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
For the fiscal year ended: November 30, 1998
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
- ----- OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-11763
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COMMERCIAL PROPERTIES 2, L.P.
(formerly Hutton/GSH Commercial Properties 2)
-------------------------------------------
Exact name of registrant as specified in its charter
Virginia 13-3130258
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State or other jurisdiction I.R.S. Employer Identification No.
of incorporation
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) 526-3183
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
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DOCUMENTS INCORPORATED BY REFERENCE:
Portions of Prospectus of registrant dated June 3, 1983 (included in
Amendment No. 2 to Registration Statement, No. 2-79072, of registrant filed
June 1, 1983) are incorporated by reference into Part III.
Portions of Parts I, II and IV are incorporated by reference to the registrant's
Annual Report to Unitholders for the year ended November 30, 1998 filed as an
exhibit under Item 14.
<PAGE>
2
PART I
Item 1. Business
(a) General Development of Business
-------------------------------
Commercial Properties 2, L.P. (the "Registrant" or the "Partnership") (formerly
known as Hutton/GSH Commercial Properties 2) is a Virginia limited partnership
organized pursuant to a Certificate and Agreement of Limited Partnership dated
September 1, 1983, of which Real Estate Services VII, Inc. ("RE Services"),
formerly Hutton Real Estate Services VII, Inc. (see Item 10. "Certain Matters
Involving Affiliates"), and HS Advisors III, Ltd. ("HS Advisors") are the
general partners (collectively, the "General Partners"). Commencing June 3,
1983, the Registrant began offering through E.F. Hutton & Company Inc. up to a
maximum of 100,000 units of limited partnership interests (the "Units") at $500
per Unit. The Units were registered under the Securities Act of 1933, as
amended, under Registration Statement No. 2-79072, which Registration Statement
was declared effective on June 3, 1983. The offering of Units was terminated on
September 1, 1983. Upon the termination of the offering, the Registrant had
accepted subscriptions for 100,000 Units for an aggregate of $50,002,000,
including the General Partners' capital contributions. As of November 30, 1998,
all of the proceeds available for investment in real estate have been invested.
Since the inception of operations, the Registrant has acquired and disposed of
an interest as the general partner in the following limited partnerships: (i)
14800 Quorum Associates, Ltd., a Texas limited partnership formed to own and
operate the Quorum I Office Building in Dallas, Texas; (ii) First Trade Center
Office Associates, a Maryland limited partnership formed to own and operate the
Maryland Trade Center Building II; in Greenbelt, Maryland and (iii) Gamma
Building Associates Joint Venture, a California joint venture partnership formed
to own and operate Swenson Business Park - Building C in San Jose, California;
(iv) Maitland Building C Joint Venture, a Florida joint venture partnership
formed to own and operate Maitland Center Office Building C in Maitland,
Florida. The Registrant had also acquired interests in Two Financial Centre
Associates Joint Venture, an Arkansas joint venture partnership formed to own
and operate Two Financial Centre in Little Rock, Arkansas (the "Property"). For
further description of the Property, see Note 5 "Real Estate Investments" of the
Notes to the Consolidated Financial Statements of the Partnership's Annual
Report to Unitholders for the year ended November 30, 1998 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 Property.
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 the
Consolidated Financial Statements in the Partnership's Annual Report to
Unitholders for the year ended November 30, 1998 filed as an exhibit under
Item 14.
The Registrant's principal investment objectives with respect to the Property
(in no particular order of priority) are:
1) Capital appreciation;
2) Distributions of net cash from operations attributable to rental income; and
3) Preservation and protection of capital.
Distributions of net cash from operations are the Registrant's objective's
during its operational phase, while the preservation and appreciation of capital
are the Registrant's long-term objectives. Information regarding future
distributions is incorporated by reference to Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations, contained herein.
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 locality in which the Property is located, especially
with regard to achievement of capital appreciation.
<PAGE>
3
The Registrant expects to sell its Property in fiscal 1999, taking into
consideration such factors as market conditions, leasing conditions, net sales
proceeds to be realized, and the possible risks of continued ownership. The
Property will not be sold, financed or refinanced by the Registrant without the
agreement of both General Partners. Proceeds from any future sale, financing or
refinancing of the Property will be distributed to the partners to the extent
there is sufficient working capital to meet future operating expenses of the
Partnership. As part of the payment for Property sold, the Registrant may
receive purchase money obligations secured 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 partners) until such obligations
are realized in cash, sold or otherwise liquidated.
