Item 1. Business
The Registrant, Amrecorp Realty Fund III, (the "Partnership"), is a limited partnership organized under the Texas Uniform Limited Partnership Act pursuant to a Certificate of Limited Partnership dated August 30, 1985 and amended on November 21, 1985. On December 31, 2002, the Partnership consisted of a corporate general partner, LBAL, Inc. (wholly owned by Robert J. Werra) and 263 limited partners owning 2,382 limited partnership interests at $1,000 per interest. The distribution of limited partnership interests commenced November 26, 1985 pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933 (Registration #33-00152) as amended.
The Partnership was organized to acquire a diversified portfolio of income-producing real properties, primarily apartments, as well as office buildings, industrial buildings, and other similar properties
The Partnership intends to continue until December 31, 2015 unless terminated by an earlier sale of its Properties.
Univesco, Inc.("Univesco"), a Texas corporation, controlled by Robert J. Werra, manages the affairs of the Partnership. Univesco acts as the managing agent with respect to the Partnership's Properties. Univesco may also engage other on-site property managers and other agents, to the extent management considers appropriate. Univesco and the general partner make all decisions regarding investments in and disposition of Properties and has ultimate authority regarding all property management decisions.
No material expenditure has been made or is anticipated for either Partnership-sponsored or consumer research and development activities relating to the development or improvement of facilities or services provided by the Partnership. There neither has been, nor are any anticipated, material expenditures required to comply with any federal, state or local environmental provisions which would materially affect the earnings or competitive position of the Partnership.
The Partnership is engaged solely in the business of real estate investments. Its business is believed by management to fall entirely within a single industry segment. Management does not anticipate that there will be any material seasonal affects upon the operation of the Partnership.
Competition and Other Factors
The majority of the Property's leases are of six to twelve month terms. Accordingly, operating income is highly susceptible to varying market conditions. Occupancy and local market rents are driven by general market conditions which include job creation, new construction of single and multi-family projects, and demolition and other reduction in net supply of apartment units.
Rents have generally been increasing in recent years due to the generally positive relationship between apartment unit supply and demand in the Partnership's markets. However, the property is subject to substantial competition from similar and often newer properties in the vicinity in which they are located. Capitalized expenditures have increased as units are updated and made more competitive in the market place. Item 2.
Item 2. Properties
At December 31, 2002, the Partnership owned Las Brisas Apartment, 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 property is encumbered by a mortgage note payable in monthly installments of principal and interest through December 31, 2011, when a lump-sum payment of approximately $3,447,000 is due. For information regarding the encumbrances to which the property is subject and the status of the related mortgage loans, see " Management`s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" contained in Item 7 hereof and Note B to the Financial Statements and Schedule Index contained in Item 8.
Occupancy Rates
Percent
1998 1999 2000 2001 2002 Las Brisas 90.7% 95.4% 95.0% 92.7% 93.9%
Item 3.
Item 3. Legal Proceedings
The Partnership is not engaged in any material legal proceedings.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year.
By virtue of its organization as a limited partnership, the Partnership has outstanding no securities possessing traditional voting rights. However, as provided and qualified in the Limited Partnership Agreement, limited partners have voting rights for, among other things, the removal of the General Partner and dissolution of the Partnership. PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholders Matters
The Partnerships outstanding securities are in the form of Limited Partnership Interests ("Interests"). As of December 31, 2002 there were approximately 263 limited partners owning 2,382 interests at $1,000 per interest. A public market for trading Interests has not developed and none is expected to develop. In addition, transfer of an Interest is restricted pursuant to the Limited Partnership Agreement.
The General Partner continues to review the Partnership's ability to make distributions on a quarter-by-quarter basis, however, no such distributions have been made to the limited partners in several years and none are anticipated in the immediate future due to required debt service payments and the existence of the Special Limited Partner, Mr. Robert J. Werra. The Special Limited Partner has first right to all net operating cash flow and net proceeds from disposals of assets to the extent of the special limited partner distribution preference. During 2002, 2001, and 2000 the Special Limited Partner received distributions from the Partnership totaling $523,560, $985,408, and $75,000 respectively.
