UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number: 0-11081
COMMERCIAL PROPERTIES 1, L.P.
(formerly Hutton/GSH Commercial Properties 1)
Exact name of registrant as specified in its charter
Virginia
State or other jurisdiction of
incorporation or organization 13-3075804
I.R.S. Employer Identification No.
3 World Financial Center, 29th Floor,
New York, NY ATTN: Andre Anderson 10285
Address of principal executive offices zip code
Registrant's telephone number, including area code: (212) 526-3732
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
Title of Class
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 shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
Documents Incorporated by Reference:
Portions of Prospectus of Registrant dated November 10, 1981 (included in
Amendment No. 1 to Registration Statement, No. 2-78248, of Registrant filed
July 13, 1982) are incorporated by reference into Part III.
Portions of Parts I, II and IV are incorporated by reference to the
Partnership's Annual Report to Unitholders for the year ended December 31, 1995
filed as an exhibit under Item 14.
PART I
Item 1. Business
(a) General Development of Business
Commercial Properties 1, L.P. (the "Registrant" or "Partnership") (formerly
known as Hutton/GSH Commercial Properties 1) is a Virginia limited partnership
organized pursuant to an Amended and Restated Certificate and Agreement of
Limited Partnership, dated April 30, 1982, of which CP1 Real Estate Services
Inc. ("RE Services"), formerly Hutton Real Estate Services IV, Inc. (See Item
10. "Directors and Executive Officers") and HS Advisors II, Ltd. ("HS
Advisors"), are the general partners (the "General Partners"). The Partnership
was formed to engage in the business of acquiring, operating and holding for
investment, the following four joint ventures: (i) Watkins Center Joint
Venture, a Georgia joint venture partnership which currently owns and operates
Watkins Center; (ii) Dawson Business Center Joint Venture, a Georgia joint
venture partnership which owns and operates Dawson Business Center; (iii)
Maitland Center Associates Joint Venture, a Florida joint venture partnership
which own s and operates the Maitland Center Office Building; and (iv) Beta
Building Associates Joint Venture, a California joint venture partnership which
owns and operates Swenson Business Park-Building B. (The properties described
above are collectively referred to herein as the "Properties").
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 matured on
August 17, 1995. At that time, the borrower was unable to pay the entire
outstanding balance of the loan and initially offered to satisfy the obligation
by paying a substantially discounted amount. Following subsequent
negotiations, and after evaluating various alternatives, including acquiring
the property, an agreement was reached whereby the Partnership received
$1,150,000 in December 1995, in full satisfaction of the loan. The proceeds
were distributed to the Partners on February 9, 1996. The final resolution of
this issue co coupled with improved performance of the Partnership's properties
enabled the General Partners to reinstate quarterly distributions of cash flow,
beginning with the fourth quarter of 1995. Further information is incorporated
by reference to the section entitled "Message to Investors" in the
Partnership's Annual Report to Unitholders for the year ended December 31, 1995
filed as an exhibit under Item 14.
(b) Financial Information About Industry Segment
The Registrant's sole business is the ownership and operation of the
Properties. All of the Registrant's revenues, operating profit or losses and
assets relate solely to such industry segment.
(c) Narrative Description of Business
Incorporated by reference to Note 1 "Organization" of the Notes to Consolidated
Financial Statements in the Partnership's Annual Report to Unitholders for the
year ended December 31, 1995 filed as an exhibit under Item 14.
The Registrant's principal investment objectives with respect to the Properties
(in no particular order of priority) are:
1) Capital appreciation;
2) Distributions of Net Cash From Operations attributable to rental income;
3) Preservation and protection of capital; and
4) Equity build-up through principal reduction of mortgage loans, if any, on
the Properties.
Distributions of net cash from operations will be the Registrant's objective
during its operational phase, while the preservation and appreciation of
capital will be the Registrant's long-term objective. Future distributions
will be made from rental operations with respect to the Registrant's investment
in the Properties, as well as from returns of capital. The attainment of the
Registrant's investment objectives will depend on many factors, including
future economic conditions in the United States as a whole and, in particular,
in the localities in which the Registrant's Properties are located, especially
with regard to achievement of capital appreciation.
The Registrant expects to sell its Properties at such time or times as it deems
appropriate, taking into consideration such factors as market conditions for
these types of properties, leasing conditions, property cash flow and the
possible risks of continued ownership. No Property will be sold, financed or
refinanced by the Registrant without agreement of both General Partners.
Proceeds from any future sale, financing or refinancing of the Properties will
not be reinvested but will be distributed to the Limited Partners as a return
of capital, so that the Registrant, in effect, will be self-liquidating. As
partial payment for Properties sold, the Registrant may receive purchase money
obligations collateralized by mortgages or deeds of trust. In such cases, the
amount of such obligations will not be included in net proceeds from sale or
refinancing (distributable to the Limited Partners) until and to the extent the
obligations are realized in cash, sold or otherwise liquidated.
(d) Competition
Incorporated by reference to the section entitled "Property Profiles & Leasing
Update" in the Partnership's Annual Report to Unitholders for the year ended
December 31, 1995 filed as an exhibit under Item 14.
(e) Employees
The Partnership has no employees.
Item 2. Properties
Description of Properties and material leases incorporated by reference to the
section entitled "Property Profiles & Leasing Update" in the Partnership's
Annual Report to Unitholders for the year ended December 31, 1995 filed as an
exhibit under Item 14 and Note 4 "Real Estate Investments" and Note 7 "Rental
Income Under Operating Leases" of the Notes to the Consolidated Financial
Statements.
Item 3. Legal Proceedings
Neither the Registrant nor any of the Properties is subject to any material
legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of Unitholders during the fourth quarter of
1995.
PART II
Item 5. Market for Registrant's Limited Partnership Units and Related
Unitholder Matters
(a) Market Information
No established public trading market has developed for the Units, and it is not
anticipated that such a market will develop in the future.
(b) Holders
As of December 31, 1995, the number of holders of Units was 5,700.
(c) Distributions
Cash distributions paid to the Limited Partners for the two years ended
December 31, 1995 incorporated by reference to the section entitled "Message to
Investors" in the Partnership's Annual Report to Unitholders for the year ended
December 31, 1995 filed as an exhibit under Item 14.
Item 6. Selected Financial Data
Incorporated by reference to the section entitled "Financial Highlights" in the
Partnership's Annual Report to Unitholders for the year ended December 31,
1995, which is filed as an exhibit under Item 14.
Item 7. 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 $2,040,428 at December
31, 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
increase is primarily attributable to the Partnership's receipt of $1,150,000
in settlement of the equity convertible loan held on 965 Ridgelake Office
Building. The uncollected portion of the note, in the amount of $350,000,
is included in bad debt expense in the Partnership's 1995 Statement of
Operations. Additionally, the Partnership had a restricted cash balance of
$196,362 at December 31, 1995, compared to $162,969 at December 31, 1994
representing tenant security deposits and cash reserved for 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 matured on
August 17, 1995. At that time, the borrower was unable to pay the entire
outstanding balance of the loan and initially offered to satisfy the obligation
by paying a substantially discounted amount. Following subsequent
negotiations, and after evaluating various alternatives, including acquiring
the property, an agreement was reached whereby the Partnership received
$1,150,000 in full satisfaction of the loan on December 28, 1995. These
proceeds were distributed to Partners on February 9, 1996, and the Partnership
note receivable balance decreased to $0 at December 31, 1995, from $1,424,192
at December 31, 1994. Further information incorporated by reference to the
section entitled "Message to Investors" in the Partnership's Annual Report to
Unitholders for the year ended December 31, 1995 filed as an exhibit under Item
14.
Prepaid leasing costs increased to $443,745 at December 31, 1995 from $272,178
at December 31, 1994, primarily as a result of leasing commissions related to
the execution of a lease in January 1995 for 100% of the leasable space at
Swenson Business Park - Building B. Deferred rent receivable totaled $195,197
at December 31, 1995 compared to $126,572 at December 31, 1994. The increase
is primarily due to leases executed in late 1994 and in 1995.
Due to affiliates totaled $37,748 at December 31, 1995, compared to $46,408 at
December 31, 1994. The decrease is due largely to the timing of payments.
Prepaid rent totaled $62,974 at December 31, 1995, compared to $8,295 at
December 31, 1994. The increase is attributable largely to new leases executed
at Watkins, Dawson Business and Maitland Centers.