On July 31, 1989, First Trade Center Office Associates Limited Partnership sold
the Maryland Trade Center II property to an unaffiliated pension fund for an
aggregate sale price of $22,400,000. First Trade Center Office Associates was
composed of the Registrant and the developer of the property (the "Joint Venture
Partner"). The Registrant received proceeds in the amount of $17,427,548,
representing the total sales price net of closing costs and distributions made
to the Joint Venture Partner. In addition, the Registrant received $208,982
which represented cash held at the property level.
During 1989, the Registrant loaned $7,201,320 in the form of a demand promissory
note to the Two Financial Centre Associates Joint Venture ("TFC") in which the
Registrant is the managing venturer. The note was issued to enable TFC to pay
the mortgage on Two Financial Centre, which had been accelerated, and to prevent
foreclosure by the lender. On September 17, 1990, the demand promissory note was
reissued in the principal amount of $7,383,033 which includes the original
principal of $7,201,320 and accrued interest of $181,713. Information pertaining
to the loan to TFC is incorporated herein by reference to Note 6 "Loan to Two
Financial Centre Joint Venture" of the Notes to the Consolidated Financial
Statements of the Partnership's Annual Report to Unitholders for the year ended
November 30, 1998 filed as an exhibit under Item 14.
On April 4, 1991, the Registrant purchased the 2.5% joint venture interest held
by Boyle Investment Company, successor-in-interest to Boyle Investment Company
of Florida, Inc., in the Maitland Building C Joint Venture. As a result of this
transaction, the Maitland property, previously owned by the Maitland Building C
Joint Venture, became wholly-owned by the Partnership.
On November 10, 1997, the Partnership closed on the sale of Swenson Business
Park - Building C (the "Swenson Property"). The Swenson Property was sold for
net proceeds of $10,351,554 to WW&LJ Gateways, LTD. (the "Swenson Buyer"), which
is unaffiliated with the Partnership. A complete description of the sale of the
property and distribution of proceeds is referred to in Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
contained herein.
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 $8,762,317 to CMD Realty Investment Fund III, L.P., an Illinois
limited partnership (the "Maitland Buyer"), which is unaffiliated with the
Partnership. A complete description of the sale of the property and distribution
of proceeds is referred to in Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations", contained herein.
The Partnership has engaged a real estate brokerage firm to assist with the
efforts in marketing for sale the Partnership's sole remaining property, Two
Financial Centre. 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.
(d) Competition
-----------
Two Financial Centre is subject to competition from similar types of properties
located in the same vicinity. The business of owning and operating commercial
office buildings in the area where Two Financial Centre is located is highly
competitive, and the Partnership competes with a number of established
companies, some of which have greater resources than the Partnership. For a
discussion of current commercial real estate market conditions in the Little
Rock area, see the section entitled Message to Investors in the Partnership's
Annual Report to Unitholders for the year ended November 30, 1998 filed as an
exhibit under Item 14.
(e) Employees
---------
The Registrant has no employees.
<PAGE>
4
Item 2. Properties
A description of the Partnership's remaining property, Two Financial Centre, and
its material leases is incorporated herein by reference to the section entitled
Message to Investors in the Partnership's Annual Report to Unitholders for the
year ended November 30, 1998, filed as an exhibit under Item 14, Note 5 "Real
Estate Investments" and Note 7 "Rental Income Under Operating Leases" of the
Notes to the Consolidated Financial Statements.
Item 3. Legal Proceedings
The Registrant is not subject to any material pending 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
1998.
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
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As of November 30, 1998, the number of holders of Units was 3,526.
(c) Distributions
-------------
Per Unit cash distributions paid to the Limited Partners for the two years ended
November 30, 1998 are presented in the table below.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
1997 $ 4.25 $4.25 $ 4.25 $107.77* $120.52
1998 $87.62* $ -- $ -- $ -- $ 87.62
<FN>
* On February 18, 1998, the Partnership paid a special cash distribution to
Limited Partners totaling $195.39 per Unit. The fiscal 1997 portion of this
distribution consisted of net proceeds received from the sale of 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. The fiscal 1998 portion of this distribution consisted of the
net proceeds received from the sale of the Maitland Property.
