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, 1997
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.
Exact Name of Registrant as Specified in its Charter
Virginia 13-3130258
State or Other Jurisdiction of
Incorporation or Organization I.R.S. Employer Identification No.
3 World Financial Center, 29th Floor, 10285
New York, NY Attn.: Andre Anderson Zip Code
Address of Principal Executive Offices
(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 At May 31, At November 30,
1997 1996
Assets
Real estate, at cost:
Land $ _ $ 5,216,878
Buildings and improvements _ 24,607,258
_ 29,824,136
Less accumulated depreciation _ (11,944,782)
_ 17,879,354
Real estate assets held for disposition 17,824,735
Cash and cash equivalents 1,813,766 1,739,498
Restricted cash 166,907 166,795
Rent and other receivables, net of
allowance for doubtful accounts of
$7,275 in 1997 and 1996 179,718 134,924
Prepaid expenses, net of accumulated
amortization of $1,182,166 in 1996 5,745 312,834
Deferred rent receivable _ 135,289
Total Assets $19,990,871 $20,368,694
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 312,221 $ 405,275
Due to affiliates 114,803 42,846
Distribution payable 429,293 429,293
Security deposits payable 159,897 157,126
Total Liabilities 1,016,214 1,034,540
Partners' Capital (Deficit):
General Partners (236,825) (233,230)
Limited Partners (100,000 units
outstanding) 19,211,482 19,567,384
Total Partners' Capital 18,974,657 19,334,154
Total Liabilities and Partners' Capital $19,990,871 $20,368,694
Consolidated Statement of Partners' Capital (Deficit)
For the six months ended May 31, 1997
General Limited
Partners Partners Total
Balance at November 30, 1996 $(233,230) $19,567,384 $19,334,154
Net income 4,991 494,098 499,089
Distributions (8,586) (850,000) (858,586)
Balance at May 31, 1997 $(236,825) $19,211,482 $18,974,657
Consolidated Statements of Operations
Three months ended May 31, Six months ended May 31,
1997 1996 1997 1996
Income
Rental $917,805 $902,313 $1,852,788 $1,776,249
Interest 22,339 32,216 43,239 63,858
Other 3,445 978 14,132 1,796
Total Income 943,589 935,507 1,910,159 1,841,903
Expenses
Property operating 348,382 344,864 707,317 683,518
Depreciation and
amortization 143,344 337,383 490,359 678,322
General and
administrative - other 53,086 51,305 117,768 88,434
General and
administrative - affiliates 86,342 6,178 95,626 18,212
Total Expenses 631,154 739,730 1,411,070 1,468,486
Net Income $312,435 $195,777 $ 499,089 $ 373,417
Net Income Allocated:
To the General Partners $ 3,124 $ 1,958 $ 4,991 $ 3,734
To the Limited Partners 309,311 193,819 494,098 369,683
$312,435 $195,777 $ 499,089 $ 373,417
Per limited partnership
unit (100,000 outstanding) $3.09 $1.94 $4.94 $3.70
Consolidated Statements of Cash Flows
For the six months ended May 31, 1997 1996
Cash Flows From Operating Activities:
Net income $499,089 $373,417
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 490,359 678,322
Increase (decrease) in cash arising
from changes in operating assets
and liabilities:
Restricted cash (112) 14,617
Rent and other receivables (44,794) 8,955
Prepaid expenses 34,332 33,973
Deferred rent receivable 4,597 20,594
Accounts payable and accrued expenses (93,054) 16,264
Due to affiliates 71,957 2,920
Security deposits payable 2,771 (879)
Net cash provided by operating activities 965,145 1,148,183
Cash Flows From Investing Activities:
Additions to real estate (32,291) (126,967)
Net cash used for investing activities (32,291) (126,967)
Cash Flows From Financing Activities:
Cash distributions (858,586) (858,586)
Net cash used for financing activities (858,586) (858,586)
Net increase in cash and cash equivalents 74,268 162,630
Cash and cash equivalents,beginning of period 1,739,498 2,461,901
Cash and cash equivalents,end of period $1,813,766 $2,624,531
Supplemental Schedule of Non-Cash
Investing Activities:
Write-off of fully depreciated
tenant improvements $ 10,666 $ 264,136
Supplemental Disclosure of Non-Cash Operating Activities:
In connection with the General Partners,intent to sell the properties in
1997,deferred rent receivable and prepaid leasing commissions in the amounts
of $130,692 and $224,473,respectively, were reclassified to Real estate assets
held for disposition.
