,374
Net Income			—				858,446				8,671				867,117
Cash Distributions			—				(973,686	)			(9,835	)			(983,521	)
Balance, December 31, 2008			47,261				4,954,303				(46,333	)			4,907,970
Net Income			—				855,031				8,636				863,667
Cash Distributions			—				(968,749	)			(9,785	)			(978,534	)
Balance, December 31, 2009			47,261				4,840,585				(47,482	)			4,793,103
Net Income			—				843,509				8,520				852,029
Cash Distributions			—				(958,174	)			(9,679	)			(967,853	)
Balance, December 31, 2010			47,261			$	4,725,920			$	(48,641	)		$	4,677,279

See accompanying notes to financial statements.

DEL TACO RESTAURANT PROPERTIES III

STATEMENTS OF CASH FLOWS

		Years Ended December 31,
		2010				2009				2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	852,029			$	863,667			$	867,117
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			112,737				113,240				113,240
Changes in operating assets and liabilities:
Receivable from Del Taco LLC			(474	)			(793	)			(1,226	)
Deposits			(343	)			(209	)			(234	)
Payable to limited partners			(7,599	)			5,689				(219	)
Accounts payable			(1,171	)			423				1,934
Net cash provided by operating activities			955,179				982,017				980,612
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners			(967,853	)			(978,534	)			(983,521	)
Net increase (decrease) in cash			(12,674	)			3,483				(2,909	)
Beginning cash balance			321,805				318,322				321,231
Ending cash balance		$	309,131			$	321,805			$	318,322

See accompanying notes to financial statements.

DEL TACO RESTAURANT PROPERTIES III

NOTES TO FINANCIAL STATEMENTS

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Partnership: Del Taco Restaurant Properties III, a California limited partnership, (the Partnership) was formed on December 19, 1985, for the purpose of acquiring real property in California for construction of ten Mexican-American restaurants to be leased under long-term agreements to Del Taco LLC (General Partner or Del Taco) for operation under the Del Taco trade name. As of July 5, 1990, all ten restaurants had commenced operation on acquired properties. In November 1997, the Twentynine Palms property was sold yielding net proceeds of $278,612. As of December 31, 2010, Del Taco Restaurant Properties III had nine properties in operation. The term of the partnership agreement is until December 31, 2025 unless terminated earlier by means provided in the partnership agreement.

The Partnership has no full time employees (see Note 4). The Partnership agreement assigns full authority for general management and supervision of the business affairs of the Partnership to the General Partner. The General Partner has a one percent interest in the profits or losses and distributions of the Partnership. Limited partners have no right to participate in the day to day management or conduct of the Partnership’s business affairs.

Distributions are made to the general and limited partners in accordance with the provisions of the partnership agreement (see Note 2).

Basis of Accounting: The Partnership utilizes the accrual method of accounting for transactions relating to the business of the Partnership. The summary of significant accounting policies presented below is designed to assist in understanding the Partnership’s financial statements. Such financial statements and accompanying notes are the representations of the Partnership’s management, who is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) in all material respects, and have been consistently applied in preparing the accompanying financial statements.

Property and Equipment: Property and equipment is stated at cost. Depreciation is computed using the straight-line method over estimated useful lives which are 20 years for land improvements, 35 years for buildings and improvements, and 10 years for machinery and equipment.

The Partnership accounts for property and equipment in accordance with authoritative guidance issued by the Financial Accounting Standards Board that requires long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. In evaluating long-lived assets held for use, an impairment loss is recognized if the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying value of the asset. Once a determination has been made that an impairment loss should be recognized for long-lived assets, various assumptions and estimates are used to determine fair value including, among others, estimated costs of construction and development, recent sales of comparable properties and the opinions of fair value prepared by independent real estate appraisers. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.

DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS — CONTINUED

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Continued

Income Taxes: No provision has been made for federal or state income taxes on partnership net income, since the Partnership is not subject to income tax. Partnership income is includable in the taxable income of the individual partners as required under applicable income tax laws. Certain items, primarily related to depreciation methods, are accounted for differently for income tax reporting purposes (see Note 7).

