UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-11081
COMMERCIAL PROPERTIES 1, L.P.
(formerly Hutton/GSH Commercial Properties 1)
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(Exact name of registrant as specified in its charter)
Virginia 13-3075804
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 World Financial Center, 29th Floor, New York, NY
ATTN: Andre Anderson 10285
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(Address of principal executive offices) (Zip Code)
(212) 526-3237
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Consolidated Balance Sheets
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September 30, December 31,
Assets 1995 1994
- ------------ ---------- ----------
Real estate investments, at cost:
Land $ 4,871,718 $ 4,871,718
Buildings and improvements 28,284,543 27,225,346
33,156,261 32,097,064
Less accumulated depreciation (13,499,136) (12,413,346)
19,657,125 19,683,718
Cash and cash equivalents 843,936 1,068,352
Restricted cash 223,027 162,969
Accounts and rent receivable, net of
allowance for doubtful accounts of
$51,065 in 1994 89,860 81,493
Prepaid leasing costs, net of accumulated
amortization of $154,285 in 1995
and $67,871 in 1994 471,715 272,178
Note receivable, net of unaccreted discount
of $75,808 in 1994 1,500,000 1,424,192
Deferred rent receivable 179,069 126,572
Other assets 106,502 99,609
Total Assets $23,071,234 $22,919,083
Liabilities and Partners' Capital
Liabilities:
Mortgage notes payable $ 5,037,946 $ 5,169,687
Accounts payable and accrued expenses 215,932 106,717
Due to affiliates 37,228 46,408
Security deposits payable 192,718 170,179
Prepaid rent 93,294 8,295
Total Liabilities 5,577,118 5,501,286
Minority interest 826,852 840,517
Partners' Capital (Deficit):
General Partners (920,818) (929,816)
Limited Partners 17,588,082 17,507,096
Total Partners' Capital 16,667,264 16,577,280
Total Liabilities and Partners' Capital $23,071,234 $22,919,083
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Consolidated Statement of Partners' Capital (Deficit)
For the nine months ended September 30, 1995
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General Limited
Partners Partners Total
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Balance at December 31, 1994 $(929,816) $17,507,096 $16,577,280
Net income 8,998 80,986 89,984
Balance at September 30, 1995 $(920,818) $17,588,082 $16,667,264
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Consolidated Statements of Operations
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Three months ended Nine months ended
September 30, September 30,
Income 1995 1994 1995 1994
--------- --------- --------- ---------
Rent $1,002,573 $ 737,670 $2,973,557 $2,279,456
Interest 32,868 39,390 121,709 112,096
Total Income 1,035,441 777,060 3,095,266 2,391,552
Expenses
Property operating 373,182 396,414 1,156,481 1,068,083
Depreciation and amortization 458,035 358,723 1,280,412 982,658
Interest 124,309 128,483 376,147 388,371
General and administrative 69,307 56,092 184,427 181,123
Bad debt -- 20,705 21,480 39,445
Total Expenses 1,024,833 960,417 3,018,947 2,659,680
Income (loss) before minority
interest 10,608 (183,357) 76,319 (268,128)
Minority interest (10,293) 25,567 13,665 51,035
Net Income (Loss) $ 315 $ (157,790) $ 89,984 $ (217,093)
Net Income (Loss) Allocated:
To the General Partners $ 31 $ -- $ 8,998 $ --
To the Limited Partners 284 (157,790) 80,986 (217,093)
$ 315 $ (157,790) $ 89,984 $ (217,093)
Per limited partnership unit
(75,000 outstanding) $.00 $(2.10) $1.08 $(2.89)
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Consolidated Statements of Cash Flows
For the nine months ended September 30, 1995 and 1994
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Cash Flows from Operating Activities: 1995 1994
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Net income (loss) $ 89,984 $ (217,093)
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 1,280,412 982,658
Accretion of discount on note receivable (75,808) (76,836)
Minority interest in loss of consolidated ventures (13,665) (51,035)
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Restricted cash (60,058) (24,953)
Accounts and rent receivable (8,367) 29,834
Prepaid leasing costs (289,662) (224,084)
Deferred rent receivable (52,497) (10,791)
Other assets (6,893) 34,436
Accounts payable and accrued expenses 109,215 99,179
Due to affiliates (9,180) (24,234)
Security deposits payable 22,539 29,846
Prepaid rent 84,999 (106,443)
Net cash provided by operating activities 1,071,019 440,484
Cash Flows from Investing Activities:
Additions to real estate (1,163,694) (1,032,167)
Net cash used for investing activities (1,163,694) (1,032,167)
Cash Flows from Financing Activities:
Mortgage principal payments (131,741) (119,516)
Net cash used for financing activities (131,741) (119,516)
Net decrease in cash and cash equivalents (224,416) (711,199)
Cash and cash equivalents at beginning of period 1,068,352 2,063,960
Cash and cash equivalents at end of period $ 843,936 $1,352,761
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 376,147 $ 388,371
Supplemental Disclosure of Non-Cash Investing Activity:
During the first three quarters of 1995, the Partnership wrote-off $104,497 of
fully depreciated tenant improvements and $3,711 of fully depreciated prepaid
leasing commissions.