An analysis of tax income or loss allocated and cash distributed to Investors per $1,000 unit is as follows:
YEARS INCOME GAIN LOSS CASH DISTRIBUTED 1986 $0 $0 $186 $0 1987 0 0 286 0 1988 0 0 310 0 1989 0 0 278 0 1990 0 0 231 0 1991 0 0 142 0 1992 0 0 0 0 1993 0 153 162 0 1994 24 0 0 0 1995 0 0 5 0 1996 20 0 0 0 1997 0 0 (21) 0 1998 4 0 0 0 1999 72 0 0 0 2000 <1 0 0 0 2001 98 0 0 0 2002 57 0 0 0
Item 6.
Item 6. Selected Financial Data
The following table sets forth selected financial data regarding the Partnership's results of operations and financial position as of the dates indicated. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Item 7
Item 7. Management Discussion and Analysis of Financial Conditions and Results of Operations
This discussion should be read in conjunction with Item 6 - "Selected Financial Data" and Item 8 - "Financial Statements and Supplemental Information".
Results of Operations: 2002 VERSUS 2001
Revenue from Property Operations increased $11,221 or 0.7%. Rental income increased $26,016 or 1.75% as compared to 2001. Other income decreased $14,795 or 12.52% due to lower fee income from residents. The following table illustrates the increases or (decreases):
Increase Percent (Decrease)
Rental income 26,016 1.75% Fees & Other - - 14,795 12.52% Net Increase 11,221 0.70%
Property operating expenses for 2002 increased $161,101 or 10.60%. General & administrative increased $79,146 or 78.55% primarily due to increased insurance costs. Repair and maintenance expenses increased from 2001 by $25,742 or 18.58% primarily due to various plumbing and exterior building projects. Interest expense increased by $25,572 or 11.28% due to the refinancing in 2001. Payroll increased $16,897 or 6.24% due to additional maintenance personnel used for the exterior building maintenance. Utilities decreased $11,008 or 5.19% due to lower rates. Property management fees are paid to an affiliated entity and represents 5% of gross operating revenues (see Note 4 to Financial Statements and Schedule Index contained in Item 8.) The following table illustrates the increases or (decreases):
Increase Percent (Decrease)
General and administrative 79,146 78.55% Repairs and maintenance 25,742 18.58% Interest 25,572 11.28% Payroll 16,897 6.24% Depreciation 20,221 6.03% Real estate taxes 3,972 2.73% Property management fees 559 0.70% Utilities -11,008 -5.19%
Net Increase 161,101 10.60%
Results of Operations: 2001 VERSUS 2000
Revenue from Property Operations increased $14,252 or 0.9%. Rental income increased $10,132 or 0.69% as compared to 2000. Other income increased $4,120 or 3.61% due to increased fee income from residents. The following table illustrates the increases or (decreases):
Increase (Decrease)
Rental income 10,132 Other 4,120 Net Increase 14,252
Property operating expenses for 2001 decreased $95,081 or 5.89%. Repair and maintenance expenses decreased from 2000 by $134,481 or 49.26% primarily due completion of deferred maintenance items in 2000. Utilities increased $36,416 or 20.71% due to higher rates. Real estate taxes increased $6,342 or 4.56% due to higher assessed valuations. Interest expense decreased by $10,101 from due to normal principal amortization. Property management fees are paid to an affiliated entity and represents 5% of gross operating revenues (see Note 4 to Financial Statements and Schedule Index contained in Item 8.) The following table illustrates the increases or (decreases):
Increase (Decrease)
Payroll (4,505) Utilities 36,416 Real estate taxes 6,342 Repairs and Maintenance (134,481) General & Administration (3,945) Interest (10,101) Depreciation and amortization 14,599 Property management fees 713 Administrative Service Fee (119)
Net Increase (95,081)
Liquidity and Capital Resources
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 December 31, 2002, the Partnership had $23,824 in cash and cash equivalents as compared to $559,647 as of December 31, 2001. The net decrease in cash of $535,823 is principally due to the payments made to the special limited partner.