Net Income Per Limited Partnership Unit: The net income per limited partnership unit is based on net income attributable to the limited partners (after 1% allocation to the general partner) using the weighted average units outstanding during the periods presented which amounted to 47,261 in 2010, 2009 and 2008, respectively.

Use of Estimates: The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain 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 reporting periods. Actual results could differ from those estimates.

Revenue Recognition: Rental revenue is recognized based on 12 percent of gross sales of the restaurants for the corresponding period, and is earned at the point of sale.

Concentration of Risk: The nine restaurants leased to Del Taco make up all of the income producing assets of the Partnership and contributed all of the Partnership’s rental revenues for the three years ended December 31, 2010. Therefore, the business of the Partnership is entirely dependent on the success of the Del Taco trade name restaurants that lease the properties.

The Partnership maintains substantially all of its cash and cash equivalents at one major commercial bank. The Federal Depository Insurance Commission’s limits were $250,000 for interest bearing accounts at December 31, 2010 and 2009. At December 31, 2010 and 2009, the Partnership had approximately $411,000 and $423,000, respectively, on deposit at one financial institution.

Fair Value of Financial Instruments: The fair values of cash, accounts receivables, deposits, accounts payable and payables to limited partners approximate the carrying amounts due to their short maturities.

NOTE 2 — PARTNERS’ EQUITY

Pursuant to the partnership agreement, annual partnership net income or loss is allocated one percent to the General Partner and 99 percent to the limited partners. Partnership gains from any sale or refinancing are to be allocated one percent to the General Partner and 99 percent to the limited partners until allocated gains and profits equal losses, distributions and syndication costs, and until each class of limited partners receive their priority return (10 percent) as defined in the partnership agreement. Additional gains are to be allocated 15 percent to the General Partner and 85 percent to the limited partners.

NOTE 3 — OBLIGATION TO GENERAL PARTNER

Under terms of the partnership agreement, the General Partner is entitled to receive a fee in an amount equal to five percent of aggregate capital contributions. The fee shall be for services rendered in connection with site selection and the design and supervision of construction and improvements to acquired properties. This fee shall be earned at the time the services are rendered, but shall not be paid and shall be subordinated to the limited partners’ interests until all restaurants have opened and the limited partners have received certain minimum returns on their investment, as required by the partnership agreement. It is the policy of the Partnership to accrue the site acquisition and development fee as an obligation to the General Partner. No fees were earned for such services during 2010, 2009, and 2008.

DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS — CONTINUED

NOTE 4 — LEASING ACTIVITIES

The Partnership leases certain properties for operation of restaurants to Del Taco on a triple net basis. The leases are for terms of 35 years commencing with the completion of the restaurant facility located on each property and require monthly rentals equal to 12 percent of the gross sales of the restaurants. The leases terminate in the years 2021 to 2024. There is no minimum rental under any of the leases. The Partnership had a total of nine properties leased to Del Taco as of December 31, 2010.

The nine restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $8,638,283, $8,781,419, and $8,753,175 and unaudited net losses of $65,785, $89,807 and $242,109 during the years ended December 31, 2010, 2009 and 2008, respectively. Net income by restaurant includes charges for general and administrative expenses incurred in connection with supervision of restaurant operations and interest expense. The decrease in net loss from the corresponding period of the prior year primarily relates to decreased interest expense. The decrease in net loss from the corresponding period two years ago primarily relates to increased restaurant revenues and reduced operating expenses partially offset by additional interest expense.

NOTE 5 — RELATED PARTIES

The receivable from Del Taco consists of rent accrued for the months of December 2010 and 2009. The rent receivable was collected in January 2011 and 2010, respectively.

The General Partner received $9,679, $9,785 and $9,835 in distributions relating to its one percent interest in the Partnership for the years ended December 31, 2010, 2009 and 2008, respectively.