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Notes to the Consolidated Financial Statements
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The unaudited consolidated financial statements presented should be read in
conjunction with the Partnership's annual 1994 audited consolidated financial
statements within Form 10-K.
The unaudited consolidated interim financial statements include all adjustments
which are, in the opinion of management, necessary to fairly present the
statement of financial position as of September 30, 1995 and the results of
operations for the three and nine months ended September 30, 1995 and 1994, and
cash flows for the nine months ended September 30, 1995 and 1994, and the
statement of changes in partners' capital (deficit) for the nine months ended
September 30, 1995. Results of operations for the periods are not necessarily
indicative of the results to be expected for the full year.
The following significant events have occurred subsequent to fiscal year 1994
which require disclosure in this interim report per Regulation S-X, Rule 10-01,
Paragraph (a) (5):
Reclassifications Certain 1994 amounts have been reclassified to conform with
the financial statement presentation used in 1995.
Part I, Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
- -------------------------------
The Partnership's cash and cash equivalents balance was $843,936 at September
30, 1995, compared with $1,068,352 at December 31, 1994. The cash and cash
equivalents balance is invested in unaffiliated money market funds and includes
funds held for anticipated tenant improvements and leasing commissions. The
decrease of $224,416 from December 31, 1994 is primarily attributable to net
cash used for tenant and building improvements and mortgage principal payments
exceeding net cash provided by operating activities. Additionally, the
Partnership had a restricted cash balance of $223,027 at September 30, 1995,
compared to $162,969 at December 31, 1994 which was made up of security
deposits and cash reserved to pay real estate taxes at Watkins Center.
The Partnership originally held a $6.5 million equity convertible loan on the
965 Ridgelake Office Building in Memphis, Tennessee. On May 17, 1988, the
Partnership exercised its option to convert the debt into equity, however, the
Partnership was able to negotiate a $5 million partial payment, which was
distributed to Limited Partners on October 3, 1990. The remaining $1.5 million
was converted into a non-interest bearing second mortgage which was scheduled
to mature on August 17, 1995. This second mortgage has been extended while
negotiations continue with the borrower. The borrower has indicated that it is
unable to pay-off the entire outstanding balance of the loan and has offered to
satisfy the obligation by paying a substantially discounted amount. After
weighing various alternatives, including the General Partners' estimate of the
property's market value, the General Partners rejected the offer and are
negotiating with the borrower to acquire the Ridgelake property. However,
since the property is encumbered with an approximate $4.8 million first
mortgage, which will become payable upon the transfer of title to the buyer,
the General Partner needs to obtain replacement financing before the
Partnership can take title to the property. Should acceptable financing be
obtained, the property will be recognized as a real estate investment rather
than a mortgage loan investment on the Partnership's balance sheet. Due to the
need to secure adequate financing, however, there can be no assurance that this
transaction can be completed.
At Maitland Center Office Building A, a tenant occupying 6,380 square feet or
approximately 7% of the property's leasable area pursuant to a lease which
expired in August 1995, signed a three-year lease renewal for the entire space.
No leases are scheduled to expire until fourth quarter 1996.
At Dawson Business Center, a tenant occupying 1,920 square feet which it had
been leasing on a month-to-month basis, vacated its space. No leases are
scheduled to expire during the remainder of 1995.
At Watkins Center, the General Partners executed three lease renewals totalling
14,666 square feet and a lease expansion with a tenant which now occupies 1,500
square feet. Three tenants representing 8,920 square feet vacated the premises
upon expiration of their respective leases. Six leases totalling 12,380 square
feet are scheduled to expire at the property during the remainder of 1995. It
is uncertain whether the tenants will renew their respective leases.