The property is encumbered by a non-recourse mortgage with a principal balance of $4,051,320 as of December 31, 2002. The mortgage payable bears interest at 6.18% and is payable in monthly installments of principal and interest until December 2011 when a lump-sum payment of approximately $3,447,000 is due. The required principal reductions for the five years ending December 31, 2006, are $51,775, $55,067, $58,568 $62,292, and $66,253, respectively.
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 the balloon mortgage payment will be proceeds from the sale, financing or refinancing of the Property.
The $1,336,517 in Special Limited Partner equity is the result of previous fundings for operating deficits and other partner loans made to the Partnership by a related entity. These loans were reclassified to equity during 1993. The Special Limited Partner has first right to all net operating cash flows and net proceeds from disposals of assets to the extent of the Special Limited Partners distribution preference. During 2002, 2001 and 2000, the Special Limited Partner received distributions from the Partnership totaling $523,560, $985,408 and $75,000, respectively. For further information please see Note G to the audited financial statements.
Item 7a
Item 7a - Quantitative and Qualitative Disclosure about Market Risk
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.
Risk Associated with Forward-Looking Statements Included in this Form 10-K This Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created thereby. These statements include the plans and objectives of management for future operations, including plans and objectives relating to capital expenditures and rehabilitation costs on the Properties. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Form 10-K will prove to be accurate. In light of the significant uncertainties inherent in the forward- looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.
AMRECORP REALTY FUND III FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORTS
December 31, 2002 and 2001
Page
Independent Auditors' Reports 1
Financial Statements
Balance Sheets as of December 31, 2002 and 2001 3
Statements of Operations for the years ended December 31, 2002, 2001 and 2000 4
Statements of Partners' Equity (Deficit) for the years ended December 31, 2002, 2001 and 2000 5
Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 6
Notes to Financial Statements 7
Schedule III - Real Estate and Accumulated Depreciation 14
All other schedules have been omitted because they are not applicable, not required or the information has been supplied in the financial statements or notes thereto.
INDEPENDENT AUDITORS' REPORT
To the General Partner and Limited Partners of Amrecorp Realty Fund III
We have audited the accompanying balance sheets of Amrecorp Realty Fund III, a Texas limited partnership (the "Partnership") as of December 31, 2002 and 2001, and the related statements of operations, partners' equity (deficit), and cash flows for the years ended December 31, 2002, 2001 and 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with U.S. 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 presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the December 31, 2002 and 2001 financial statements referred to above present fairly, in all material respects, the financial position of Amrecorp Realty Fund III as of December 31, 2002 and 2001, and the results of its operations and its cash flows for the years ended December 31, 2002, 2001 and 2000 in conformity with U.S. generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule III for the year ended December 31, 2002 is presented for the purpose 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 the 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.