</FN>
</TABLE>
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>
5
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Selected Financial Data
For the Years Ended November 30, 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------
Dollars in thousands, except per Unit data
<S> <C> <C> <C> <C> <C>
Total Income $ 2,242 $ 3,630 $ 3,781 $ 3,605 $ 3,660
Operating Income 1,070 1,085 740 597 674
Gain on Sale of Real Estate Assets 3,232 4,757 -- -- --
Net Income 4,302 5,842 740 597 674
Total Assets at Year End 8,992 24,377 20,369 22,201 23,169
Net Cash From Operations 866 1,462 2,266 1,878 1,983
Operating Income per
Limited Partnership Unit 10.60 10.74 7.33 5.91 6.67
Net Income per
Limited Partnership Unit: 42.59 57.84 7.33 5.91 6.67
Cash Distributions per
Limited Partnership Unit: 87.62(5) 120.52(4) 27.00(3) 15.75(2) 34.00(1)
- -------------------------------------------------------------------------------------------
<FN>
(1) Represents returns of capital associated with the sale of the Maryland Trade
Center in 1989.
(2) Includes returns of capital associated with the sale of the Maryland Trade
Center in 1989 in the amount of $3.64 per Unit.
(3) Includes a special cash distribution in the amount $10 per Unit paid on
August 15, 1996.
(4) Includes returns of capital of $103.52 per Unit associated with the sale of
Swenson Business Park.
(5) Includes a return of capital associated with the sale of Maitland
Building C.
</FN>
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
- -------------------------------
On November 10, 1997, the Partnership closed on the sale of Swenson Business
Park - Building C (the "Swenson Property"). The Swenson Property was sold for
net proceeds of $10,351,554 to WW&LJ Gateways, LTD (the "Swenson Buyer"), which
is unaffiliated with the Partnership. The selling price was determined by arm's
length negotiations between the Partnership and the Swenson Buyer. The
transaction resulted in a gain on sale of $4,756,962, which is reflected in the
Partnership's statement of operations for the period ended November 30, 1997.
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 $8,762,317 to CMD Realty Investment Fund III, L.P., an Illinois
limited partnership (the "Maitland Buyer"), which is unaffiliated with the
Partnership. The selling price was determined by arm's length negotiations
between the Partnership and the Maitland Buyer. The transaction resulted in a
gain on sale of $3,232,132, which is reflected in the Partnership's statement of
operations for the fiscal year ended November 30, 1998.
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. 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, or that any sale, if completed,
will result in a particular price.
The Partnership had cash and cash equivalents at November 30, 1998 of $1,446,089
as 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 November 30, 1998. Rent and other receivables increased from $180,295 at
November 30, 1997 to $291,360 at November 30, 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 property. Accounts payable and accrued expenses amounted to $258,394 at
November 30, 1998, compared with $323,179 at November 30, 1997. The decrease
reflects a reduction in real estate taxes payable due to the sale of the
Maitland property. Due to affiliates decreased from $105,612 at November 30,
1997 to $67,910 at November 30, 1998, reflecting a reduction in partnership
administrative expenses payable as a result of the sale of the Maitland and
Swenson Properties.
<PAGE>
6
A discussion of material leases at the Partnership's remaining property, Two
Financial Centre, is incorporated herein by reference to the section entitled
Message to Investors contained in the Partnership's Annual Report to Unitholders
for the year ended November 30, 1998 filed as an exhibit under Item 14.
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.
Market Risk
- -----------
The Partnership's principal market risk exposure is interest rate risk. The
Partnership has no long-term debt and the Property has no mortgage debt.
Accordingly, the Partnership's interest risk exposure is primarily limited to
interest earned on the Partnership's cash and cash equivalents, which are
invested at short-term rates. Such risk is not considered material to the
Partnership's operations.
Y2K Initiatives
- ---------------
As noted above, the Partnership's remaining property is currently being
marketed for sale, and it is anticipated that the property will be sold and
the Partnership dissolved prior to December 31, 1999. In the event that the
Partnership is not liquidated prior to December 31, 1999, potential Year 2000
issues relate primarily to outside vendors which provide property management and
the Partnership's administrative services including accounting, tax preparation
and transfer agent services. Such services are reliant on computer systems,
software products and equipment which may or may not be Year 2000 compliant. It
is anticipated that the cost of vendor compliance with Year 2000 problems will
be borne primarily by vendors. Although it is not possible at present to give an
estimate of the cost of this work to the Partnership, the General Partner does
not expect such costs to have a material adverse impact on the Partnership's
long term results of operations.