Prepaid leasing costs increased to $471,715 at September 30, 1995 from $272,178
at December 31, 1994, primarily as a result of leasing commissions relating to
the execution of a major lease at Swenson Business Park - Building B and to new
tenants at Watkins. Deferred rent receivable increased from $126,572 at
December 31, 1994 to $179,069 at September 30, 1995. The increase is largely
attributable to increased occupancy at Watkins and Dawson Business Centers and
Maitland Center Office Building A.
Accounts payable and accrued expenses totaled $215,932 at September 30, 1995
compared to $106,717 at December 31, 1994, primarily reflecting nine months of
accrued real estate taxes. Security deposits payable increased to $192,718 at
September 30, 1995 from $170,179 at December 31, 1994, reflecting increased
occupancy at Watkins and Dawson Business Centers during 1995. Prepaid rent
totaled $93,294 at September 30, 1995 compared to $8,295 at December 31, 1994.
The increase is largely attributable to the execution of a major lease at
Swenson Business Park - Building B in 1995.
As previously reported, cash distributions were suspended beginning with the
second quarter of 1993 to increase the Partnership's cash reserve in order to
fund tenant improvements and leasing costs at the Partnership's properties.
Given the need to secure adequate financing for the acquisition of 965
Ridgelake Office Building and in order to fund any future tenant improvements
and leasing costs, it is unlikely that cash distributions will be reinstated in
the near future. The General Partners will continue to monitor the
Partnership's cash flow and future cash needs to determine when and at what
level distributions may resume.
Results of Operations
- ---------------------
Partnership operations resulted in net income of $315 and $89,984 for the three
and nine months ended September 30, 1995, respectively, compared to net losses
of $157,790 and $217,093 for the respective periods in 1994. The change from
net loss to net income is primarily attributable to increased rental income,
partially offset by higher depreciation and amortization expenses.
Rental income totaled $1,002,573 and $2,973,557 for the three and nine months
ended September 30, 1995, respectively, compared with $737,670 and $2,279,456
for the corresponding periods in 1994. The increase in 1995 is primarily
attributable to higher occupancy at Swenson Business Park - Building B and
Watkins Center.
Depreciation and amortization expenses totaled $458,035 and $1,280,412 for the
three and nine months ended September 30, 1995, respectively, compared with
$358,723 and $982,658 for the respective periods in 1994. The increase is due
to tenant improvements completed during the last quarter of 1994 and the first
three quarters of 1995.
Property operating expenses totaled $373,182 and $1,156,481 for the three and
nine months ended September 30, 1995, respectively, compared with $396,414 and
$1,068,083 for the respective periods in 1994. The increase for the nine-month
period was mainly due to higher utilities and insurance expenses at Maitland
Center Office Building A and Swenson Business Park Building B.
The Partnership incurred no bad debt expense for the three months ended
September 30, 1995, while incurring $21,480 for the nine months ended September
30, 1995, compared to $20,705 and $39,445 for the respective periods in 1994.
The decrease in bad debt expense in the three- and nine-month periods is
largely due to higher write-offs in 1994 of uncollectible rent receivable at
Watkins and Dawson Centers.
As of September 30, 1995, the lease levels of the Properties were as follows:
Watkins Center - 94%; Dawson Business Center - 85%; Maitland Center Office
Building A - 95%; Swenson Business Park, Building B - 100%.
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PART II OTHER INFORMATION
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Items 1-4 Not applicable
Item 5 Shearson Lehman Brothers Inc. sold certain of its domestic
retail brokerage and asset management businesses to Smith
Barney, Harris Upham & Co. Incorporated ("Smith Barney"). The
assets acquired by Smith Barney included the name "Hutton".
Consequently, effective August 3, 1995, the name of the
Partnership was changed to Commercial Properties 1, L.P. to
delete any reference to "Hutton".
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K were filed
during the three months ended September 30, 1995.
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMMERCIAL PROPERTIES 1, L.P.
BY: CP1 REAL ESTATE SERVICES INC.
General Partner
Date: November 14, 1995
BY: /s/Kenneth L. Zakin
Name: Kenneth L. Zakin
Title: Director and President
Date: November 14, 1995
BY: /s/William Caulfield
Name: William Caulfield
Title: Vice President and Chief
Financial Officer
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<PERIOD-END> SEP-30-1995
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