January 24, 2003 Plano, Texas
AMRECORP REALTY FUND III BALANCE SHEETS December 31, 2002 and 2001
ASSETS 2002 2001
Investments in real estate at cost Land $1,000,000 $1,000,000 Buildings, improvements and furniture and fixtures 7,044,581 6,856,116
8,044,581 7,856,116 Accumulated depreciation (4,626,464) (4,279,982)
3,418,117 3,576,134
Cash and cash equivalents 23,824 559,647 Escrow deposits 147,989 --- Capital replacement reserve 284 55,625 Deferred financing costs, net of accumulated amortization of $10,268 and $1,141, respectively 81,009 90,136 Other assets 63,341 50,466
TOTAL ASSETS 3,734,564 4,332,008
LIABILITIES AND PARTNERS' EQUITY
Mortgage payable 4,051,320 4,100,000 Accrued interest payable 20,864 21,115 Accounts payable 50,616 38,745 Real estate taxes payable 149,534 237 Due to affiliates 263 122,871 Security deposits 55,545 55,018
TOTAL LIABILITIES 4,328,142 4,337,986
PARTNERS' EQUITY (593,578) (5,978)
TOTAL LIABILITIES AND PARTNERS' EQUITY $3,734,564 $4,332,008
AMRECORP REALTY FUND III STATEMENTS OF OPERATIONS For the Years Ended December 31, 2002, 2001 and 2000
2002 2001 2000
INCOME Rentals $1,513,085 $1,487,069 $1,476,937 Other 103,387 118,182 114,062
Total income 1,616,472 1,605,251 1,590,999
OPERATING EXPENSES Depreciation and amortization 355,610 335,389 320,790 Payroll 287,822 270,925 275,430 Interest 252,266 226,694 236,795 Utilities 201,240 212,248 175,832 General and administrative 179,906 100,760 104,705 Repairs and maintenance 164,288 138,546 273,027 Real estate taxes 149,534 145,562 139,220 Property management fee to affiliate 80,822 80,263 79,550 Administrative service fee to affiliate 9,024 9,024 9,143
Total operating expenses 1,680,512 1,519,411 1,614,492
NET INCOME (LOSS) $(64,040) $85,840 $(23,493)
NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT - BASIC $(26.62) $35.68 $(9.76)
LIMITED PARTNERSHIP UNITS OUTSTANDING - BASIC 2,382 2,382 2,382
AMRECORP REALTY FUND III STATEMENTS OF PARTNERS' EQUITY (DEFICIT) For the Years Ended December 31, 2002, 2001 and 2000
Special General Limited Limited Partner Partners Partners Total
Balance, January 1, 2000 $(137,614) $1,315,231 $(185,534) $992,083
Distributions --- (75,000) --- (75,000)
Net loss (235) --- (23,258) (23,493)
Balance, December 31, 2000 (137,849) 1,240,231 (208,792) 893,590
Distributions --- (985,408) --- (985,408)
Net income 858 --- 84,982 85,840
Balance, December 31, 2001 (136,991) 254,823 (123,810) (5,978)
Distributions --- (523,560) --- (523,560)
Net loss (640) --- (63,400) (64,040)
Balance, December 31, 2002 $(137,631) $(268,737 $(187,210) $(593,578)
AMRECORP REALTY FUND III STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2002, 2001 and 2000
2002 2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $(64,040) $85,840 $(23,493) Adjustments to reconcile net income (loss) to net cash provided by operations: Depreciation and amortization 355,610 335,389 320,790 Changes in assets and liabilities: Restricted cash --- 59,000 (7,000) Escrow deposits (147,989) 138,248 6,118 Other assets (12,875) (35,393) (3,623) Accrued interest payable (251) 1,596 (459) Security deposits 527 800 2,776 Accounts payable 11,871 15,361 (9,417) Due to affiliates (122,608) 3,572 (3,214) Real estate taxes payable 149,297 (138,983) 21,859
Net cash provided by operating activities 169,542 465,430 304,337
CASH FLOWS FROM INVESTING ACTIVITIES Investments in real estate (188,465) (123,273) (215,783) Capital replacement reserve 55,340 (45,330) 32,633
Net cash used for investing activities (133,125) (168,603) (183,150)
CASH FLOWS FROM FINANCING ACTIVITIES Payments on mortgages and notes payable (48,680) (60,718) (67,640) Proceeds from refinancing --- 1,286,720 --- Deferred financing costs --- (91,277) --- Liquidity reserve --- 100,599 (10,096) Distributions (523,560) (985,408) (75,000)
Net cash provided by (used for) financing activities (572,240) 249,916 (152,736)
Net increase (decrease) in cash and cash equivalents (535,823) 546,743 (31,549)
Cash and cash equivalents at beginning of period 559,647 12,904 44,453
Cash and cash equivalents at end of period $23,824 $559,647 $12,904
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $252,017 $224,849 $237,255
Noncash financing activity : Refinancing of mortgage payable $ --- $2,813,280 $ ---
AMRECORP REALTY FUND III NOTES TO FINANCIAL STATEMENTS December 31, 2002 and 2001
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Amrecorp Realty Fund III (the "Partnership"), a Texas limited partnership, was formed on August 30, 1985, under the laws of the state of Texas, for the purpose of acquiring, maintaining, developing, operating, and selling buildings and improvements. The Partnership owns and operates rental apartments in Abilene, Texas. The Partnership will be terminated by December 31, 2015, although this date can be extended if certain events occur. LBAL, Inc., a Texas corporation wholly owned by Mr. Robert J. Werra, is the general partner. Mr. Werra is the first special limited partner and third special limited partner. The second special limited partner is an affiliate of the general partner.