Largely due to the settlement of the equity convertible loan and improving
Partnership operations, the Partnership declared a cash distribution, in the
amount of $4.00 per Unit, for the 1995 fourth quarter which was paid on
February 9, 1996. Distribution payable increased to $1,483,333 at December 31,
1995, from $0 at December 31, 1994, reflecting the reinstatement of cash
distributions of $333,333 and the distribution of the $1,150,000 proceeds
received from the note receivable as discussed above. Cash distributions had
been suspended since the second quarter of 1993. The timing and amount of
future distributions will be determined quarterly and will depend on several
factors, including the adequacy of rental income generated by current leases
and Partnership cash flow. Information regarding cash distributions is
incorporated by reference to the section entitled "Message to Investors" of the
Partnership's Annual Report to Unitholders for the year ended December 31,
1995, which is filed as an exhibit under Item 14.
On March 15, 1996, based upon, among other things, the advice of Partnership
counsel, Skadden, Arps, Slate, Meagher & Flom, the General Partners adopted a
resolution that states, among other things, if a Change of Control (as defined
below) occurs, the General Partners may distribute the Partnership's cash
balances not required for its ordinary course day-to-day operations. "Change
of Control" means any purchase or offer to purchase more than 10% of the Units
that is not approved in advance by the General Partners. In determining the
amount of the distribution, the General Partners may take into account all
material factors. In addition, the Partnership will not be obligated to make
any distribution to any partner and no partner will be entitled to receive any
distribution until the General Partners have declared the distribution and
established a record date and distribution date for the distribution. The
Partnership filed a Form 8-K disclosing this resolution on March 21, 1996.
Results of Operations
1995 versus 1994
Partnership operations resulted in a net loss of $290,192 for the year ended
December 31, 1995 compared to a net loss of $383,446 for the year ended
December 31, 1994. The lower net loss is attributable to higher rental income
which was partially offset by bad debt expense of $384,353 of which $350,000
represents the uncollected portion of the $1.5 million note receivable on the
965 Ridgelake Office Building.
Rental income totaled $4,071,987 for the year ended December 31, 1995 compared
to $3,076,135 for the year ended December 31, 1994. The increase is primarily
attributable to a lease executed in January 1995 for 100% of the leasable space
at Swenson Business Park Building B in addition to increased occupancy at
Watkins Center and Maitland Center Office Building A. Interest income
decreased to $132,699 for the year ended December 31, 1995, from $200,887 for
the year ended December 31, 1994 largely due to fully accreting the discount on
the note receivable as of August 1995.
Depreciation and amortization increased to $1,718,858 for the year ended
December 31, 1995 from $1,361,343 in 1994, primarily due to the depreciation
of tenant improvements and leasing commissions associated with leases executed
in late 1994 and 1995. Property operating expenses totaled $1,637,509 for the
year ended December 31, 1995 compared to $1,563,128 for the year ended December
31, 1994. The increase is primarily attributable to higher repairs and
maintenance and management fees at Swenson Business Park - Building B. Bad
debt expense totaled $384,353 for the year ended December 31, 1995 compared to
$72,977 for the year ended December 31, 1994. The increase primarily
represents the uncollected portion, in the amount of $350,000, of the $1.5
million note receivable on the 965 Ridgelake Office Building.
As of December 31, 1995, the lease levels of the Properties were as follows:
Watkins Center - 93%; Dawson Business Center - 85%; Maitland Center Office
Building A - 95%; Swenson Business Park, Building B - 100%.
1994 versus 1993
Partnership operations resulted in a net loss of $383,446 for the year ended
December 31, 1994, compared to a net loss of $249,782 for the year ended
December 31, 1993. The higher net loss for the current year is due primarily
to a reduction in rental income.
Rental income totaled $3,076,135 for the year ended December 31, 1994, compared
with $3,490,365 for the year ended December 31, 1993. The 11.8% decrease in
1994 is largely attributable to the premature vacancy of Swenson Business Park
- - Building B's only tenant, in the third quarter of 1993, and to AT&T's lease
reduction at Maitland Center Office Building A, in the first quarter of 1994.
The decrease was partially offset by an increase in rental income at Watkins
and Dawson Business Centers resulting from new leases executed at both
properties. Interest income totaled $200,887 for the year ended December 31,
1994, compared with $157,117 for the year ended December 31, 1993. The
increase is attributable to the accretion of the discount on the note
receivable on the 965 Ridgelake Office Building.
Property operating expenses totaled $1,563,128 for the year ended December 31,
1994, compared with $1,597,198 for the year ended December 31, 1993. The
decrease in operating expenses is due to decreased repairs and maintenance
expenditures at Dawson Center in 1994. The Partnership incurred bad debt
expense of $72,977 for the year ended December 31, 1994, compared to $208,446
in 1993. The decrease in bad debt expense is due to the write off of rent owed
by the tenant at Swenson Business Park - Building B in 1993.
As of December 31, 1994, the lease levels of the Properties were as follows:
Watkins Center - 83%; Dawson Business Center - 87%; Maitland Center Office
Building A - 93%; Swenson Business Park, Building B - vacant (subsequently
leased on January 31, 1995. See Liquidity and Capital Resources).
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1995 filed as an exhibit under Item 14 and page F-1
of this report.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Registrant has no officers and directors. RE Services and HS Advisors, the
co-General Partners of the Registrant, jointly manage and control the affairs
of the Registrant and have general responsibility and authority in all matters
affecting its business.
CP1 Real Estate Services Inc.
CP1 Real Estate Services Inc. ("RE Services"), formerly Hutton Real Estate
Service IV, Inc., is a Delaware corporation and affiliate of Lehman Brothers
Inc. ("Lehman"). See the section captioned "Certain Matters Involving Hutton
Affiliates" below for a description of the Hutton Group's acquisition by
Shearson Lehman Brothers, Inc. ("Shearson") and the subsequent sale of certain
of Shearson's domestic retail brokerage and asset management businesses to
Smith Barney, Harris Upham & Co Incorporated, which resulted in a change in the
general partner's name. The names and ages of, as well as the positions held
by, the directors and executive officers of RE Services are set forth below.
There are no family relationships between or among any officer and any other
officer or director.
Certain officers and directors of RE Services are now serving (or in the past
have served) as officers or directors of entities which act as general partners
of a number of real estate limited partnerships which have sought protection
under the provisions of the Federal Bankruptcy Code. The partnerships which
have filed bankruptcy petitions own real estate which has been adversely
affected by the economic conditions in the markets in which that real estate is
located and, consequently, the partnerships sought the protection of the
bankruptcy laws to protect the partnerships' assets from loss through
foreclosure.
Name Office
Kenneth L. Zakin President and Director
William Caulfield Vice President and Chief Financial Officer
Lawrence M. Ostow Vice President
Kenneth L. Zakin, 47, is a Senior Vice President of Lehman Brothers Inc. and
has held such title since November 1988. He is currently a senior manager in
Lehman Brothers' Diversified Asset Group and was formerly group head of the
Commercial Property Division of Shearson Lehman Brothers' Direct Investment
Management Group responsible for the management and restructuring of limited
partnerships owning commercial properties throughout the United States. From
January 1985 through November 1988, Mr. Zakin was a Vice President of Shearson
Lehman Brothers Inc. Mr. Zakin is a director of Lexington Corporate
Properties, Inc. He is a member of the Bar of the State of New York and
previously practiced as an attorney in New York City from 1973 to 1984
specializing in the financing, acquisition, disposition, and restructuring of
real estate transactions. Mr. Zakin is a member of the Real Estate Lender's
Association and is currently an associate member of the Urban Land Institute
and a member of the New York District Council Advisory Services Committee. He
received a Juris Doctor degree from St. John's University School of Law in 1973
and a B.A. degree from Syracuse University in 1969.
William Caulfield, 35, is a Vice President of Lehman Brothers Inc. and is
responsible for investment management of commercial real estate in the
Diversified Asset Group. Prior to the Shearson/Hutton merger in 1988, Mr.
Caulfield was a Senior Analyst with E.F. Hutton since October 1986 in Hutton's
Partnership Administration Group. Before joining Hutton, Mr. Caulfield was a
Business Systems Analyst at Eaton Corp. from 1985 to 1986. Prior to Eaton, he
was an Assistant Treasurer with National Westminster Bank USA. Mr. Caulfield
holds a B.S. degree in Finance from St. John's University and an M.B.A. from
Long Island University - C.W. Post Campus.
Lawrence M. Ostow, 28, is a Vice President of Lehman Brothers Inc. and is
responsible for the management of commercial real estate in the Diversified
Asset Group. Mr. Ostow joined Lehman Brothers in September 1992. Prior to
that, Mr. Ostow was a Senior Consultant with Arthur Andersen & Co. in the Real
Estate Services Group, beginning in July 1990. Mr. Ostow is a candidate for an
M.B.A. from the Stern School of Business in 1997 and earned a B.A. degree in
Economics from the University of Michigan in 1990.
