<PAGE>
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, 1998
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
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State or Other Jurisdiction of I.R.S. Employer Identification No.
Incorporation or Organization
3 World Financial Center, 29th Floor,
New York, NY Attn: Andre Anderson 10285
- ------------------------------------ -----
Address of Principal Executive Offices Zip Code
(212) 526-3183
--------------
Registrant's Telephone Number, Including Area Code
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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<PAGE>
COMMERCIAL PROPERTIES 2, L.P.
AND CONSOLIDATED VENTURES
<TABLE>
<CAPTION>
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CONSOLIDATED BALANCE SHEETS At August 31, At November 30,
1998 1997
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<S> <C> <C>
Assets
Real estate assets held for disposition $ 7,162,009 $ 12,310,284
Cash and cash equivalents 1,408,736 11,803,602
Restricted cash 21,105 65,600
Rent and other receivables, net of allowance for doubtful
accounts of $61,295 in 1998 and $48,670 in 1997 290,304 180,295
Prepaid expenses, net of accumulated amortization of
$1,230,450 in 1997 14,663 16,811
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Total Assets $ 8,896,817 $ 24,376,592
==================================================================================================================
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 320,761 $ 323,179
Due to affiliates 65,412 105,612
Distribution payable -- 10,780,847
Security deposits payable 23,090 59,514
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Total Liabilities 409,263 11,269,152
---------------------------------------
Partners' Capital (Deficit):
General Partners (150,558) (191,982)
Limited Partners (100,000 units outstanding) 8,638,112 13,299,422
---------------------------------------
Total Partners' Capital 8,487,554 13,107,440
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Total Liabilities and Partners' Capital $ 8,896,817 $ 24,376,592
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</TABLE>
<TABLE>
<CAPTION>
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CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
For the nine months ended August 31, 1998
General Limited
Partners Partners Total
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<S> <C> <C> <C>
Balance at November 30, 1997 $ (191,982) $ 13,299,422 $ 13,107,440
Net income 41,424 4,101,008 4,142,432
Distributions -- (8,762,318) (8,762,318)
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Balance at August 31, 1998 $ (150,558) $ 8,638,112 $ 8,487,554
==================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
COMMERCIAL PROPERTIES 2, L.P.
AND CONSOLIDATED VENTURES
<TABLE>
<CAPTION>
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CONSOLIDATED STATEMENTS OF OPERATIONS
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Three months ended August 31, Nine months ended August 31,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Income
Rental $ 486,737 $ 864,550 $ 1,562,527 $ 2,717,338
Interest 14,884 21,892 259,708 65,131
Other (9,696) 1,107 7,481 15,239
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Total Income 491,925 887,549 1,829,716 2,797,708
- ------------------------------------------------------------------------------------------------------------------
Expenses
Property operating 221,238 536,345 697,023 1,243,662
Depreciation and amortization -- -- -- 490,359
General and administrative - other 97,345 67,767 197,499 185,535
General and administrative - affiliates 8,298 15,376 24,894 111,002
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Total Expenses 326,881 619,488 919,416 2,030,558
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Operating Income 165,044 268,061 910,300 767,150
Gain on sale of real estate assets -- -- 3,232,132 --
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Net Income $ 165,044 $ 268,061 $ 4,142,432 $ 767,150
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Net Income Allocated:
To the General Partners $ 1,650 2,681 41,424 7,672
To the Limited Partners 163,394 265,380 4,101,008 759,478
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$ 165,044 $ 268,061 $ 4,142,432 $ 767,150
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Per limited partnership unit
(100,000 outstanding) $ 1.63 $ 2.65 $ 41.01 $ 7.59
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</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
COMMERCIAL PROPERTIES 2, L.P.