An aggregate of 25,000 limited partner units at $1,000 per unit are authorized, of which 2,382 units were outstanding for each of the three years ended December 31, 2002, 2001 and 2000. Under the terms of the offering, no additional units will be offered. Effective November 1, 1993, the partnership agreement was amended to establish a first, second and third special limited partner status as referred to above.
Allocation of Net Income (Loss) and Cash
All distributions of net operating cash flow and net proceeds of the Partnership shall be distributed first to special limited partners to satisfy the special limited partner distribution preference, then to repay any unreturned portion of their contribution. 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 December 31, 2002 is approximately $2,140,000 of which $800,000 is the remaining distribution preference and $1,340,000 is the original contribution. Any additional available cash will then be distributed in accordance with the partnership agreement. During 2002, 2001 and 2000, distributions of $523,560, $985,408, and $75,000, respectively, were made to the special limited partners in accordance with this agreement.
Net operating income and loss are allocated 1% to general partners and 99% to limited partners. Net operating cash flow, as defined in the partnership agreement, shall be distributed to the limited and general partners first to the limited partners in an amount equal to a variable distribution preference on capital contributions for the current year and then to the extent the preference has not been satisfied for all preceding years, and, thereafter, 10% to the general partner and 90% to the limited partners.
AMRECORP REALTY FUND III NOTES TO FINANCIAL STATEMENTS December 31, 2002 and 2001
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Net income from the sale of property is allocated first, to the extent there are cumulative net losses, 1% to the general partner and 99% to the limited partners; second, to the limited partners in an amount equal to their distribution preference as determined on the date of the partners' entry into the Partnership; and, thereafter, 15% to the general partner and 85% to the limited partners.
Cash proceeds from the sale of property or refinancing are allocated first to the limited partners to the extent of their capital contributions and distribution preference as determined on the date of the partners' entry into the Partnership; and, thereafter, 15% to the general partner and 85% to the limited partners.
Basis of Accounting
The Partnership maintains its books on the basis of accounting used for federal income tax reporting purposes. Memorandum entries have been made to present the accompanying financial statements in accordance with U.S. generally accepted accounting principles.
Investments in Real Estate and Depreciation
Buildings, improvements, and furniture and fixtures are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets ranging from 5 to 27.5 years.
Income Taxes
No provision for income taxes has been made since the partners report their respective share of the results of operations on their individual income tax return.
Deferred Financing Costs
Costs incurred to obtain mortgage financing are being amortized over the life of the mortgage using the straight- line method.
Revenue Recognition
The Partnership has leased substantially all of its rental apartments under cancelable leases for periods generally less than one year. Rental revenue is recognized on a monthly basis as earned.
AMRECORP REALTY FUND III NOTES TO FINANCIAL STATEMENTS December 31, 2002 and 2001
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Syndication Costs
Costs or fees incurred to raise capital for the Partnership are netted against the respective partners' equity accounts.
Cash and Cash Equivalents
The Partnership considers all highly liquid instruments with a maturity of three months or less to be cash equivalents.