HS Advisors II, Ltd.
HS Advisors II, Ltd. is a California limited partnership formed on May 20,
1980, the sole general partner of which is Hogan Stanton Investment, Inc. ("HS
Inc."), a wholly-owned subsidiary of Goodman Segar Hogan, Inc. The names and
ages of, as well as the positions held by, the directors and executive officers
of HS Inc. are as set forth below. There are no family relationships between
or among any officer and any other officer or director.
Name Office
Robert M. Stanton Chairman
Mark P. Mikuta President
John L. Cote Vice President and Treasurer
Julie R. Adie Vice President and Secretary
Robert M. Stanton, 57, is the retired Chairman and Chief Executive Officer of
Goodman Segar Hogan, Inc., a diversified commercial real estate company
headquartered in Norfolk, Virginia. Mr. Stanton joined Goodman Segar Hogan in
1966 and retired from the company in 1993. He is currently President of
Stanton Partners, Inc., a real estate investment and advisory firm. Mr.
Stanton serves as a Trustee of the Urban Land Institute (ULI) and is a past
Trustee and State Director of the International Council of Shopping Centers
(ICSC). He was chairman of the 1981 edition of The Dollars and Cents of
Shopping Centers, published by ULI. Mr. Stanton co-authored The Valuation of
Shopping Centers, published by the American Institute of Real Estate
Appraisers. Currently, he serves on the advisory board of Norfolk Southern
Corporation and is Chairman of the Greater Norfolk Corporation. He holds the
Certified Property Manager (CPM) designation conferred by the Institute of
Real Estate Management. Mr. Stanton also serves as Chairman of American
Storage Properties. A graduate of Old Dominion University with a B.A. Degree
in Banking and Finance, he served as Rector of the Board of Visitors.
Mark P. Mikuta, 41, is President of Goodman Segar Hogan, Inc. and is Controller
of Dominion Capital, Inc., a wholly-owned subsidiary of Dominion Resources.
Mr. Mikuta joined Dominion Resources in 1987. Prior to joining Dominion
Resources, he was an internal auditor with Virginia Commonwealth University in
Richmond, Virginia from 1980 - 1987 and an accountant with Coopers & Lybrand
from 1977 - 1980. Mr. Mikuta earned a bachelor of science degree in accounting
from the University of Richmond in 1977. He is a Certified Public Accountant
(CPA) and Certified Financial Planner (CFP) in the state of Virginia and a
member of the American Institute of Certified Public Accountants.
John L. Cote, 51, is a Vice President of Goodman Segar Hogan, Inc. and Senior
Vice President of Goodman Segar Hogan Hoffler, L.P. ("GSHH"). He heads that
company's Asset Management Division, where he is responsible for the portfolio
of the office, retail and industrial properties throughout the southeastern
United States. Prior to joining GSHH, Mr. Cote was Vice President of
Armada-Hoffler Holdings, Inc., a real estate developer and construction company
located in Chesapeake, Virginia. He was employed by Armada-Hoffler from 1980
through 1993. He holds a B.S. Degree in Political Science from the University
of Southern Mississippi.
Julie R. Adie, 41, is a Vice President of Goodman Segar Hogan, Inc. and Vice
President of Goodman Segar Hogan Hoffler, L.P. ("GSHH"). She is responsible
for investment management of a commercial real estate portfolio for the
company's Asset Management Division. Prior to GSHH, Ms. Adie was an asset
manager with Aetna Real Estate Investors from 1986 to 1988. Ms. Adie practiced
as an attorney from 1978 through 1984 and is currently a member of the Virginia
Bar Association. She holds a B.A. Degree from Duke University, a Juris Doctor
from University of Virginia and an M.B.A. from Dartmouth College.
Certain Matters Involving Affiliates
On July 31, 1993, Shearson sold certain of its domestic retail brokerage and
asset management businesses to Smith Barney, Harris Upham & Co. Incorporated
("Smith Barney"). Subsequent to the sale, Shearson changed its name to Lehman
Brothers Inc. The transaction did not affect the ownership of the
Partnership's General Partners. However, the assets acquired by Smith Barney
included the name "Hutton." Consequently, Hutton Real Estate Services IV,
Inc., a General Partner, changed its name to CP1 Real Estate Services Inc.
Additionally, effective August 3, 1995, the Partnership changed its name to
Commercial Properties 1, L.P., to delete any reference to "Hutton."
On August 1, 1993, GSH transferred all of its leasing, management and sales
operations to Goodman Segar Hogan Hoffler, L.P., a Virginia limited partnership
("GSHH"). On that date, the leasing, management and sales operations of a
portfolio of properties owned by the principals of Armada/Hoffler ("HK") were
also obtained by GSHH. The General Partner of GSHH is Goodman Segar Hogan
Hoffler, Inc., a Virginia corporation ("GSHH Inc."), which has a one percent
interest in GSHH. The stockholders of GSHH Inc. are GSH with a sixty-two
percent stock interest and H.K. Associates, L.P., an affiliate of HK, with a
thirty-eight percent stock interest. The remaining ninety-nine percentage
interests in GSHH are limited partnership interests owned fifty percent by GSH
and forty-nine percent by HK. The transaction did not affect the ownership of
the general partners.
Item 11. Executive Compensation
Neither of the General Partners nor any of their directors and officers
received any compensation from the Registrant. See Item 13 below with respect
to a description of certain transactions of the General Partners and their
affiliates with the Registrant.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Beneficial Owners
No person (including any "group" as that term is used in Section 13(d)(3) of
the Securities Exchange Act of 1934) is known to the Registrant to be the
beneficial owner of more than five percent of the outstanding Units as of
December 31, 1995.
(b) Security Ownership of Management
The General Partners own 200 Units (134 by RE Services and 66 by HS Advisors),
as required by the terms of the offering described in the Prospectus of
Registrant, dated November 10, 1981 (the "Prospectus"), contained in Amendment
No. 1 to Registration Statement No. 2-73033, filed November 10, 1981, and in
Amendment No. 1 to Registration Statement No. 2-78248 of Registrant filed July
13, 1982. None of the officers or directors of either General Partner owns any
Units.
(c) Changes in Control
None.
Item 13. Certain Relationships and Related Transactions
For a description of the share of net cash from operations and the allocation
of income and loss to which the General Partners are entitled, reference is
made to Note 4 "Real Estate Investments" and Note 9 "Transactions with the
General Partners and Affiliates" of Notes to the Consolidated Financial
Statements in the Partnership's Annual Report to Unitholders for the year ended
December 31, 1995 filed as an exhibit under Item 14.
The Registrant may enter into one or more property management agreements with
GSH pursuant to which GSH will provide certain property management services
with respect to certain Properties owned by the Registrant or its joint
ventures. For such services GSH will be entitled to receive a management fee
as described under the section captioned "Investment Objectives and Policies --
Management of Properties" in the Prospectus, which section is incorporated
herein by reference thereto.
Pursuant to Section 12(g) of the Registrant's Certificate and Agreement of
Limited Partnership, the General Partners and certain affiliates may be
reimbursed by the Registrant for certain costs as described on page 16 of the
Prospectus, which description is incorporated herein by reference thereto.
First Data Investor Services Group (formerly "The Shareholder Services Group")
("FDISG") provides partnership accounting and investor relations services for
the Registrant. Prior to May 1993, these services were provided by an
affiliate of a general partner. The Registrant's transfer agent and certain
tax reporting services are provided by Service Data Corporation ("SDC"). Both
FDISG and SDC are unaffiliated companies. Disclosure relating to amounts paid
to the General Partners or their affiliates during the past three years is
incorporated by reference to Note 9 "Transactions With the General Partners and
Affiliates" of Notes to Consolidated Financial Statements contained in the
Partnership's Annual Report to Unitholders for the year ended December 31,
1995 filed as an exhibit under Item 14.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements:
Report of Independent Auditors (1)
Consolidated Balance Sheets - At December 31, 1995 and 1994 (1)
Consolidated Statements of Operations - For the years ended
December 31, 1995, 1994 and 1993 (1)
Consolidated Statements of Partners' Capital (Deficit)
For the years ended December 31, 1995, 1994 and 1993 (1)
Consolidated Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993 (1)
Notes to Consolidated Financial Statements (1)
(a)(2) Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation F-1
No other schedules are presented because the information is not
applicable or is included in the financial statements
or notes thereto.
(1) Incorporated by reference to the Partnership's Annual Report to
Unitholders for the year ended December 31, 1995, which is filed as
an exhibit under Item 14.