Del Taco serves in the capacity of General Partner in other partnerships which are engaged in the business of operating restaurants, and three other partnerships which were formed for the purpose of acquiring real property in California for construction of Mexican-American restaurants for lease under long-term agreements to Del Taco.

The General Partner provides certain minimal managerial and accounting services to the Partnership at no cost.

NOTE 6 — RESTRICTED CASH

At December 31, 2010 and 2009 the Partnership had a restricted cash balance of $86,017. The restricted cash is a death and disability redemption fund. Such fund is maintained in an interest bearing account at a major commercial bank. A limited partner has the right, under certain circumstances involving such limited partner’s death or disability, to tender to the Partnership for redemption all of the units owned of record by such limited partner. The redemption price will be equal to the partners’ capital account balance as of the redemption date. The death and disability fund was established in 1987. The fund was limited to two percent of the gross proceeds from sale of the limited partnership units. Requests for redemption made after the funds in the death and disability fund are depleted will not be accepted.

DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS — CONTINUED

NOTE 7 — INCOME TAXES (UNAUDITED)

The Partnership is not subject to income taxes because its income is taxed directly to the General Partner and limited partners. The reconciling items presented in the table below are the only items that create a difference between the tax basis and reported amounts of the Partnerships assets and liabilities.

A reconciliation of financial statement net income to taxable income for each of the periods is as follows:

		2010				2009				2008
Net income per financial statements		$	852,029			$	863,667			$	867,117
Excess book depreciation			28,170				28,170				28,168
Taxable income		$	880,199			$	891,837			$	895,285

A reconciliation of partnership equity per the financial statements to partners’ equity for tax purposes as of December 31, 2010, is as follows (unaudited):

Partners’ equity per financial statements		$	4,677,279
Issue costs of limited partnership units capitalized for tax purposes			1,741,676
Difference in book vs. tax depreciation			690,994
Other			(107,837	)
Partners’ equity for tax purposes		$	7,002,112

DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS — CONTINUED

NOTE 8 — CASH DISTRIBUTIONS TO LIMITED PARTNERS

Cash distributions paid to limited partners for the three years ended December 31, 2010 were as follows:

		Cash				Weighted				Number of Units
		Distribution per				Average Number				Outstanding at
		Limited Partnership				of Units				the End of
Quarter Ended		Unit				Outstanding				Quarter
December 31, 2007		$	5.33				47,291				47,291
March 31, 2008			4.66				47,261				47,261
June 30, 2008			5.27				47,276				47,261
September 30, 2008			5.32				47,271				47,261
Total paid in 2008		$	20.58
December 31, 2008		$	5.22				47,261				47,261
March 31, 2009			4.78				47,261				47,261
June 30, 2009			4.90				47,261				47,261
September 30, 2009			5.58				47,261				47,261
Total paid in 2009		$	20.48
December 31, 2009		$	5.17				47,261				47,261
March 31, 2010			4.46				47,261				47,261
June 30, 2010			5.12				47,261				47,261
September 30, 2010			5.50				47,261				47,261
Total paid in 2010		$	20.25

Cash distributions per limited partnership unit were calculated based upon the weighted average and cash flow statement units outstanding for each quarter and were paid from operations. Distributions declared in January 2010 for the quarter ended December 31, 2010 amounted to $5.06 per limited partnership unit and were paid in February 2011.

NOTE 9 — RESULTS BY QUARTER (UNAUDITED)

		First				Second				Third				Fourth
		Quarter				Quarter				Quarter				Quarter
Year ended December 31, 2010
Rental revenues		$	249,723			$	260,039			$	267,525			$	259,307
Net income			183,761				220,643				226,097				221,528
Net income per limited partnership unit			3.85				4.62				4.74				4.64
Year ended December 31, 2009
Rental revenues		$	248,748			$	267,999			$	272,377			$	264,646
Net income			182,709				225,695				229,572				225,691
Net income per limited partnership unit			3.83				4.73				4.81				4.72

DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS — CONTINUED

NOTE 10 — PAYABLE TO LIMITED PARTNERS

Payable to limited partners represents a reclassification from cash for distribution checks made to limited partners that have remained outstanding for six months or longer and decreased due to the reissuance of certain distribution checks.

Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

None

Item 9A.		Controls and Procedures

Disclosure controls and procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognized that any system of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost—benefit relationship of possible controls and procedures.

In connection with the preparation of this Annual Report on Form 10-K, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Internal control over financial reporting

(a) Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control system is designed to provide reasonable assurance to our management regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. In making its assessment of internal control over financial reporting, management used the criteria set forth in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Management has concluded that, as of December 31, 2010, our internal control over financial reporting was effective based on these criteria.

This annual report does not include an attestation report of the Partnership’s registered public accounting firm regarding the effectiveness of internal control over financial reporting. Pursuant to temporary rules of the Securities and Exchange Commission, such attestation report is not required to be included in this filing; the Partnership is only required to provide management’s report in this annual report.

(b) Changes in internal controls:

There were no significant changes in the Partnership’s internal controls over financial reporting that occurred during our most recent fiscal quarter that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.		Other Information

None.

PART III

Item 10.		Directors, Executive Officers, and Corporate Governance

(a) & (b) Del Taco serves as the Partnership’s sole general partner. Individuals who perform the functions of directors and officers of the Partnership consist of the following officers of Del Taco:

Name		Title		Age
Paul J.B. Murphy, III		Chief Executive Officer			56
James W. Lyons		Chief Development Officer			55
James D. Stoops		Executive Vice President, Operations			58
Janet D. Erickson		Executive Vice President, Purchasing			54
Steven L. Brake		Chief Financial Officer			38

Del Taco’s term as general partner will continue indefinitely, subject to the right of a majority in interest of the limited partners to remove and replace it. The above referenced officers of the General Partner will hold office until their resignation or the election or appointment of their successor.

(c) None

(d) No family relationship exists between any such officer of the General Partner.

(e) The following is an account of the business experience during the past five years of each such officer:

Item 10.		Directors and Executive Officers of the Partnership’s General Partner — (Continued)

Paul J.B. Murphy, III, Chief Executive Officer of Del Taco LLC. Mr. Murphy has served as Chief Executive Officer since February of 2009. He previously served as President and Chief Executive Officer of Einstein Noah Restaurant Group, Inc. (formerly, New World Restaurant Group, Inc.) from October of 2003 to December of 2007.

James W. Lyons, Chief Development Officer of Del Taco LLC. Mr. Lyons has served as Chief Development Officer since September of 2008. He previously served as Chief Operating Officer of Popeyes Chicken and Biscuits (a division of AFC Enterprises, Inc.), from March of 2007 to December of 2007, and as Chief Development Officer of Popeyes Chicken and Biscuits from July of 2004 to March of 2007. Prior to that, he served as Vice President of Development for Domino’s Pizza from 2002 to July of 2004.

James D. Stoops, Executive Vice President, Operations of Del Taco LLC. From 1968 to 1991, Mr. Stoops served in a wide variety of operations positions with Burger King Corporation with increasing levels of responsibility. In 1985, Mr. Stoops was appointed Region Vice President/General Manager for the New York region and served in that position until October of 1990. In January of 1991, he joined Del Taco LLC in his current post.

Janet D. Erickson, Executive Vice President, Purchasing of Del Taco LLC. From 1979 to 1986, Ms. Erickson was with Denny’s Incorporated. She served in the Research and Development department in a variety of positions until 1982 when she was promoted to the position of Purchasing Agent. Ms. Erickson was hired in 1986 as Manager of Contract Purchasing with Carl Karcher Enterprises, a post she held until March 1990 when she became Vice President, Purchasing for Del Taco LLC. Ms. Erickson has a Bachelor of Science degree in Foods and Nutrition from Cal State Polytechnic University in Pomona, California.