Notes to the Consolidated Financial Statements
The unaudited interim consolidated financial statements should be
read in conjunction with the Partnership's annual 1996 audited
consolidated financial statements within Form 10-K.
The unaudited interim consolidated financial statements include
all normal and reoccurring adjustments which are, in the opinion
of management, necessary to present a fair statement of financial
position as of May 31, 1997 and the results of operations for the
three and six months ended May 31, 1997 and 1996 and the
consolidated statements of cash flows and partners' capital
(deficit) for the six months ended May 31, 1997. Results of
operations for the periods are not necessarily indicative of the
results to be expected for the full year.
Certain prior year amounts have been reclassified in order to
conform to the current year's presentation.
The following significant events have occurred subsequent to
fiscal year 1996 which require disclosure in this interim report
per Regulation S-X, Rule 10-01, Paragraph (a)(5):
The General Partners have engaged real estate brokers to assist
with the marketing of Swenson Business Park - Building C in San
Jose, California and Maitland Center Office Building C in
Orlando, Florida. Additionally, the General Partners have
decided to market Two Financial Centre for sale and are in the
process of selecting a brokerage company. The General Partners
currently anticipate that the sale of all of the Partnership's
properties will be completed in 1997. Accordingly, the
properties have been reclassified on the consolidated balance
sheet as "Real estate assets held for disposition."
Effective as of January 1, 1997, the Partnership began
reimbursing certain expenses incurred by Real Estate Services
VII, Inc. and its affiliates in servicing the Partnership to the
extent permitted by the Partnership agreement. In prior years,
affiliates of Real Estate Services VII, Inc. had voluntarily
absorbed these expenses.
Part I, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
The General Partners have engaged real estate brokers to assist with the
marketing of Swenson Business Park - Building C in San Jose, California and
Maitland Center Office Building C in Orlando, Florida. Additionally, the
General Partners have decided to market Two Financial Centre for sale and are
currently in the process of selecting a brokerage company. The General
Partners currently anticipate that the sale of all of the Partnership's
properties will be completed in 1997. Accordingly, the properties have been
reclassified on the consolidated balance sheet as "Real estate assets held for
disposition."
The Partnership had cash and cash equivalents at May 31, 1997 of $1,813,766,
compared to $1,739,498 at November 30, 1996. The increase is the result of net
cash provided by operations in the amount of $965,145 less cash distributions
totaling $858,586 and capital expenditures in the amount of $32,291. The
Partnership also had a restricted cash balance of $166,907 at May 31, 1997
which is primarily comprised of security deposits. The Partnership expects
sufficient cash flow from operations to be generated from the properties to
meet its future operating requirements.
Rent and other receivables totaled $179,718 at May 31, 1997, compared to
$134,924 at November 30, 1996. The increase is mainly due to the timing of
rental payments at Maitland Center Office Building C and Two Financial Centre.
Prepaid expenses decreased to $5,745 at May 31, 1997 from $312,834 at November
30,1996. Deferred rent receivable decreased to $0 at May 31, 1997 from $135,289
at November 30, 1996. The decreases are due to the classification of the
properties on the consolidated balance sheet as "Real estate assets held for
disposition."
Accounts payable and accrued expenses totaled $312,221 at May 31,1997 compared
to $405,275 at November 30, 1996. The decrease is primarily due to the timing
of payments for real estate taxes for all of the Partnership's properties, and
a decrease in prepaid rent at Maitland Center Office Building C. Due to
affiliates totaled $114,803 at May 31, 1997, compared to $42,846 at November
30, 1996, primarily reflecting the accrual for reimbursement of certain
expenses incurred by Real Estate Services VII, Inc. in servicing the
Partnership, as described below under "Results of Operations."