(a)(3) Exhibits:
(4)(A) Amended and Restated Certificate and Agreement of Limited
Partnership (included as, and incorporated herein by reference to,
Exhibit A to the Prospectus of Registrant dated November 10, 1981
(the "Prospectus"), contained in Amendment No. 1 to Registration
Statement, No. 2-73033, of Registrant filed November 10, 1981 (the
"Registration Statement"), and in Amendment No. 1 to Registration
Statement, No. 2-78248, of Registrant filed July 13, 1982).
(4)(B) Subscription Agreement and Signature Page (included as, and
incorporated herein by reference to, Exhibit B to the Prospectus).
(10)(A) Permanent Loan Commitment, as amended, relating to the Ridgelake
Office Building, between the Registrant and Boyle Investment
Company, and the exhibits thereto (included as, and incorporated
herein by reference to, Exhibit 10.3 to Amendment No. 1 to the
Registration Statement).
(10)(B) Purchase Agreement relating to Watkins Center, between the
Registrant and Norcross-85 Park, Inc., and the exhibits thereto
(included as, and incorporated herein by reference to, Exhibit
(10)(A) to the Registrant's Quarterly Report on Form 10-Q filed on
or about May 15,1982 (the "Quarterly Report")).
(10)(C) Funding Commitment relating to Dawson Center, between Registrant
and Norcross-85 Park, Inc., and the exhibits thereto (included as,
and incorporated herein by reference to, Exhibit (10)(B) to the
Quarterly Report).
(10)(D) Funding Commitment relating to the Maitland Center Office
Building, between the Registrant and Boyle Investment Company, and
the exhibits thereto (included as, and incorporated herein by
reference to, Exhibit (10)(D) to the Registrant's Annual Report on
Form 10-K filed on March 31, 1983 (the "1982 Annual Report")).
(10)(E) Funding Commitment relating to the Swenson Business Park-Building
B, between the Registrant and Carl N. Swenson Company, Inc., and
the exhibits thereto (included as, and incorporated herein by
reference to, Exhibit (10)(E) to the 1982 Annual Report).
(10)(F) A promissory note in the principal amount of $1,500,000 dated
August 17, 1990 from Hutton/GSH Commercial Properties 1 and Boyle
Investment Company (included as, and incorporated herein by
reference to, Exhibit (10)(F) to the 1990 Annual Report).
(10)(G) ARIX Plan of Reorganization dated December 20, 1991 and confirmed
by the U.S. Bankruptcy Court for the Northern District of
California on February 3, 1992 (included in, and incorporated
herein by reference to, Exhibit (10)(G) to the 1992 Annual
Report).
(10)(H) Proof of Claim filed by the Registrant with the U.S. Bankruptcy
Court for the Northern District of California dated February 20,
1992 for rent owed by ARIX Corporation (included in, and
incorporated herein by reference to, Exhibit (10)(H) to the 1992
Annual Report).
(13) Annual Report to the Unitholders for the year ended December 31,
1995.
(23) Consent of Independent Auditors
(27) Financial Data Schedule
(28) Portions of Prospectus of Registrant dated November 10, 1981
(included as, and incorporated herein by reference to Exhibit (28)
of the Registrant's Annual Report on Form 10-K filed March 30,
1988).
(b)(3) Reports on Form 8-K:
No reports on form 8-K were filed in the fourth quarter of the
calendar year 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 25, 1996 COMMERCIAL PROPERTIES 1, L.P.
BY: HS Advisors II, Ltd.
General Partner
Hogan Stanton Properties, Inc.
General Partner
BY: /s/ Robert M. Stanton
Name: Robert M. Stanton
Title: Chairman of the Board
BY: CP1 Real Estate Services Inc.
General Partner
BY: /s/ Kenneth L. Zakin
Name: Kenneth L. Zakin
Title: Director and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capabilities and on the dates indicated.
CP1 REAL ESTATE SERVICES INC.
A General Partner
Date: March 25, 1996
BY: /s/ Kenneth L. Zakin
Kenneth L. Zakin
Director and President
Date: March 25, 1996
BY: /s/ William Caulfield
William Caulfield
Vice President and
Chief Financial Officer
Date: March 25, 1996
BY: /s/ Lawrence M. Ostow
Lawrence M. Ostow
Assistant Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capabilities and on the dates indicated.
HS ADVISORS II, LTD.
A General Partner
Date: March 25, 1996
BY: /s/ Robert M. Stanton
Robert M. Stanton
Chairman of the Board
Hogan Stanton Properties, Inc., as
general partner of HS Advisors II, Ltd.
Date: March 25, 1996
BY: /s/ Mark P. Mikuta
Mark P. Mikuta
President of Hogan Stanton Properties,
Inc., as general partner of HS Advisors II, Ltd.
Date: March 25, 1996
BY: /s/ John L. Cote
John L. Cote
Vice President and Treasurer of Hogan Stanton
Properties, Inc., as general partner of HS
Advisors II, Ltd.
Date: March 25, 1996
BY: /s/ Julie R. Adie
Julie R. Adie
Vice President and Secretary of Hogan Stanton
Properties, Inc., as general partner of HS
Advisors II, Ltd.
EXHIBIT 13
Commercial Properties 1, L.P.
1995 Annual Report to Unitholders
Commercial Properties 1, L.P., formerly Hutton/GSH Commercial Properties 1,
L.P. (the "Partnership"), is a limited partnership formed in 1982 to acquire,
operate and hold for investment commercial real estate properties. The
Partnership's investments are currently comprised of a research and development
building in San Jose, California, an office building in Orlando, Florida, and
two office/warehouse properties located in Norcross, Georgia. Provided below
is a comparison of lease levels at the Properties as of December 31, 1995
and 1994.
Percentage Leased
Property Location 1995 1994
Swenson Business Park - Building B San Jose, CA 100% 100%*
Maitland Center Office Building A Orlando, FL 95% 93%
Watkins Center Norcross, GA 91% 83%
Dawson Business Center Norcross, GA 85% 87%
*Includes lease executed on January 31, 1995. See the Property Profiles &
Leasing Update section of this report.
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144-2596 Attn: Financial Communications
800-223-3464 (select option 1) 800-223-3464 (select option 2)
Message to Investors
We are pleased to present the 1995 Annual Report for Commercial Properties 1,
L.P. Partnership operations improved considerably in 1995 as the General
Partners leased the entire space at Swenson Business Park - Building B and made
significant leasing progress at Watkins Center. The General Partners also
reached an agreement on the equity convertible loan on 965 Ridgelake Office
Building, the proceeds of which were distributed to the Limited Partners. As a
result of the improved operations and settlement of the equity convertible
loan, the General Partners reinstated the Partnership's quarterly cash
distributions in February 1996. Additional details on these developments and
on leasing activity and operations at the Partnership's Properties, as well as
an update on their respective markets, is included in this report.
Equity Convertible Loan
As discussed in prior correspondence, the Partnership held a $1.5 million
non-interest bearing second mortgage (the "Loan") which matured on August 17,
1995. At the time, the borrower was unable to pay the entire outstanding
balance of the loan and initially offered to satisfy the obligation by paying a
substantially discounted amount. Following subsequent negotiations, and after
evaluating various alternatives, including acquiring the property, an agreement
was reached whereby the Partnership received $1,150,000 in full satisfaction of
the loan. The Limited Partners' share of the proceeds, totaling $15.18 per
Unit, was distributed on February 9, 1996.
Cash Distributions
In light of the repayment of the Loan and following a review of the
Partnership's anticipated cash needs and current cash position, the General
Partners reinstated quarterly cash distributions beginning with the 1995 fourth
quarter. A distribution, in the amount of $4.00 per Unit, was paid to Limited
Partners on February 9, 1996. Cash distributions had been suspended since the
second quarter of 1993 in order to increase cash reserves to fund leasing
contingencies at the Partnership's Properties. Since inception, Limited
Partners have received cash distributions totaling $205.40 per Unit, including
return of capital payments in the amount of $111.18 per Unit which reduced each
Limited Partner's Unit size from $500 to $388.82. The timing and amount of
future cash distributions will be determined quarterly and will depend on the
adequacy of the Partnership's cash flow from operations and certain cash
reserve requirements.
Market Overview
Although still lagging behind other sectors of real estate, the commercial
office market showed signs of improvement during 1995, particularly in the
suburban office sector. The national vacancy rate declined to approximately
11.5% as of the fourth quarter of 1995, down from approximately 16% as of
year-end 1994. In general, the gap between supply and demand is gradually
narrowing as the existing supply of office space is absorbed. However, demand
for office space varies widely from region to region as corporate layoffs
persist and companies continue to be selective in their choice of location.