Steven L. Brake, Senior Vice President, Chief Financial Officer of Del Taco LLC. Mr. Brake has served as Chief Financial Officer since April of 2010 and previously served as Treasurer from March 2006 to April 2010 and as the Corporate Controller of Del Taco LLC from September 2003 to March of 2006. From December 1995 until September 2003 Mr. Brake spent seven years with Arthur Andersen and one year with KPMG LLP in their respective audit departments. Mr. Brake was a licensed certified public accountant and holds a Bachelor of Arts degree in Economics from the University of California, Irvine and an MBA from the Paul Merage School of Business at the University of California, Irvine.

Code of Ethics

The Partnership has no executive officers or any fulltime employees and, accordingly, has not adopted a code of ethics.

Item 11.		Executive Compensation

The Partnership has no executive officers or directors and pays no direct remuneration to any executive officer or director of its General Partner. The Partnership has not issued any options or stock appreciation rights to any executive officer or director of its General Partner, nor does the Partnership propose to pay any annuity, pension or retirement benefits to any executive officer or director of its General Partner. The Partnership has no plan, nor does the Partnership presently propose a plan, which will result in any remuneration being paid to any executive officer or director of the General Partner upon termination of employment.

Item 12.		Security Ownership of Certain Beneficial Owners and Management

(a)

No person of record currently owns more than five percent of limited partnership units of the Partnership, nor was any person known of by the Partnership to own of record and beneficially, or beneficially only, more than five percent of such securities.

(b)

Neither Del Taco LLC, nor any executive officer or director of Del Taco LLC, owns any limited partnership units of the Partnership.

(c)

The Partnership knows of no contractual arrangements, the operation or the terms of which may at a subsequent date result in a change in control of the Partnership, except for provisions in the partnership agreement providing for removal of the General Partner by holders of a majority of the limited partnership units and if a material event of default occurs under the financing agreements of the General Partner.

Item 13.		Certain Relationships, Related Transactions, and Director Independence

(a)

No transactions have occurred between the Partnership and any executive officer or director of its General Partner.

During 2010, the following transactions occurred between the Partnership and the General Partner pursuant to the terms of the partnership agreement.

	(1)		The General Partner earned $8,520 as its one percent share of the net income of the Partnership.
	(2)		The General Partner received $9,679 in distributions relating to its one percent interest in the Partnership.

(b)

During 2010, the Partnership had no business relationships with any entity of a type required to be reported under this item.

(c)

Neither the General Partner, any director or officer of the General Partner, or any associate of any such person, was indebted to the Partnership at any time during 2010 for any amount.

(d)

Not applicable.

Item 14.		Principal Accountant Fees and Services

The following table presents fees for professional services rendered by Squar, Milner, Peterson, Miranda & Williamson, LLP (Squar Milner).

		2010				2009
Audit Fees		$	16,563			$	17,547
Audit-Related Fees			0				0
Tax Fees			0				0
All Other Fees			0				0
Total		$	16,563			$	17,547

The General Partner approves all the audit and non-audit services, and related fees, provided to the Partnership by the independent auditors prior to the services being rendered.

PART IV

Item 15.		Exhibits and Financial Statement Schedules

(a)(1)		Financial Statements
		Included in Part II of this report:
		Report of Independent Registered Public Accounting Firm — Squar, Milner, Peterson, Miranda & Williamson, LLP Balance Sheets Statements of Income Statements of Partners’ Equity Statements of Cash Flows Notes to Financial Statements
(a)(2)		Financial Statement Schedule
		Schedule III — Real Estate and Accumulated Depreciation
		Financial statement schedules other than those referred to above have been omitted because they are not applicable or not required.
(b)		Reports on Form 8-K
		None
(c)		Exhibits required by Item 601 of Regulation S-K:

