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 May 31, 1995
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: 0-11763
HUTTON/GSH COMMERCIAL PROPERTIES 2
----------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 13-3130258
- - ------------------------------- ------------------
(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
- - --------------------------------------- --------
(Address of principal executive offices) (Zip code)
(212) 526-3237
-------------------
(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
Consolidated Balance Sheets
May 31, November 30,
Assets 1995 1994
- - --------------- ----------- -----------
Land $ 5,216,878 $ 5,216,878
Buildings and improvements 24,491,443 24,412,806
----------- -----------
29,708,321 29,629,684
Less-accumulated depreciation (10,455,198) (9,905,013)
----------- -----------
19,253,123 19,724,671
Restricted cash 168,993 160,341
Cash and cash equivalents 2,794,273 2,524,376
----------- -----------
2,963,266 2,684,717
Interest and other receivables, net of
allowance for doubtful accounts of
$7,275 in 1995 and 1994 112,029 101,030
Prepaid expenses, net of accumulated
amortization of $980,761 in 1995 and
$921,231 in 1994 343,905 421,219
Deferred rent receivable 201,704 237,349
----------- -----------
Total Assets $ 22,874,027 $ 23,168,986
=========== ===========
Liabilities and Partners' Capital (Deficit)
- - ---------------
Liabilities:
Accounts payable and accrued expenses $ 245,293 $ 188,248
Due to affiliates 67,348 71,670
Distribution payable 429,293 429,293
Security deposits payable 163,466 163,907
----------- -----------
Total Liabilities 905,400 853,118
----------- -----------
Partners' Capital (Deficit):
General Partners (206,885) (203,413)
Limited Partners 22,175,512 22,519,281
----------- -----------
Total Partners' Capital 21,968,627 22,315,868
----------- -----------
Total Liabilities and Partners' Capital $ 22,874,027 $ 23,168,986
=========== ===========
See accompanying notes to the consolidated financial statements.
Consolidated Statement of Partners' Capital (Deficit)
For the six months ended May 31, 1995
General Limited
Partners Partners Total
---------- ---------- ----------
Balance at November 30, 1994 $ (203,413) $22,519,281 $22,315,868
Net income 3,851 381,231 385,082
Distributions (7,323) (725,000) (732,323)
---------- ---------- ----------
Balance at May 31, 1995 $ (206,885) $22,175,512 $21,968,627
========== ========== ==========
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Operations
Three months ended Six months ended
May 31, May 31,
Income 1995 1994 1995 1994
- - --------------- --------- --------- --------- ---------
Rent $ 896,280 $ 890,357 $1,794,011 $1,720,976
Interest 40,150 28,216 74,814 59,648
Other 1,098 1,086 2,134 2,169
--------- --------- --------- ---------
Total Income 937,528 919,659 1,870,959 1,782,793
Expenses
- - ---------------
Property operating 374,912 355,429 707,010 662,647
Depreciation and amortization 348,153 342,214 689,841 677,448
General and administrative
- affiliates 21,021 23,814 36,731 42,255
General and administrative
- other 27,762 21,937 52,295 45,224
--------- --------- --------- ---------
Total Expenses 771,848 743,394 1,485,877 1,427,574
--------- --------- --------- ---------
Net Income $ 165,680 $ 176,265 $ 385,082 $ 355,219
========= ========= ========= =========
Net Income Allocated:
To the General Partners $ 1,657 $ 1,763 $ 3,851 $ 3,552
To the Limited Partners 164,023 174,502 381,231 351,667
--------- --------- --------- ---------
$ 165,680 $ 176,265 $ 385,082 $ 355,219
========= ========= ========= =========
Per limited partnership unit
(100,000 outstanding) $1.64 $1.75 $3.81 $3.52
========= ========= ========= =========
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Cash Flows
For the six months ended May 31, 1995 and 1994
Cash Flows from Operating Activities: 1995 1994
- - ------------------------------------ --------- ---------
Net income $ 385,082 $ 355,219
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 689,841 677,448
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Restricted cash (8,652) (6,854)
Rent and other receivables (10,999) (20,818)
Prepaid expenses 17,784 (18,008)
Deferred rent receivable 35,645 (3,685)
Accounts payable and accrued expenses 57,045 60,292
Due to affiliates (4,322) (2,851)
Security deposits payable (441) 5,685
--------- ---------
Net cash provided by operating activities 1,160,983 1,046,428
Cash Flows from Investing Activities:
- - ------------------------------------
Additions to real estate assets (158,763) (188,452)
Short-term investment -- 1,949,033
--------- ---------
Net cash provided by (used for) investing activities (158,763) 1,760,581
Cash Flows from Financing Activities:
- - ------------------------------------
Distributions (732,323) (2,575,757)
--------- ---------
Net cash used for financing activities (732,323) (2,575,757)
--------- ---------
Net increase in cash and cash equivalents 269,897 231,252
--------- ---------
Cash and cash equivalents at beginning of period 2,524,376 640,153
--------- ---------
Cash and cash equivalents at end of period $2,794,273 $ 871,405
========= =========
Supplemental Schedule of Non-Cash Investing Activity:
- - ----------------------------------------------------
Write-off of fully depreciated tenant improvements $ 80,126 $ 340,259
========= =========
See accompanying notes to the consolidated financial statements.
Notes to the Consolidated Financial Statements
The unaudited interim financial statements should be read in conjunction with
the Partnership's annual 1994 audited financial statements within Form 10-K.