Moreover, despite the resurgence of investment in other segments of the real
estate industry, lenders continue to be selective in providing capital for
commercial office properties. With respect to the Partnership's Properties,
the San Jose market strengthened substantially during late 1995, resulting
from the recent business expansion in the technology industry. Additionally,
the Norcross and Maitland Center submarkets experienced improvements during
the year, with continued job growth and healthier economic conditions within
their respective markets.
Summary
During 1996, we will focus on leasing the vacant space at the Partnership's
Properties, particularly at Watkins Center and Dawson Business Center, and
renewing any leases which are scheduled to expire at the Properties.
Additionally, the General Partners intend to closely monitor generally
improving market conditions to determine the future strategy for marketing the
Properties for sale. We will update you with respect to these efforts in
future investor reports.
Very truly yours,
CP1 Real Estate Services Inc. Hogan Stanton Investment, Inc.
General Partner General Partner of HS Advisors II, Ltd.
/s/Kenneth L. Zakin /s/Robert M. Stanton
Kenneth L. Zakin Robert M. Stanton
President Chairman
March 25, 1996
Property Profiles & Leasing Update
SWENSON BUSINESS PARK-BUILDING B San Jose, California
Swenson Building B is a 49,782 square foot research and development facility
situated within a 65-acre business park which is located just north of central
San Jose in California. The property provides an attractive location for many
high technology companies due to its easy access to the San Jose Airport and
Interstate 880.
Leasing Update - As previously reported, the General Partners executed a
ten-year lease with Allstate Insurance Company ("Allstate") on January 31, 1995
for 100% of the property's leasable space. The lease was executed at
prevailing market rental rates and provides Allstate with an option to cancel
the lease after five years, subject to the payment of a significant
cancellation fee. Allstate began making rental payments on April 15, 1995 and
took occupancy of the space in July 1995, following the completion of various
tenant improvements. Allstate's lease generated $583,900 in rental revenues or
approximately 14% of the Partnership's 1995 consolidated revenues.
San Jose Market Update - Market conditions in the Silicon Valley strengthened
throughout the year. According to Emerging Trends in Real Estate, the
turn-around in the research and development sector can be greatly attributed to
the wave of high-technology and biotechnology industry expansions, in addition
to an increasing number of start-up companies. Vacancy rates for the research
and development sector in the Silicon Valley market declined at year-end 1995
to 4.9% from 10.8% a year earlier. The San Jose market, located within the
Silicon Valley, showed significant improvement as economic conditions in the
area strengthened. As a result, the vacancy rate in San Jose fell to 6.6% as
of the fourth quarter of 1995, from 8.9% for the corresponding period in 1994.
The area started experiencing increases in rental rates during the latter half
of 1995 which are expected to continue to increase during 1996.
MAITLAND CENTER OFFICE BUILDING A Orlando, Florida
Maitland Center Office Building A is a 95,000 square foot, three-story brick
and glass office building located in Maitland Center Office Park, a 230-acre
development in northwest metropolitan Orlando.
Leasing Update - During the year, the General Partners executed one new lease
for 3,383 square feet and one three-year lease renewal for 6,380 square feet.
However, two tenants occupying a total of 2,121 square feet, vacated the
premises upon expiration of their respective leases. As a result, the property
was 95% leased at December 31, 1995 versus 93% at the same time in 1994. One
lease for 2,198 square feet is scheduled to expire in November of 1996. The
General Partners will approach the tenant regarding renewal at the appropriate
time. Approximately 12% of the Partnership's 1995 consolidated revenues, or
$488,940, was generated by one lease representing 43% of the property's
leasable area.
Orlando Market Update - Orlando's 6% increase in its employment base, high
population growth and increased tourism over the past year have made the
region one of the strongest economies nationwide. As a result, businesses in
the area have expanded, increasing demand for office space in general. The
overall vacancy rate in Orlando decreased to 6.4% as of the fourth quarter of
1995, the lowest level in 15 years. Benefiting from Orlando's improving
conditions is the Maitland Center submarket, with approximately 3.6 million
square feet of office space, representing the largest submarket outside of
downtown Orlando. As of the 1995 fourth quarter, the Maitland submarket had a
vacancy rate of 3.4%, compared with 6.7% in the fourth quarter of 1994. The
use of rental concessions to attract prospective tenants has diminished and
rental rates have increased slightly. However, several large companies are
expected to relocate out of the Maitland submarket into build-to-suit
facilities in 1996, increasing the supply of available space, which in the
short term, could adversely affect the value and sales opportunities of office
buildings located in this submarket.
WATKINS CENTER & DAWSON BUSINESS CENTER Norcross, Georgia
Watkins Center is an office/warehouse facility comprised of fifteen one-story
buildings (four distribution buildings and eleven office/service buildings)
containing 362,419 leasable square feet. Dawson Business Center is a light
industrial facility located adjacent to Watkins Center. The property consists
of five one-story office/service buildings with a total of 75,703 leasable
square feet.
Leasing Activity - Watkins Center caters to a broad range of small businesses
and substantial leasing activity occurs on an ongoing basis at the property.
Eighteen new leases totaling 81,381 square feet and eleven lease renewals
totaling 33,288 square feet were executed during 1995. As of December 31,
1995, the property was 91% leased, compared to 83% as of December 31, 1994.
Sixteen leases totaling 37,379 square feet are scheduled to expire in 1996.
At Dawson Business Center, the General Partners executed two new leases for
2,778 square feet and one lease renewal for 1,930 square feet. This leasing
activity was offset by the vacancy of several tenants and the property's lease
level declined slightly to 85% as of December 31, 1995 versus 87% a year
earlier. Ten leases totaling 16,158 square feet are scheduled to expire
in 1996.
Norcross Market Update - During 1995, Atlanta continued to lead the nation in
economic and job growth, with approximately 36,400 jobs created during the
first half of the year, according to Market Focus, a respected industry
publication. In particular, the services and trade sectors have experienced
the most growth. This trend positively impacted the entire Atlanta region,
including the Northeast/I-85 submarket, in which Norcross county is located, as
evidenced by the submarket's improved vacancy rate of 6.4% at year-end 1995
versus a rate of 9.8% in 1994. These improving conditions have led to a
gradual increase in rental rates and, consequently, property values have also
begun to rise. These trends are expected to continue throughout 1996.
For The Years Ended December 31,
(dollars in thousands except per Unit data)
1995 1994 1993 1992 1991
Total income 4,205 $ 3,277 $ 3,658 $ 3,740 $ 3,110
Net income (loss) (290) (383) (250) 63 (361)
Net income (loss) per Unit (4.47) (5.11) (3.61) .75 (4.33)
Total assets 22,512 22,919 23,628 24,589 26,088
Mortgage payable 4,992 5,170 5,331 5,476 5,609
Net cash from operations 1,320 373 968 887 1,012
Cash distributions per
Limited Partnership Unit 19.18* -- 2.50 15.00 17.00
* Paid February 9, 1996. Includes $15.18 per Unit return of capital.
The above selected financial data should be read in conjunction with the
financial statements and related notes included in this report.
- - Total income was higher in 1995 due to higher rental income associated
with the execution of the Allstate lease at Swenson Business Park
Building B and higher occupancy rates at Maitland Center Office
Building A and Watkins Center.
- - The lower net loss in 1995 is primarily attributable to higher rental
income partially offset by higher total expenses.
- - Net cash from operations increased primarily due to higher rental
income in 1995.