	1.		Incorporated herein by reference, Restated Agreement of Limited Partnership of Del Taco Restaurant Properties III filed as Exhibit 3.01 to Partnership’s Registration Statement on Form S-11 as filed with the Securities and Exchange Commission on December 30, 1985.
	2.		Incorporated herein by reference, Amendment to Restated Agreement of Limited Partnership of Del Taco Restaurant Properties III.
	3.		Incorporated herein by reference, Form of Standard Lease to be entered into by partnership and Del Taco LLC, as lessee, filed as Exhibit 10.02 to Partnership’s Registration Statement on Form S-11 as filed with the Securities and Exchange Commission on December 30, 1985.
	31.1		Paul J.B. Murphy, III’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2		Steven L. Brake’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

DEL TACO RESTAURANT PROPERTIES III
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2010

														Cost capitalized				Gross amount at
						Initial cost								subsequent to				which carried at
						to company								acquisition				close of period																Life on which
						Land				Buildings &								Land, buildings &																depreciation in latest
Description						& land				Improve-				Carrying				improvements				Accumulated				Date of				Date				income statement
(All Restaurants)		Encumbrances				improvements				ments				costs				Total				depreciation				construction				acquired				is computed
Rancho California, CA		$	—			$	384,400			$	257,807			$	—			$	642,207				219,402				1986				1986			20 (LI), 35 (BI)
Vista, CA			—				512,130				343,471				—				855,601				292,297				1987				1987			20 (LI), 35 (BI)
Industry, CA			—				627,082				420,566				—				1,047,648				357,908				1987				1987			20 (LI), 35 (BI)
Perris, CA			—				437,522				293,434				—				730,956				249,716				1987				1987			20 (LI), 35 (BI)
Upland, CA			—				281,827				189,014				—				470,841				160,848				1987				1987			20 (LI), 35 (BI)
Walnut, CA			—				340,848				228,597				—				569,445				194,535				1988				1988			20 (LI), 35 (BI)
Los Angeles, CA			—				674,283				452,223				—				1,126,506				384,847				1988				1988			20 (LI), 35 (BI)
Chatsworth, CA			—				642,475				430,890				—				1,073,365				366,699				1989				1989			20 (LI), 35 (BI)
Victorville, CA			—				505,399				338,957				—				844,356				288,461				1989				1989			20 (LI), 35 (BI)
		$	—			$	4,405,966			$	2,954,959			$	—			$	7,360,925			$	2,514,714

						Accumulated
		Restaurants				Depreciation
Balances at December 31, 2007:		$	7,360,925			$	2,175,497
Additions			—				113,240
Retirements			—				—
Balances at December 31, 2008:			7,360,925				2,288,737
Additions			—				113,240
Retirements			—				—
Balances at December 31, 2009:			7,360,925				2,401,977
Additions			—				112,737
Retirements			—				—
Balances at December 31, 2010:		$	7,360,925			$	2,514,714

The aggregate cost basis of Del Taco Restaurant Properties III real estate assets for Federal income tax purposes was $6,139,803 at December 31, 2010.

See accompanying report of independent registered public accounting firm.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the partnership has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		DEL TACO RESTAURANT PROPERTIES III a California limited partnership
		Del Taco LLC General Partner
Date March 30, 2011		Paul J. B. Murphy, III
		Paul J.B. Murphy, III
		Chief Executive Officer
Date March 30, 2011		James W. Lyons
		James W. Lyons
		Chief Development Officer
Date March 30, 2011		Steven L. Brake
		Steven L. Brake
		Chief Financial Officer

EXHIBIT INDEX

Exhibit				Description
	1.			Incorporated herein by reference, Restated Agreement of Limited Partnership of Del Taco Restaurant Properties III filed as Exhibit 3.01 to Partnership’s Registration Statement on Form S-11 as filed with the Securities and Exchange Commission on December 30, 1985.
	2.			Incorporated herein by reference, Amendment to Restated Agreement of Limited Partnership of Del Taco Restaurant Properties III.
	3.			Incorporated herein by reference, Form of Standard Lease to be entered into by partnership and Del Taco LLC, as lessee, filed as Exhibit 10.02 to Partnership’s Registration Statement on Form S-11 as filed with the Securities and Exchange Commission on December 30, 1985.
	31.1			Paul J.B. Murphy, III’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2			Steven L. Brake’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1			Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002