During the second quarter of 1997, two new leases were executed totaling 2,593
square feet at Two Financial Centre and one renewal totaling 1,586 square feet.
However, two tenants leasing a total of 2,136 square feet terminated their
leases and vacated the premises during the period. As a result, the property
remained 77% leased at May 31, 1997.
The occupancy rate at Maitland Center Office Building C decreased to 96% at May
31, 1997 as a 3,388 square foot tenant vacated its space in May 1997 upon
expiration of its lease. Three leases totaling 16,269 square feet are
scheduled to expire during the remainder of fiscal 1997.
A cash distribution of $4.25 per Unit was declared for the quarter ended May
31, 1997 and will be paid on or about July 15,1997 1997. The distribution will
be funded from the Partnership's operations and was declared after a review of
the Partnership's current cash position and its anticipated cash needs for the
remainder of 1997. The timing and amount of future cash distributions will be
determined quarterly by the General Partners.
Results of Operations
The Partnership's operations resulted in net income of $312,435 and $499,089
for the three and six months ended May 31, 1997, respectively, compared with
$195,777 and $373,417 for the corresponding periods in fiscal 1996. The higher
net income for the three- and six-month periods in 1997 is primarily
attributable to higher rental income and lower depreciation and amortization
expense, which were partially offset by higher general and administrative
expenses.
Rental income totaled $917,805 and $1,852,788 for the three and six months
ended May 31, 1997, compared with $902,313 and $1,776,249 for the same periods
in 1996. The increases in 1997 are primarily attributable to higher average
occupancy at Maitland Center Office Building C. Interest income totaled
$22,339 and $43,239 for the three and six months ended May 31, compared with
$32,216 and $63,858 for the respective 1996 periods, reflecting lower average
cash balances in 1997.
Property operating expenses totaled $348,382 and $707,317 for the three and six
months ended May 31, 1997 compared with $344,864 and $683,518 for the
corresponding periods in 1996. The increases are primarily due to higher
repairs and maintenance expenses and leasing commissions at Maitland Center
Office Building C.
Depreciation and amortization expenses totaled $143,344 and $490,359 for the
three and six months ended May 31, 1997 compared with $337,383 and $678,322 for
the corresponding periods in 1996. The decreases are due to the on-going
efforts to sell the Partnership's properties.
General and administrative expenses (affiliates) for the three and six months
ended May 31, 1997 were $86,342 and $95,626, respectively, compared with $6,178
and $18,212, respectively, for the same periods in 1996. During the 1997
period, certain expenses incurred by Real Estate Services VII, Inc. and its
affiliates in servicing the Partnership, which were voluntarily absorbed by
affiliates of Real Estate Services VII, Inc. in prior periods, were accrued to
be reimbursed to Real Estate Services VII, Inc. and its affiliates.
As of May 31, 1997, lease levels at each of the properties were as follows: Two
Financial Centre - 77%; Maitland Center Office Building C - 96%; 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 -
(27) Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K
were filed during the quarter ended May 31, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMMERCIAL PROPERTIES 2, L.P.
BY: Real Estate Services VII, Inc.
General Partner
Date: July 15, 1997 BY: /s/Mark Marcucci
President
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<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Nov-30-1997
<PERIOD-END> May-31-1997
<CASH> 1,813,766
<SECURITIES> 000
<RECEIVABLES> 179,718
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 000
<PP&E> 17,824,735
<DEPRECIATION> 000
<TOTAL-ASSETS> 19,990,871
<CURRENT-LIABILITIES> 1,016,214
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 18,974,657
<TOTAL-LIABILITY-AND-EQUITY> 19,990,871
<SALES> 1,852,788
<TOTAL-REVENUES> 1,910,159
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 1,411,070
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> 000
<INCOME-TAX> 000
<INCOME-CONTINUING> 499,089
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 499,089
<EPS-PRIMARY> 4.94
<EPS-DILUTED> 4.94
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