Consolidated Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Real estate investments, at cost:
Land $ 4,871,718 $ 4,871,718
Buildings and improvements 28,180,988 27,225,346
33,052,706 32,097,064
Less- accumulated depreciation (13,642,791) (12,413,346)
19,409,915 19,683,718
Cash and cash equivalents 2,040,428 1,068,352
Restricted cash 196,362 162,969
Accounts and rent receivable,
net of allowance for
doubtful accounts of $51,065 in 1994 138,460 81,493
Deferred rent receivable 195,197 126,572
Prepaid leasing costs, net of accumulated
amortization of $172,695 in 1995
and $67,871 in 1994 443,745 272,178
Note receivable, net of unaccreted discount
of $75,808 in 1994 0 1,424,192
Other assets 87,565 99,609
Total Assets $ 22,511,672 $ 22,919,083
Liabilities and Partners' Capital
Liabilities:
Mortgage notes payable $ 4,991,850 $ 5,169,687
Distribution payable 1,483,333 0
Accounts payable and accrued expenses 99,941 106,717
Due to affiliates 37,748 46,408
Security deposits payable 199,507 170,179
Prepaid rent 62,974 8,295
Total Liabilities 6,875,353 5,501,286
Minority interest 832,564 840,517
Partners' Capital (Deficit):
General Partners (929,816) (929,816)
Limited Partners
(75,000 units outstanding) 15,733,571 17,507,096
Total Partners' Capital 14,803,755 16,577,280
Total Liabilities and Partners' Capital $ 22,511,672 $ 22,919,083
Consolidated Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Income 1995 1994 1993
Rent $ 4,071,9870 $ 3,076,135 $ 3,490,365
Interest 132,699 200,887 157,117
Other 0 0 10,313
Total Income 4,204,686 3,277,022 3,657,795
Expenses
Property operating 1,637,509 1,563,128 1,597,198
Depreciation and amortization 1,718,858 1,361,343 1,465,151
Interest 499,347 515,849 530,817
General and administrative 262,764 254,561 254,454
Bad debt expense 384,353 72,977 208,446
Total Expenses 4,502,831 3,767,858 4,056,066
Loss before minority interest (298,145) (490,836) (398,271)
Minority interest in loss of
consolidated venture 7,953 107,390 148,489
Net Loss $ (290,192) $ (383,446) $ (249,782)
Net Income (Loss) Allocated:
To the General Partners $ 44,833 $ 0 $ 20,833
To the Limited Partners (335,025) (383,446) (270,615)
$ (290,192) $ (383,446) $ (249,782)
Per limited partnership unit
(75,000 outstanding) $ (4.47) $ (5.11) $ (3.61)
Consolidated Statements of Partners' Capital (Deficit)
For the years ended December 31, 1995, 1994 and 1993
General Limited
Partners Partners Total
Balance at January 1, 1993 $ (929,816) $ 18,348,657 $ 17,418,841
Net income (loss) 20,833 (270,615) (249,782)
Distributions (20,833) (187,500) (208,333)
Balance at December 31, 1993 (929,816) 17,890,542 16,960,726
Net loss 0 (383,446) (383,446)
Balance at December 31, 1994 (929,816) 17,507,096 16,577,280
Net loss 44,833 (335,025) (290,192)
Distributions (44,833) (1,438,500) (1,483,333)
Balance at December 31, 1995 $ (929,816) $ 15,733,571 $ 14,803,755
Consolidated Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
Cash Flows from Operating Activities: 1995 1994 1993
Net loss $ (290,192) $ (383,446) $ (249,782)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and amortization 1,718,858 1,361,343 1,465,151
Accretion of discount on
note receivable (75,808) (152,123) (102,448)
Bad debt expense-loss on
note receivable 350,000 - -
Minority interest in loss of
consolidated venture (7,953) (107,390) (148,489)
Increase (decrease) in cash
arising from changes in operating
assets and liabilities:
Restricted cash (33,393) (24,196) (51,261)
Accounts and rent receivable, net (56,967) 31,211 26,649
Prepaid leasing costs (296,611) (257,017) (67,875)
Deferred rent receivable (68,625) (6,247) 24,494
Other assets 12,044 (31,937) (10,340)
Accounts payable and
accrued expenses (6,776) 14,819 (25,066)
Due to affiliates (8,660) 1,318 3,377
Security deposits payable 29,328 34,142 10,139
Prepaid rent 54,679 (107,029) 93,638
Net cash provided by
operating activities 1,319,924 373,448 968,187
Cash Flows from Investing Activities:
Additions to real estate (1,320,011) (1,207,722) (671,420)
Note receivable 1,150,000 - -
Net cash used for investing activities (170,011) (1,207,722) (671,420)
Cash Flows from Financing Activities:
Mortgage principal payments (177,837) (161,334) (145,267)
Cash distributions - - (500,000)
Net cash used for financing activities (177,837) (161,334) (645,267)
Net increase (decrease) in cash
and cash equivalents 972,076 (995,608) (348,500)
Cash and cash equivalents at
beginning of year 1,068,352 2,063,960 2,412,460
Cash and cash equivalents
at end of year $ 2,040,428 $ 1,068,352 $ 2,063,960
Supplemental Disclosure of Cash Investing Activities:
Cash paid for interest $ 499,347 $ 515,849 $ 530,817
Supplemental Disclosure of Non-Cash Investing Activity:
During 1995, the Partnership wrote-off $364,369 of fully depreciated tenant
improvements.
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
1. Organization
Commercial Properties 1, L.P. (the "Partnership"), formerly Hutton/GSH
Commercial Properties 1, was organized as a limited partnership under the laws
of the state of Virginia pursuant to a Certificate and Agreement of limited
partnership dated and filed June 5, 1981, as amended and restated on April 30,
1982 (the "Partnership Agreement"). The Partnership was formed for the purpose
of making acquisitions in and operating certain types of commercial real
estate. The General Partners of the Partnership are CP1 Real Estate Services
Inc. ("RE Services"), which is an affiliate of Lehman Brothers (see below) and
HS Advisors, Ltd. ("HS Advisors"), which is an affiliate of Goodman Segar
Hogan, Inc. ("GSH"). The Partnership will continue until December 31, 2010,
unless sooner terminated in accordance with the terms of the Partnership
Agreement.
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic
retail brokerage and asset management businesses to Smith Barney, Harris Upham
& Co. Incorporated ("Smith Barney"). Subsequent to the sale, Shearson Lehman
Brothers Inc. changed its name to Lehman Brothers Inc. ("Lehman Brothers").
The transaction did not affect the ownership of the General Partners. However,
the assets acquired by Smith Barney included the name "Hutton". Consequently,
effective October 22, 1993, the Hutton Real Estate Services IV, Inc. General
Partner changed its name to CP1 Real Estate Services Inc. Additionally,
effective August 3, 1995, the Partnership changed its name to Commercial
Properties 1, L.P., to delete any reference to "Hutton."
On August 1, 1993, GSH transferred all of its leasing, management and sales
operations to Goodman Segar Hogan Hoffler, L.P., a Virginia limited partnership
("GSHH"). On that date, the leasing, management and sales operations of a
portfolio of properties owned by the principals of Armada/Hoffler were also
obtained by GSHH. The General Partner of GSHH is Goodman Segar Hogan Hoffler,
Inc., a Virginia corporation ("GSHH Inc."), which has a one percent interest in
GSHH. The stockholders of GSHH Inc. are GSH with a sixty-two percent stock
interest and H.K. Associates, L.P., an affiliate of Armada/Hoffler ("HK"), with
a thirty-eight percent stock interest. The remaining ninety-nine percentage
interests in GSHH are limited partnership interests owned fifty percent by GSH
and forty-nine percent by HK. The transaction did not affect the ownership of
the General Partners.
On March 15, 1996, based upon, among other things, the advice of Partnership
counsel, Skadden, Arps, Slate, Meagher & Flom, the General Partners adopted a
resolution that states, among other things, if a Change of Control (as defined
below) occurs, the General Partners may distribute the Partnership's cash
balances not required for its ordinary course day-to-day operations. "Change
of Control" means any purchase or offer to purchase more than 10% of the Units
that is not approved in advance by the General Partners. In determining the
amount of the distribution, the General Partners may take into account all
material factors. In addition, the Partnership will not be obligated to make
any distribution to any partner and no partner will be entitled to receive any
distribution until the General Partners have declared the distribution and
established a record date and distribution date for the distribution. The
Partnership filed a Form 8-K disclosing this resolution on March 21, 1996.
2. Significant Accounting Policies
Basis of Accounting - The accompanying financial statements have been prepared
on the accrual basis of accounting in accordance with generally accepted
accounting principles. Revenues are recognized as earned and expenses are
recorded as obligations are incurred.
Consolidation - The consolidated financial statements include the accounts of
the Partnership and its ventures, Watkins Center Joint Venture, Dawson Business
Center Joint Venture, Maitland Center Associates and Beta Building Associates
Joint Venture. Intercompany accounts and transactions between the Partnership
and the ventures have been eliminated in consolidation.
Real Estate Investments - Real estate investments, which consist of commercial
buildings, are recorded at cost less accumulated depreciation. Cost includes
the initial purchase price of the property plus closing costs, acquisition and
legal fees and capital improvements. Depreciation is computed using the
straight-line method based on an estimated useful life of 25 years except for
tenant improvements which are depreciated over the terms of the respective
leases.
Accounting for Impairment - In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121 "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of" ("FAS 121"), which requires impairment losses to be recorded 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. FAS 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Partnership adopted
FAS 121 the fourth quarter of 1995. Based on current circumstances, the
adoption of FAS 121 had no impact on the financial statements.
Cash Equivalents - Cash equivalents consist of short-term highly liquid
investments with maturities of three months or less from the date of issuance.
The carrying amount approximates fair value because of the short maturity of
these instruments.
Concentration of Credit Risk - Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash
in excess of the financial institutions' insurance limits. The Partnership
invests available cash with high credit quality financial institutions.