Restricted Cash
Restricted cash consists of tenant security deposits.
Long-Lived Assets
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting For the Impairment of Long-Lived Assets and For Long-Lived Assets to be Disposed Of", the Partnership records impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. Based on current estimates, management does not believe impairment of operating properties is present.
Computation of Earnings Per Unit
The Partnership has adopted Statement of Financial Accounting Standards ("SFAS") No.128, "Earnings per Share". Basic earnings per unit is computed by dividing net income (loss) attributable to the limited partners' interests by the weighted average number of units outstanding. Earnings per unit assuming dilution would be computed by dividing net income (loss) attributable to the limited partners' interests by the weighted average number of units and equivalent units outstanding. The Partnership has no equivalent units outstanding for any period presented.
Segment Information
The Partnership is in one business segment, the real estate investments business, and follows the requirements of FAS 131, "Disclosures about Segments of an Enterprise and Related Information."
AMRECORP REALTY FUND III NOTES TO FINANCIAL STATEMENTS December 31, 2002 and 2001
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Concentration of Credit Risk
Financial instruments which potentially subject the Partnership to concentrations of credit risk consist primarily of cash. The Partnership places its cash with various financial institutions. The Partnership's exposure to loss should any of these financial institutions fail would be limited to any amount in excess of the amount insured by the Federal Deposit Insurance Corporation and Securities Investor Protection Corporation. Management does not believe significant credit risk exists at December 31, 2002.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during that reporting period. Actual results could differ from those estimates.
Environmental Remediation Costs
The Partnership accrues for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable. Project management is not aware of any environmental remediation obligations that would materially affect the operations, financial position or cash flows of the Project.
Comprehensive Income
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income, (SFAS 130), requires that total comprehensive income be reported in the financial statements. For the years ended December 31, 2002, 2001 and 2000, the Partnership's comprehensive income (loss) was equal to its net income (loss) and the Partnership does not have income meeting the definition of other comprehensive income.
AMRECORP REALTY FUND III NOTES TO FINANCIAL STATEMENTS December 31, 2002 and 2001
NOTE B - MORTGAGE PAYABLE
The mortgage payable of $4,051,320 at December 31, 2002, 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 $3,418,117.
At December 31, 2002, required principal payments due under the stated terms of the Partnership's mortgage note payable are as follows:
2003 $51,775 2004 55,067 2005 58,568 2006 62,292 2007 66,253 Thereafter 3,757,365 $4,051,320
NOTE C - RELATED PARTY TRANSACTIONS
The Partnership agreement specifies that certain fees be paid to the general partner or his designee. An affiliate of the general partner receives a property management fee that is approximately 4% of the Partnership's gross receipts. In addition, a Partnership fee equal to 1% of gross revenues from operations is to be paid from "Excess Property Income", as defined in the partnership agreement.
2002 2001 2000 Property management fee $64,659 $64,210 $63,640 Partnership fee 16,163 16,053 15,910
Administrative service fees paid to an affiliate of the general partner were $9,024, $9,024 and $9,143 for each of the years ended December 31, 2002, 2001 and 2000, respectively.
Resulting from the above transactions, amounts due an affiliate of the general partner as of December 31, 2002, and 2001, totaled $263 and $122,871, respectively.
NOTE D - COMMITMENTS
The Partnership will pay a real estate commission to the general partner or his affiliates in an amount not exceeding the lessor of 50% of the amounts customarily charged by others rendering similar services or 3% of the gross sales price of a property sold by the Partnership.