The unaudited financial statements include all adjustments which are, in the
opinion of management, necessary to present a fair statement of financial
position as of May 31, 1995 and the results of operations for the three and six
months ended May 31, 1995 and 1994, cash flows for the six months ended May 31,
1995 and 1994 and the statement of changes in partners' capital (deficit) for
the six months ended May 31, 1995. Results of operations for the periods are
not necessarily indicative of the results to be expected for the full year.
No significant events have occurred subsequent to fiscal year 1994 and no
material contingencies exist which would require disclosure in this interim
report per Regulation S-X, Rule 10-01, Paragraph (a)(5).
Part I, Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
- - -------------------------------
The Partnership had cash and cash equivalents at May 31, 1995 of $2,794,273,
compared to $2,524,376 at November 30, 1994. The increase of $269,897 is the
result of net cash provided by operations in the amount of $1,160,983, offset
by cash distributions totaling $732,323 and capital expenditures in the amount
of $158,763. The Partnership also had a restricted cash balance of $168,993 at
May 31, 1995 which is primarily comprised of security deposits. The
Partnership expects sufficient cash flow from operations to be generated to
meet its current operating requirements.
Prepaid expenses totaled $343,905 at May 31, 1995, compared with $421,219 at
November 30, 1994. The decrease is primarily attributable to the amortization
of prepaid insurance and leasing commissions. Accounts payable and accrued
expenses totaled $245,293 at May 31, 1995, compared with $188,248 at November
30, 1994. The increase is largely due to the accrual for real estate taxes for
all three of the Partnership's properties.
With respect to the first quarter of 1995, cash distributions were reduced from
the previous level of $4.25 per Unit to $3.00 per Unit due to the announcement
by a major tenant at Two Financial Centre that it intended to vacate the
property upon the expiration of its lease on June 30, 1995. The tenant
occupied 47,919 square feet, representing approximately 42% of the property's
leasable area, and generated annual revenues of $679,272. Upon the expiration
of its lease in June 1995, the tenant vacated the premises. However, the
General Partners executed four new leases totaling 36,038 square feet in April,
May and June of 1995 representing approximately 32% of the property's leasable
space. The largest lease executed was a five-year deal with a major health
insurer for 29,972 square feet or approximately 26% of the property's leasable
space. This tenant began paying rent in July 1995. As a result of these lease
executions, cash distributions were increased to $4.25 per Unit commenc ing
with the 1995 second quarter.
The General Partners declared a cash distribution of $4.25 per Unit for the
quarter ended May 31, 1995, which will be paid on or about July 21, 1995. Of
this amount, $3.61 per Unit was funded from property operations and $0.64 per
Unit represents a return of capital from the sale of Maryland Trade Center in
1989. As previously reported, a portion of the proceeds at the time of the
sale were retained to fund any operating deficits, tenant improvements and
leasing commissions required at the Partnership's remaining properties. The
timing and amount of future cash distributions will be determined quarterly by
the General Partners, and will depend on the adequacy of cash flow and the
Partnership's cash reserve requirements.
Results of Operations
- - ---------------------
Partnership operations resulted in net income of $165,680 and $385,082 for the
three and six months ended May 31, 1995, respectively, compared with $176,265
and $355,219 for the corresponding periods in 1994. The slightly higher net
income for the six-month period is primarily attributable to an increase in
rental income as a result of higher rental rates. The lower net income for the
three-month period is largely due to higher property operating expenses and
general and administrative - other expenses which more than offset an increase
in rental income.
Rental income totaled $896,280 and $1,794,011 for the three and six months
ended May 31, 1995, compared to $890,357 and $1,720,976 for the three and six
months ended May 31, 1994. The increases are primarily attributable to higher
rental rates at all of the Partnership's properties. Interest income totaled
$40,150 and $74,814 for the three and six months ended May 31, 1995,
respectively, compared with $28,216 and $59,648 for the respective 1994
periods, reflecting higher interest rates earned on the Partnership's cash
balances.
Property operating expenses totaled $374,912 and $707,010 for the three and six
months ended May 31, 1995, respectively, compared to $355,429 and $662,647 for
the respective 1994 periods. The increases are primarily due to increased
insurance costs primarily at Swenson Business Park - Building C and higher
utility expenses at Maitland Center Office Building.
As of May 31, 1995, lease levels at each of the properties were as follows: Two
Financial Centre - 100%; Maitland Center Office Building C - 94%; and Swenson
Business Park, Building C - 100%.
PART II OTHER INFORMATION
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits - None
(b) Reports on Form 8-K - No reports on Form 8-K were filed
during the quarter ended May 31, 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.
Dated: July 13, 1995
HUTTON/GSH COMMERCIAL PROPERTIES 2
BY: Real Estate Services VII, Inc.
General Partner
BY: /s/Rocco F. Andriola
Name: Rocco F. Andriola
Title: Director, President, Chief
Financial Officer
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<ARTICLE> 5
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> MAY-31-1995
<CASH> 2,794,273
<SECURITIES> 000
<RECEIVABLES> 112,029
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 000
<PP&E> 29,708,321
<DEPRECIATION> 10,455,198
<TOTAL-ASSETS> 22,874,027
<CURRENT-LIABILITIES> 905,400
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 21,968,627
<TOTAL-LIABILITY-AND-EQUITY> 22,874,027
<SALES> 1,794,011
<TOTAL-REVENUES> 1,870,959
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 1,485,877
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> 000
<INCOME-TAX> 000
<INCOME-CONTINUING> 000
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 385,082
<EPS-PRIMARY> $3.81
<EPS-DILUTED> 000
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