AND CONSOLIDATED VENTURES
<TABLE>
<CAPTION>
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CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended August 31, 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 4,142,432 $ 767,150
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization -- 490,359
Gain on sale of real estate assets (3,232,132) --
Increase (decrease) in cash arising from changes in operating assets and
liabilities:
Restricted cash 44,495 (813)
Rent and other receivables (110,009) (58,790)
Prepaid expenses 2,148 (18,163)
Deferred rent receivable -- 4,597
Accounts payable and accrued expenses (2,418) (53,036)
Due to affiliates (40,200) 40,810
Security deposits payable (36,424) 3,338
-------------------------------------
Net cash provided by operating activities 767,892 1,175,452
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Cash Flows From Investing Activities:
Proceeds from sale of property 8,762,318 --
Additions to real estate (381,911) (32,291)
--------------------------------------
Net cash provided by (used for) investing activities 8,380,407 (32,291)
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Cash Flows From Financing Activities:
Cash distributions (19,543,165) (1,287,879)
--------------------------------------
Net cash used for financing activities (19,543,165) (1,287,879)
- ------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (10,394,866) (144,718)
Cash and cash equivalents, beginning of period 11,803,602 1,739,498
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Cash and cash equivalents, end of period $ 1,408,736 $ 1,594,780
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Supplemental Disclosure of Non-Cash Investing Activities:
Write-off of fully depreciated building improvements $ -- $ 10,666
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Supplemental Disclosure of Non-Cash Operating Activities:
In connection with the General Partners' intent to sell the Partnership's
properties, 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."
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</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
COMMERCIAL PROPERTIES 2, L.P.
AND CONSOLIDATED VENTURES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The unaudited interim consolidated financial statements should be read
in conjunction with the Partnership's annual 1997 audited consolidated
financial statements within Form 10-K.
The unaudited 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 August
31, 1998 and the results of operations and cash flows for the nine
months ended August 31, 1998 and 1997 and the statement of partners'
capital (deficit) for the nine months ended August 31, 1998. Results of
operations for the period 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 event has occurred subsequent to fiscal year
1997 which requires disclosure in this interim report per Regulation
S-X, Rule 10-01, Paragraph (a)(5).
On December 19, 1997, the Partnership closed on the sale of Maitland
Center Office Building C (the "Maitland Property"). The Maitland
Property was sold for net proceeds of $8,762,318 to CMD Realty
Investment Fund III, L.P., an Illinois limited partnership (the
"Buyer"), which is unaffiliated with the Partnership. The selling price
was determined by arm's length negotiations between the Partnership and
the Buyer. The transaction resulted in a gain on sale of approximately
$3.2 million, which is reflected in the Partnership's statement of
operations for the nine months ending August 31, 1998.
<PAGE>
COMMERCIAL PROPERTIES 2, L.P.
AND CONSOLIDATED VENTURES
Part I, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
-------------------------------
On December 19, 1997, the Partnership closed on the sale of Maitland
Center Office Building C (the "Maitland Property"). The Maitland
Property was sold for net proceeds of $8,762,318 to CMD Realty
Investment Fund III, L.P., an Illinois Limited Partnership (the
"Buyer"), which is unaffiliated with the Partnership. The selling price
was determined by arm's length negotiations between the Partnership and
the Buyer. The transaction resulted in a gain on sale of approximately
$3.2 million.
The General Partners have engaged a real estate brokerage firm to assist
with the efforts in marketing for sale the Partnership's sole remaining
property, Two Financial Centre (the "Property"). While it is currently
anticipated that the Property will be sold and the Partnership
liquidated in 1999, there can be no assurance that the Property will be
sold within this time frame.
The Partnership had cash and cash equivalents at August 31, 1998 of
$1,408,736 compared with $11,803,602 at November 30, 1997. The decrease
is primarily a result of the payment on February 18, 1998 of a special
cash distribution, as discussed below. Primarily as a result of the sale
of the Maitland Property, restricted cash and security deposits payable
decreased from November 30, 1997 to August 31, 1998. Rent and other
receivables increased from $180,295 at November 30, 1997 to $290,304 at
August 31, 1998. The increase reflects an increase in taxes receivable
as a result of tax payments made pursuant to IRS Section 444
requirements, which increased due to the increase in net income for the
year ended November 30, 1997, a result of the gain on the sale of the
Swenson Business Park Building C (the "Swenson Property"). Accounts
payable and accrued expenses amounted to $320,761 at August 31, 1998,
largely unchanged from $323,179 at November 30, 1997.
The Property was 98% leased as of August 31, 1998, up from 76% on
November 30, 1997. A tenant whose lease representing 29,972 square feet
or 26% of the property was scheduled to expire in July 2000, notified
the Partnership of its intent to exercise an early termination option
within its lease. As a result, the tenant vacated the property in
October 1998. However, the General Partners executed a lease agreement
for 16,473 square feet of the vacated space to commence in December
1998. The General Partners continue to aggressively market the remaining
space and will negotiate renewals as leases expire.