Restricted Cash - Restricted cash consists of security deposits and amounts
held in escrow for the payment of real estate taxes.
Deferred Rent Receivable - Deferred rent receivable consists of rental income
recognized on a straight-line basis over the terms of the respective leases but
will not be received until later periods as a result of rent concessions.
Prepaid Leasing Costs - Leases are accounted for as operating leases. Prepaid
leasing costs are amortized over the terms of the leases.
Note Receivable Discount - The discount on the non-interest bearing note
receivable was accreted over the life of the note.
Income Taxes - No provision for income taxes has been made in the financial
statements of the Partnership since such taxes are the responsibility of the
individual partners rather than of the Partnership.
Fair Value of Financial Instruments - Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments"
("FAS 107"), requires that the Partnership disclose the estimated fair values
of its financial instruments. Fair values generally represent estimates of
amounts at which a financial instrument could be exchanged between willing
parties in a current transaction other than in forced liquidation.
Fair value estimates are subjective and are dependent on a number of
significant assumptions based on management's judgment regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. In addition, FAS 107 allows
a wide range of valuation techniques, therefore, comparisons between entities,
however similar, may be difficult.
Based on the borrowing rates currently available to the Partnership for
mortgage loans with similar average maturities, the fair value of long-term
debt approximates carrying value.
Use of Estimates - The preparation of 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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications - Certain 1994 amounts have been reclassified to conform with
the financial statement presentation used in 1995.
3. The Partnership Agreement
The Partnership Agreement provides that net cash from operations, as defined,
to the extent available, will be distributed on a quarterly basis 90% to the
Limited Partners and 10% to the General Partners. Net proceeds from sales or
refinancings shall be distributed 99% to the Limited Partners and 1% to the
General Partners until each Limited Partner has received an amount equal to its
adjusted capital value, as defined, and an 8% cumulative annual return thereon,
reduced by any net cash from operations actually distributed to such Limited
Partner. The balance of net proceeds, if any, will be distributed 85% to the
Limited Partners and 15% to the General Partners.
Taxable losses for any fiscal year shall be allocated 98% to the Limited
Partners and 2% to the General Partners, provided, however, that the deficit
balance of the General Partners' capital account does not exceed the amount
they are required to contribute upon dissolution of the Partnership, discussed
below. Taxable income for any fiscal year will be allocated in substantially
the same manner as net cash from operations. In 1995 and 1994, net loss was
allocated 100% to the Limited Partners as a result of the negative balance in
the General Partners' capital accounts exceeding their maximum required
contribution upon dissolution. In 1993, income was allocated to the General
Partners in an amount equal to their current year cash distributions. This was
done in order not to further increase the General Partners' deficit beyond
their obligations required by the Partnership Agreement, discussed below.
Gains from sales, as defined, shall be allocated in substantially the same
manner as net proceeds from sales or refinancings.
Upon the dissolution of the Partnership, the General Partners shall contribute
to the capital of the Partnership an amount not to exceed 1% of the total
capital contributions made by all the Partners, less any prior capital
contributions made by the General Partners. In no event shall the General
Partners be obligated to contribute an amount in excess of any negative balance
in their respective capital accounts. As of December 31, 1995, the maximum
amount that the General Partners would be required to contribute is
approximately $372,819.
If, as a result of the dissolution of the Partnership, the sum of the Limited
Partners' capital contributions plus an amount equal to an 8% cumulative annual
return on each Limited Partner's adjusted capital value less any distributions
made to each Limited Partner from net cash flow from operations exceeds total
contributions to the Limited Partners of net proceeds from a sale or
refinancing, the General Partners will contribute to the Partnership for
distribution to the Limited Partners an amount equal to the lesser of such
excess or the aggregate distribution of net proceeds from a sale or refinancing
distributed to the General Partners.
4. Real Estate Investments
Since inception, the Partnership has acquired four commercial office buildings
through investments in joint ventures with unaffiliated coventurers as follows:
Square Date
Property Name Feet Location Acquired Price
Watkins Center 362,419 Norcross, GA 5/26/82 $10,570,000
Dawson Center 75,703 Norcross, GA 1/25/83 $ 2,789,885
Maitland Center 95,000 Orlando, FL 8/19/83 $ 6,961,000
Swenson Building B 49,782 San Jose, CA 4/06/84 $ 4,100,000
The joint venture partnership agreements substantially provide that:
i. Net cash from operations will be distributed 100% to the
Partnership until it has received an annual, noncumulative
preferred return on its capital contribution, as adjusted,
ranging from 8% to 12%. With regard to Watkins Center, net
cash from operations will then be distributed 100% to the
coventurer until it has received an 8% annual, noncumulative
return on its interest in the venture. Thereafter, any
remaining cash from operations is generally shared in ratios
relating to the various ownership interests of the Partnership
and coventurers.
ii. Net proceeds from a sale or refinancing of the properties will
be distributed 100% to the Partnership until it has received
120% of its capital contribution, as adjusted, plus an amount
equal to any deficiencies (on a cumulative basis) in
distributions of the Partnership's preferred return of net cash
from operations. Then, in the case of Watkins Center, net
proceeds will be distributed to the coventurer until it
receives a 120% return on its capital contribution plus an
amount equal to any deficiencies (on a cumulative basis) in
distributions of the coventurers preferred return of net cash
from operations. Any remaining net proceeds will be
distributed in ratios ranging from 50% to 65% to the
Partnership and the balance to the venture partners.
iii. Taxable income will be allocated in substantially the same
manner as net cash from operations. With regard to Watkins
Center, 75% will be allocated to the Partnership and the
balance to the coventurer. Tax losses will be allocated in
ratios ranging from 50% to 100% to the Partnership and the
balance to the venture partners.
5. Note Receivable
On August 20, 1990, the Partnership received cash from the developer of the 965
Ridgelake Boulevard, Memphis, Tennessee property (the "Property") totaling
$5,000,000 and a non-interest bearing/profit participation second subordinated
five year note for $1,500,000 which has been discounted at 10%, secured by the
Property, in satisfaction of the Partnership's equity convertible loan
receivable. The note was due on August 17, 1995. On December 28, 1995, the
partnership received $1,150,000 in satisfaction of the $1,500,000 note
receivable. The remaining $350,000 was declared uncollectible and is included
in 1995 bad debt expense.
6. Mortgage Notes Payable
The first mortgage loan, secured by Watkins Center, is evidenced by two
mortgage notes. The net book value of Watkins Center is $8,712,045 at December
31, 1995. The estimated fair value of the two mortgage notes at December 31,
1995 is approximately equal to the outstanding principal. Mortgage notes
payable at December 31, 1995 and 1994 are as follows:
1995 1994
First mortgage note payable in monthly
installments of $23,278 including
interest at 9.375%, through
July 10, 1997, at which time the
entire unpaid principal is due $ 2,055,180 $ 2,137,210
First mortgage note payable in
monthly installments of $33,154,
including interest at 10.125%,
through July 10, 1997, at which time
the entire unpaid principal is due 2,936,670 3,032,477
$ 4,991,850 $ 5,169,687
Annual maturities of mortgage principal over the next two years are as follows:
Year Amount
1996 $ 196,030
1997 4,795,820
$ 4,991,850
7. Rental Income Under Operating Leases
Future minimum rental income to be received on operating leases as of
December 31, 1995 is as follows:
Year Amount
1996 $ 4,194,837
1997 3,577,826
1998 2,534,949
1999 1,313,875
2000 979,109
Thereafter 3,604,672
$ 16,205,268
Generally, leases are for terms ranging from three to five years. The leases
allow for increases in certain property operating expenses to be passed on to
tenants. In 1995, 1994 and 1993, 12%, 16% and 31% of consolidated rental
revenue was provided by AT&T Information Systems ("AT&T"). In 1995, 14% of
consolidated rental revenue was provided by Allstate Insurance Company
("Allstate").
8. AT&T Information Systems Lease
A lease with AT&T at Maitland Center, which occupied 62,950 square feet or
approximately 67% of the property's leasable area, expired on December 31,
1993. The General Partners negotiated a lease for 40,745 square feet,
approximately 43% of the property's leasable area, commencing on April 1, 1994
and, unless extended pursuant to certain provisions contained within the lease,
ending on December 31, 1998. The lease provides for base rent in an amount
equal to $488,940 per annum, payable in equal monthly installments of $40,745
in advance on the first day of every calendar month. The lease provides AT&T
the right to extend the lease for two consecutive periods of three years each.
Exercise of the first extension option does not obligate AT&T to exercise the
option for the second term. The lease also provides AT&T with the right to
terminate at any time after the thirty-sixth month of the term. AT&T shall
provide the Partnership with not less than six months prior written notice of
its intent to terminate and shall be required to pay a termination penalty of
$211,874.
