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