AMRECORP REALTY FUND III NOTES TO FINANCIAL STATEMENTS December 31, 2002 and 2001
NOTE E - RECONCILIATION OF BOOK TO TAX LOSS (UNAUDITED)
If the accompanying financial statements had been prepared in accordance with the accrual income tax basis of accounting rather than U.S. generally accepted accounting principals ("GAAP"), the excess of revenues over expenses for 2002 would have been as follows:
Net income (loss) per accompanying financial statements $(64,040)
Add - book basis depreciation using straight-line method 346,482
Deduct - income tax basis depreciation expense using ACRS method
144,402
Excess of revenues over expenses, accrual income tax basis $138,040
NOTE F - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value amounts have been determined using available market information or other appropriate valuation methodologies that require considerable judgement in interpreting market data and developing estimates. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Partnership could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
The fair value of financial instruments that are short-term or reprice frequently and have a history of negligible credit losses is considered to approximate their carrying value. These include cash and cash equivalents, accounts payable and other liabilities.
Management has reviewed the carrying values of its mortgages payable and notes payable to related parties in connection with interest rates currently available to the Partnership for borrowings with similar characteristics and maturities and has determined that their estimated fair value would approximate their carrying value as of December 31, 2002 and 2001.
The fair value information presented herein is based on pertinent information available to management. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and therefore, current estimates of fair value may differ significantly from the amounts presented herein.
AMRECORP REALTY FUND III Schedule III - Real Estate and Accumulated Depreciation December 31, 2002
Initial Cost to Partnership
Description Encumbrances Land Building Total Cost and Subsequent Improvements to Acquisition
Twenty-eight two-story apartment buildings of concrete block construction with brick stucco and wood siding exterior, and composition shingled roofs located in Abilene, Texas (b) 1,000,000 5,721,811 1,322,770
Gross Amounts at Which Carried at Close of Year
Buildings And Accumulated Description Land Improvements Total Depreciation (c)(d) (c)
Twenty-eight two-story apartment buildings of concrete block construction with brick veneer, stucco and wood siding exterior, and composition shingled roofs located in Abilene, Texas $1,000,000 7,044,581 8,044,581 4,626,464
Life on Which Date of Date Depreciation Description Construction Acquired is Computed
Twenty-eight two-story apartment buildings of concrete block construction with brick veneer, stucco and wood siding exterior, and composition shingled roofs located in Abilene, Complete at Texas Date Acquired 7/31/86 (a)
See notes to Schedule III.
AMRECORP REALTY FUND III Schedule III - Real Estate and Accumulated Depreciation (Continued) December 31, 2002
NOTES TO SCHEDULE III:
(a) See Note A to financial statements outlining depreciation methods and lives.
(b) See description of mortgages and notes payable in Note B to the financial statements.
(c) The reconciliation of investments in real estate and accumulated depreciation for the years ended December 31, 2002, 2001 and 2000 is as follows:
Investments in Accumulated Real Estate Depreciation
Balance, January 1, 2000 $7,517,060 $3,624,944
Acquisitions 215,783 --- Depreciation expense --- 320,790
Balance, December 31, 2000 $7,732,843 $3,945,734
Acquisitions 123,273 --- Depreciation expense --- 334,248
Balance, December 31, 2001 7,856,116 4,279,982
Acquisitions 188,465 --- Depreciation expense --- 346,482
Balance, December 31, 2002 $8,044,581 $4,626,464
(d) Aggregate cost for federal income tax purposes is $6,555,434.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
On November 6, 1998, an 8-K was filed to disclose the change in auditors. No financial statements were issued in conjunction with this filing. The Registrant has not been involved in any disagreements on accounting and financial disclosure.
PART III
Item 10. Directors and Executive Officer of the Partnership
The Partnership itself has no officers or directors. LBAL, Inc., a Texas Corporation, which is wholly owned by Robert J. Werra, is the General Partner of the Partnership.
Robert J. Werra, 64, joined Loewi & Co., Incorporated ("Loewi") in 1967 as a Registered Representative. In 1971, he formed the Loewi real estate department, and was responsible for its first sales of privately placed real estate programs. Loewi Realty was incorporated in 1974, as a wholly owned subsidiary of Loewi & Co., with Mr. Werra as President. In 1980, Mr. Werra, along with three other individuals, formed Amrecorp Inc. to purchase the stock of Loewi Real Estate Inc., and Loewi Realty. In 1991 Univesco, Inc. became the management agent for the Partnership. Limited Partners have no right to participate in management of Partnership.
