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 August 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
COMMERCIAL PROPERTIES 2, L.P.
(formerly 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
August 31, November 30,
Assets 1995 1994
Land $5,216,878 $5,216,878
Buildings and improvements 24,538,760 24,412,806
29,755,638 29,629,684
Less-accumulated depreciation (10,779,287) (9,905,013)
18,976,351 19,724,671
Restricted cash 173,005 160,341
Cash and cash equivalents 2,706,855 2,524,376
2,879,860 2,684,717
Rent and other receivables, net
of allowance for doubtful accounts
of $7,275 in 1995 and 1994 169,088 101,030
Prepaid expenses, net ofaccumulated
amortization of $1,012,809 in 1995
and $921,231 in 1994 442,697 421,219
Deferred rent receivable 192,376 237,349
Total Assets $22,660,372 $23,168,986
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $357,689 $188,248
Due to affiliates 89,051 71,670
Distribution payable 429,293 429,293
Security deposits payable 164,931 163,907
Total Liabilities 1,040,964 853,118
Partners' Capital (Deficit):
General Partners (210,377) (203,413)
Limited Partners 21,829,785 22,519,281
Total Partners' Capital 21,619,408 22,315,868
Total Liabilities and Partners' Capital $22,660,372 $23,168,986
Consolidated Statement of Partners' Capital (Deficit)
For the nine months ended August 31, 1995
General Limited
Partners Partners Total
Balance at November 30, 1994 $(203,413) $22,519,281 $22,315,868
Net income 4,652 460,504 465,156
Distributions (11,616) (1,150,000) (1,161,616)
Balance at August 31, 1995 $(210,377) $21,829,785 $21,619,408
Consolidated Statements of Operations
Three months ended Nine months ended
August 31, August 31,
Income 1995 1994 1995 1994
Rent $804,040 $929,874 $2,598,051 $2,650,850
Interest 39,030 25,485 113,844 85,133
Other 802 1,512 2,936 3,681
Total Income 843,872 956,871 2,714,831 2,739,664
Expenses
Property operating 357,886 368,064 1,064,896 1,030,711
Depreciation and amortization 356,137 353,132 1,045,978 1,030,580
General and administrative - affiliates 27,691 27,496 64,422 69,751
General and administrative - other 22,084 22,433 74,379 67,657
Total Expenses 763,798 771,125 2,249,675 2,198,699
Net Income $80,074 $185,746 $465,156 $540,965
Net Income Allocated:
To the General Partners $801 $1,857 $4,652 $5,410
To the Limited Partners 79,273 183,889 460,504 535,555
$80,074 $185,746 $465,156 $540,965
Per limited partnership unit
(100,000 outstanding) $.79 $1.84 $4.61 $5.36
Consolidated Statements of Cash Flows
For the nine months ended August 31, 1995 and 1994
Cash Flows from Operating Activities: 1995 1994
Net income $465,156 $540,965
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,045,978 1,030,580
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Restricted cash (12,664) (8,609)
Rent and other receivables (68,058) (3,921)
Prepaid expenses (113,056) (12,003)
Deferred rent receivable 44,973 (41,923)
Accounts payable and accrued expenses 169,441 140,191
Due to affiliates 17,381 (7,450)
Security deposits payable 1,024 (607)
Net cash provided by operating activities 1,550,175 1,637,223
Cash Flows from Investing Activities:
Additions to real estate assets (206,080) (188,452)
Short-term investment - 1,581,458
Net cash provided by (used for) investing activities (206,080) 1,393,006
Cash Flows from Financing Activities:
Distributions (1,161,616) (3,005,050)
Net cash used for financing activities (1,161,616) (3,005,050)
Net increase in cash and cash equivalents 182,479 25,179
Cash and cash equivalents at beginning of period 2,524,376 640,153
Cash and cash equivalents at end of period $2,706,855 $665,332
Supplemental Schedule of Non-Cash Investing Activity:
Write-off of fully depreciated tenant improvements $80,126 $893,963
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 August 31, 1995 and the results of operations for the three and
nine months ended August 31, 1995 and 1994, cash flows for the nine months
ended August 31, 1995 and 1994 and the statement of changes in partners'
capital (deficit) for the nine months ended August 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 August 31, 1995 of $2,706,855,
compared to $2,524,376 at November 30, 1994. The increase of $182,479 is the
result of net cash provided by operations in the amount of $1,550,175 less cash
distributions totaling $1,161,616 and capital expenditures in the amount of
$206,080. The Partnership also had a restricted cash balance of $173,005 at
August 31, 1995 which is primarily comprised of security deposits. Deferred
rent receivable totaled $192,376 at August 31, 1995, compared with $237,349 at
November 30, 1994. The decrease is attributable to the straight-line
amortization of base rent at Swenson Business Park. The Partnership expects
sufficient cash flow from operations to be generated to meet its current
operating requirements.