On February 18, 1998, the Partnership paid a special cash distribution
to Limited Partners totaling $195.39 per Unit. The distribution included
the net proceeds received from the sales of the Maitland Property in the
amount of $87.62 per Unit and the Swenson Property in the amount of
$103.52 per Unit, plus cash flow from operations generated during the
three months ended November 30, 1997 in the amount of $4.25 per Unit. In
order to fund required capital improvements at the Property and maintain
adequate cash reserves, cash distributions were suspended beginning with
the 1998 first quarter distribution, which would have been paid on or
about April 15, 1998. Once the Property is sold, the General Partners
will distribute the net proceeds together with the Partnership's
remaining cash reserves (after payment of or provision for, the
Partnership's liabilities and expenses), and dissolve the Partnership.
<PAGE>
COMMERCIAL PROPERTIES 2, L.P.
AND CONSOLIDATED VENTURES
Results of Operations
---------------------
Partnership operations resulted in net income of $165,044 and $4,142,432
for the three and nine months ended August 31, 1998, respectively,
compared with $268,061 and $767,150 for the corresponding periods in
fiscal 1997. The increase for the nine-month period is primarily due to
a gain on the sale of the Maitland Property of $3,232,132 in the 1998
period. Excluding this gain, operating income totaled $165,044 and
$910,300 for the three and nine months ended August 31, 1998. The
increase in operating income for the nine-month period is primarily due
to a decrease in depreciation expense, due to the sales of the Swenson
and Maitland Properties and the reclassification of the Property as
"Real estate assets held for disposition." The increase in operating
income also reflects decreases in property operating expenses, as a
result of the property sales, as well as higher interest income, due to
the Partnership's higher average cash balance.
Primarily as a result of the sale of the Maitland Property and the
Swenson Property, the following categories on the income statement
decreased from the three and nine months ended August 31, 1997 to the
corresponding periods in 1998: rental income, property operating
expense, and depreciation and amortization.
Interest income totaled $14,884 and $259,708 for the three and nine
months ended August 31, 1998, compared with $21,892 and $65,131 for the
corresponding periods in fiscal 1997. The increase for the nine-month
period reflects the Partnership's higher average cash balance in the
first quarter of 1998 due to proceeds received from the sale of the
Swenson and Maitland Properties.
General and administrative expenses (other) for the three and nine
months ended August 31, 1998 were $97,345 and $197,499 respectively,
compared with $67,767 and $185,535, respectively, for the corresponding
periods in fiscal 1997. The increases are primarily due to higher legal
costs associated with the sale of the Swenson and Maitland Properties
and an increase in partnership non-affiliate servicing fees. General and
administrative expenses (affiliates) for the three and nine months ended
August 31, 1998 were $8,298 and $24,894, respectively, compared with
$15,376 and $111,002, respectively, for the corresponding periods in
fiscal 1997. This decrease is primarily due to lower management service
fees due to the sale of the Swenson and Maitland Properties.
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 three months
ended August 31, 1998.
<PAGE>
COMMERCIAL PROPERTIES 2, L.P.
AND CONSOLIDATED VENTURES
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: October 14, 1998
BY: /s/Michael T. Marron
--------------------
President and Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000706003
<NAME> COMMERCIAL PROPERTIES 2, LP
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> AUG-31-1998
<CASH> 1,408,736
<SECURITIES> 0
<RECEIVABLES> 351,599
<ALLOWANCES> (61,295)
<INVENTORY> 0
<CURRENT-ASSETS> 1,699,040
<PP&E> 7,162,009
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,896,817
<CURRENT-LIABILITIES> 409,263
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 8,487,554
<TOTAL-LIABILITY-AND-EQUITY> 8,896,817
<SALES> 1,562,527
<TOTAL-REVENUES> 1,829,716
<CGS> 0
<TOTAL-COSTS> 697,023
<OTHER-EXPENSES> 222,393
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 910,300
<DISCONTINUED> 0
<EXTRAORDINARY> 3,232,132
<CHANGES> 0
<NET-INCOME> 4,142,432
<EPS-PRIMARY> 41.01
<EPS-DILUTED> 41.01
</TABLE>