Item 11. Management Remuneration and Transactions
As stated above, the Partnership has no officers or directors. Pursuant to the terms of the Limited Partnership Agreement, the General Partner receives 1% of Partnership income and loss and up to 15% of Net Proceeds received from sale or refinancing of Partnership properties (after return of Limited Partner capital contributions and payment of a 6% Current Distribution Preference thereon).
Univesco, Inc., an affiliate of the General Partner, is entitled to receive a management fee with respect to the properties actually managed of 5% of actual gross receipts from a property or an amount competitive in price or terms for comparable services available from a non-affiliated persons. The Partnership is also permitted to engage in various transactions involving affiliates of the General Partner as described under the caption "Compensation and Fees" at pages 6-8, "Management" at pages 18-20 and "Allocation of Net Income and Losses and Cash Distributions" at pages 49-51 of the Prospectus as supplemented, incorporated in the Form S-11 Registration Statement which was filed with the Securities and Exchange Commission and made effective on November 26, 1985.
For the Fiscal year ended December 31, 2002, 2001, and 2000, property management fees earned totaled $80,822, $80,263, and $79,550, respectively. An additional administration service fee was paid to the general partner of $9,024, $9,143, and 9,024 for the years ended December 31, 2002, 2001, and 2000, respectively.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a)
Title of Class Name and Address Amount and Nature Percent of
Limited William E. Kreger 300 units 12.59% Partnership 3301 Biddle Ave. #1101 Interest Wyandette, MI 48192
Juanita L. Werra 127 units 5.33% 5881 Prestonview Blvd. #143 Dallas, TX 75243
Monty L. Parker 127 units 5.33% 9144 North Silver Brook Lane Brown Deer, WI 53223
(b) By virtue of its organization as a limited partnership, the Partnership has no officers or directors. Persons performing functions similar to those of officers and directors of the Partnership, beneficially own, the following units of the Partnership as of March 1, 2002.
Title of Name and Address Amount and Nature Percent of Class of Beneficial Owner of Beneficial Ownership Class
Limited Robert J. Werra 10 units .42% Partnership 6210 Campbell Road, Interest Suite 140 Dallas, TX 75248
(c) There is no arrangement, known to the Partnership, which may, at a subsequent date, result in a change in control of the Partnership.
Item 13. Certain Relations and Related Transactions
As stated in item 11, the Partnership has no officers or directors. Pursuant to the terms of the Limited Partnership Agreement, the general partner receives 1% of partnership income and loss and up to 15%of Net Proceeds received from the sale or refinancing of Partnership Properties (after return of Limited Partner capital contributions and payment of a Current Distribution Preference thereon).
Univesco, Inc. (an affiliate of the General Partner), is entitled to receive a management fee with respect to the Properties. For residential Properties (including all leasing and releasing fees and fees for leasing- related services), the lesser of 5% of gross receipts of the Partnership from such Properties or an amount which is competitive in price and terms with other non-affiliated persons rendering comparable services which could reasonably be made available to the Partnership. The Partnership is also permitted to engage in various transactions involving affiliates of the general partner as described under the caption "Compensation and Fees" at pages 6-8, "Management" at pages 18-20 and "Allocation of Net Income and Losses and Cash Distributions" at pages 49-51 of the definitive Prospectus, incorporated in the form S-11 Registration Statement which was filed with the Securities and Exchange Commission and made effective of November 26, 1985 and incorporated herein by reference.
Item 14. Controls and Procedures Based on their most recent evaluation, which was completed within 90 days of the filing of this Form 10-K, our Principal Financial Officer and Principal Executive 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 IV
Item 15. Exhibits, Financial Statements, Schedules and Reports on Form 10- K
(A) 1. Financial Statements
The financial statements of Amrecorp Realty Fund III are included in Part II, Item 8.