Accounts payable and accrued expenses totaled $357,689 at August 31, 1995,
compared with $188,248 at November 30, 1994. The increase is largely due to
the accrual of real estate taxes for all three of the Partnership's properties
as well as an increase in prepaid rent.
A tenant which occupied 47,919 square feet (representing approximately 42% of
Two Financial Centre's leasable area) and generated annual revenues of $679,272
vacated the premises upon the expiration of its lease on June 30, 1995. The
General Partners were, however, able to execute four new leases in April, May
and June of 1995 totaling 36,038 square feet (representing approximately 32% of
the property's leasable space), including a five-year lease with a major health
insurer for 29,972 square feet (representing 26% of the property's leasable
space). The Partnership began receiving rent from the major health insurer in
July 1995, thus avoiding a vacancy lag period on 29,972 square feet of space.
As a result, Two Financial Centre was 94% leased as of August 31, 1995.
During the 1995 third quarter, the General Partners consented to a request by
Asante Technologies, Inc. ("Asante"), which leases 100% of Swenson Business
Park - Building C's leasable space, to sublease 17,000 square feet
(representing approximately 19% of its space). Asante is responsible for
funding all of the tenant improvements associated with the sublease, and
remains responsible for all lease obligations through the scheduled expiration
of its lease in September 1997. Additionally, Asante's financial performance
has appeared to have improved, as the tenant reported income for its last
fiscal quarter and introduced a new line of products. The General Partners
will continue to monitor the tenant's financial performance.
As of the 1995 third quarter, Maitland Center Office Building C remains 95%
occupied, largely unchanged from the prior quarter. However, a lease totaling
15,479 square feet (representing approximately 16% of the property's leasable
space) is scheduled to expire in January 1996. While the General Partners have
begun negotiations with the tenant, it remains uncertain whether the tenant
will renew its lease.
The General Partners declared a cash distribution of $4.25 per Unit for the
quarter ended August 31, 1995, which will be paid on or about October 20, 1995.
The distribution will be funded from Partnership operations and was declared
after a review of the Partnership's 1995 third quarter operations, anticipated
future cash needs and current cash position. The timing and amount of future
cash distributions will be determined quarterly by the General Partners.
Results of Operations
Partnership operations resulted in net income of $80,074 and $465,156 for the
three and nine months ended August 31, 1995, respectively, compared with
$185,746 and $540,965, respectively, for the corresponding periods in 1994.
The lower net income for the 1995 periods is largely attributable to a decrease
in rental income and an increase in property operating expenses, which were
partially offset by an increase in interest income.
Rental income totaled $804,040 and $2,598,051 for the three and nine months
ended August 31, 1995, compared to $929,874 and $2,650,850 for the three and
nine months ended August 31, 1994. The decrease for the three-month period is
primarily attributable to the expiration of a major tenant's lease at Two
Financial Centre and lower escalation income at Swenson Business Park.
Pursuant to the terms of a net lease, the Partnership formerly received
escalation income from Asante, the tenant occupying Swenson Business Park, in
an amount equal to the costs of maintaining the property. Asante has elected
to assume responsibility for the care and maintenance of the property itself,
thus eliminating operating expense escalation income. The decrease for the
nine-month period reflects lower rental income at Two Financial Centre and
Swenson Business Park, partially offset by higher income at Maitland Center
Office Building C. Interest income totaled $39,030 and $113,844 for the
three and nine months ended August 31, 1995, respectively, compared with
$25,485 and $85,133 for the respective 1994 periods, reflecting higher
interest rates earned on the Partnership's larger cash balances.
Property operating expenses totaled $357,886 and $1,064,896 for the three and
nine months ended August 31, 1995, respectively, compared to $368,064 and
$1,030,711 for the respective 1994 periods. The increase for the nine-month
period is due to increased insurance costs at both Swenson Business Park and
Maitland Center Office Building C and increased electricity costs at Maitland
Center Office Building C, partially offset by decreased electricity expenses at
Two Financial Centre.
As of August 31, 1995, lease levels at each of the properties were as follows:
Two Financial Centre - 94%; Maitland Center Office Building C - 95%; and
Swenson Business Park, Building C - 100%.
PART II OTHER INFORMATION
Items 1-4 Not Applicable.
Item 5 Shearson Lehman Brothers Inc. sold certain of its domestic retail
brokerage and asset management businesses to Smith Barney, Harris Upham & Co.
Incorporated ("Smith Barney"). The assets acquired by Smith Barney included
the name "Hutton." Consequently, effective August 3, 1995, the name of the
Partnership was changed to Commercial Properties 2, L.P. to delete any
reference to "Hutton."
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K were
filed during the quarter ended August 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: October 16, 1995
COMMERCIAL PROPERTIES 2, L.P.
BY: Real Estate Services VII, Inc.
General Partner
BY: /s/Rocco F. Andriola
Name: Rocco F. Andriola
Title: Director, President, Chief
Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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