9. Transactions with the General Partners and Affiliates
The following is a summary of amounts earned by, or reimbursed to, the General
Partners and their affiliates for property management fees and administrative
salaries and expenses during the years ended December 31, 1995, 1994 and 1993.
Unpaid at
December 31, Earned
1995 1995 1994 1993
Reimbursement of:
Out-of-pocket expenses $ 11,648 $ 22,515 $ 14,453 12,192
Administrative salaries
and expenses 20,300 62,718 73,299 60,409
Property management
fees (GSH) 5,800 154,608 147,750 159,952
$ 37,748 $ 239,841 $ 235,502 $ 232,553
Property Management fees
and administrative Unpaid at
salaries and expenses December 31, Earned
1995 1995 1994 1993
CP1 Services and affiliates $ 22,978 $ 75,545 $ 77,000 $ 60,409
HS Advisors and affiliates 14,770 164,296 158,502 172,144
$ 37,748 $ 239,841 $ 235,502 $ 232,553
10. Reconciliation of Financial Statement Net Loss to Federal Income Tax Basis
Net Loss
Reconciliation of financial statement net loss to federal income tax basis
net loss:
Years Ended December 31,
1995 1994 1993
Financial statement net loss $ (290,192) $ (383,446) $ (249,782)
Tax basis depreciation over
financial statement depreciation 250,868 21,758 28,610
Adjustment for deferred rent,
free rent (13,862) (113,277) 121,282
Adjustment for bad debt expense (51,065) (75,251) 42,420
Other miscellaneous adjustments (461) (146,682) (149,858)
Federal income tax basis
net loss $ (104,712) $ (696,898) $ (207,328)
Report of Independent Auditors
The Partners
Commercial Properties 1, L.P.
and Consolidated Ventures
We have audited the accompanying consolidated balance sheets of Commercial
Properties 1, L.P. and Consolidated Ventures as of December 31, 1995 and 1994,
and the related consolidated statements of operations, partner's capital
(deficit) and cash flows for each of the three years in the period ended
December 31, 1995. 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 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 represent fairly, in
all material respects, the consolidated financial position of Commercial
Properties 1, L.P. and Consolidated Ventures at December 31, 1995 and 1994, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
January 30, 1996
except for Note 1, as to which the date is
March 15, 1996
Comparison of Acquisition Costs to Appraised Value and
Determination of Net Asset Value Per $388.82 Unit at December 31, 1995
(Unaudited)
Acquisition Cost
(Purchase Price Partnership's
Plus General Share of
Date of Acquisition Partners' December 31,
or Funding of Equity Acquisition 1995 Appraised
Property Convertible Loan Fees Value (1)
Watkins Center (2) 05-26-82 $ 6,468,661 $ 7,362,054
Dawson Business Center 01-25-83 3,514,325 3,450,000
Maitland Center Building A 08-19-83 7,342,558 8,100,000
Swenson Business Park
Building B 04-06-84 4,259,454 4,700,000
$ 21,584,998 $ 23,612,054
Cash and cash equivalents 2,040,428
Restricted cash 196,362
Accounts and rent receivable,
net of allowance for doubtful
accounts 138,460
Other assets 87,565
26,074,869
Less:
Total liabilities - net of mortgage notes (1,883,503)
Partnership Net Asset Value $ 24,191,366
Net Asset Value Allocated:
Limited Partners $ 23,949,452
General Partners 241,914
$ 24,191,366
Net Asset Value Per Unit
(75,000 units outstanding) $ 319.33
(1)This represents the Partnership's share of the December 31, 1995 Appraised
Values which were determined by an independent property appraisal firm. The
Partnership's share of the December 31, 1995 Appraised Values takes into
account the allocation provisions of the joint venture agreements governing the
distribution of sales proceeds for each of the properties.
(2)The Acquisition Cost and the Partnership's share of the December 31, 1995
Appraised Value are net of the outstanding mortgage note balances at the time
of acquisition and at December 31, 1995, respectively.
Limited Partners should note that appraisals are only estimates of current
value and actual values realizable upon sale may be significantly different. A
significant factor in establishing an appraised value is the actual selling
price for properties which the appraiser believes are comparable. Further, the
appraised value does not reflect the actual costs which would be incurred in
selling the properties. As a result of these factors and the illiquid nature of
an investment in Units of the Partnership, the variation between the appraised
value of the Partnership's properties and the price at which Units of the
Partnership could be sold is likely to be significant. Fiduciaries of Limited
Partners which are subject to ERISA or other provisions of law requiring
valuations of Units should consider all relevant factors, including, but not
limited to Net Asset Value per Unit, in determining the fair market value of
the investment in the Partnership for such purposes.
COMMERCIAL PROPERTIES 1, L.P.
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1995
Cost Capitalized
Subsequent
Initial Cost to Partnership To Acquisition
Buildings and Buildings and
Description Encumbrances Land Improvements Improvements
Commercial Property:
Consolidated Ventures:
Watkins Center
Norcross, GA $4,991,850 $ 1,938,440 $ 12,920,239 $ 1,227,586
Dawson Center
Norcross, GA 0 506,336 1,938,777 1,174,191
Maitland Center
Orlando FL 0 1,215,861 5,174,612 2,394,879
Swenson Business Park
San Jose, CA 0 1,211,081 1,644,094 1,706,610
$4,991,850 $ 4,871,718 $ 21,677,722 $ 6,503,266
COMMERCIAL PROPERTIES 1, L.P.
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1995
Gross Amount at Which Carried at Close of Period
Buildings and Accumulated
Description Land Improvements Total(2) Depreciation(1)
Commercial Property:
Consolidated Ventures:
Watkins Center
Norcross, GA $ 1,938,440 $ 14,147,825 $ 16,086,265 $ 7,374,220
Dawson Center
Norcross, GA 506,336 3,112,968 3,619,304 1,574,811
Maitland Center
Orlando, FL 1,215,861 7,569,491 8,785,352 3,544,460
Swenson Business Park
San Jose, CA 1,211,081 3,350,704 4,561,785 1,149,300
$ 4,871,718 $ 28,180,988 $ 33,052,706 $ 13,642,791
(2) (1)
COMMERCIAL PROPERTIES 1, L.P.
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1995
Life on which
Depreciation
Latest
Date of Date Income Statements
Description Construction Acquired is Computed
Commercial Property:
Consolidated Ventures:
Watkins Center
Norcross, GA 1977 - 1980 05/26/82 1 - 25
Dawson Center
Norcross, GA 1982 01/25/83 1 - 25
Maitland Center
Orlando, FL 1982 - 1984 08/19/83 1 - 25
Swenson Business Park
San Jose, CA 1984 - 1985 04/06/84 1 - 25
(1) For Federal income tax purposes, the amount of accumulated depreciation is
$16,589,498.
(2) For Federal income tax purposes, the basis of land, building and
improvements is $33,457,905.
(3) Tenant Improvements are depreciated on a straight-line basis over lives of
the respective leases.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1995, 1994 and 1993:
Real Estate investments: 1995 1994 1993
Beginning of year $ 32,097,064 $ 30,932,307 $ 32,042,186
Acquisitions 1,320,011 1,207,722 671,420
Deletions (364,369) (42,965) (1,781,299)
End of year $ 33,052,706 $ 32,097,064 $ 30,932,307
Accumulated Depreciation:
Beginning of year $ 12,413,346 $ 11,149,056 $ 11,609,292
Depreciation expense 1,593,814 1,307,255 1,321,063
Deletions (364,369) (42,965) (1,781,299)
End of year $ 13,642,791 12,413,346 $ 11,149,056
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Commercial Properties 1, L.P. of our report dated January 30, 1996, included
in the 1995 Annual Report to Shareholders of Commercial Properties 1, L.P. and
Consolidated Ventures.
Our audit also included the financial statement schedule of Commercial
Properties 1, L.P. and Consolidated Ventures listed in Item 14(a). This
schedule is the responsibility of the Partnership's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
the financial statement schedule referred to above, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth herein.
ERNST & YOUNG LLP
Boston, Massachusetts
January 30, 1996
except for Note 1, as to which the date is
March 15, 1996
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,040,428
<SECURITIES> 000
<RECEIVABLES> 333,657
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 3,014,192
<PP&E> 33,052,706
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000
<OTHER-SE> 14,803,755
<TOTAL-LIABILITY-AND-EQUITY> 22,511,672
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<TOTAL-REVENUES> 4,204,686
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<OTHER-EXPENSES> 3,619,131
<LOSS-PROVISION> 384,353
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