Results of Operations
- ---------------------
1998 Versus 1997
- ----------------
Partnership operations resulted in net income of $4,302,338 for the fiscal year
ended November 30, 1998, compared with $5,842,012 for fiscal 1997. The decrease
is primarily due to the gain on the sale of the Swenson Property of $4,756,962
in fiscal 1997, which exceeded the gain on the sale of the Maitland Property of
$3,232,132 in fiscal 1998. Excluding these gains, operating income totaled
$1,070,206 for the fiscal year ended November 30, 1998 largely unchanged from
$1,085,050 in fiscal 1997, as a decrease in rental income was offset by
reductions in property operating expenses, depreciation and amortization expense
and general and administrative expenses - affiliates. Net cash provided by
operating activities totaled $865,696 in fiscal 1998, compared with $1,462,013
in fiscal 1997. The decrease primarily reflects the sale of the Maitland
Property and a reduction in rent and other receivables.
Primarily as a result of the sale of the Maitland and Swenson Properties, the
following categories on the income statement decreased from fiscal 1997 to
fiscal 1998: rental income, other income, property operating expense,
depreciation and amortization expense and general and administrative expenses -
affiliates.
Interest income totaled $275,122 for the fiscal year ended November 30, 1998
compared with $116,728 in fiscal 1997. The increase reflects the Partnership's
higher average cash balance in the first quarter of fiscal 1998 due to proceeds
received from the sale of the Swenson and Maitland Properties.
General and administrative expenses - other, for the fiscal year ended November
30, 1998 totaled $274,713, compared with $255,872 in fiscal 1997. The increase
reflects higher legal costs associated with the sale of the Swenson and Maitland
Properties, and an increase in partnership non-affiliate servicing fees.
As of November 30, 1998, the occupancy level at Two Financial Centre was 84%.
<PAGE>
7
1997 Versus 1996
- ----------------
Partnership operations resulted in net income of $5,842,012 for the year ended
November 30, 1997 as compared to $739,910 for the year ended November 30, 1996.
The increase is primarily due to a gain on the sale of the Swenson Property in
1997. Excluding the gain, operating income totaled $1,085,050 in fiscal 1997
compared to $739,910 for the year ended November 30, 1996. The increase is
primarily due to a decrease in depreciation expense, due to the reclassification
of the Partnership's properties to "Real estate assets held for disposition,"
which was partially offset by a decrease in total income and an increase in
other expenses.
Rental income decreased to $3,471,538 for the year ended November 30, 1997 from
$3,660,110 for the same period in 1996, primarily due to lower occupancy levels
at Two Financial Centre and Maitland Center Office Building C and the sale of
the Swenson Property in 1997.
Property operating expenses increased to $1,642,425 for the year ended November
30, 1997, from $1,447,759 a year earlier, primarily due to capital improvements
being expensed due to the reclassification on the Partnership's properties as
"Real estate assets held for disposition." Depreciation and amortization
decreased to $490,359 for the year ended November 30, 1997 versus $1,369,375 for
the year ended November 30, 1996, due to the reclassification of the
Partnership's properties as "Real estate assets held for disposition."
General and administrative expenses - other totaled $255,872 for the year ended
November 30, 1997 compared to $185,513 for the same period in 1996. The increase
is primarily due to higher partnership servicing fees and legal costs associated
with the sale of Swenson Business Park - Building C in 1997 and the impending
sale of Maitland Center Office Building C in December 1997.
General and administrative expenses - affiliates for the year ended November 30,
1997, totaled $156,766 compared with $38,395, for the same period 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
reimbursable to Real Estate Services VII, Inc. and its affiliates.
As of November 30, 1997, the occupancy level at Two Financial Centre was 76%. As
discussed above, Maitland Center Office Building C was sold on December 19,
1997.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended November 30, 1998 filed as an exhibit under Item 14.
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. Real Estate Services VII, Inc. and
HS Advisors III, Ltd., 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.
The directors and executive officers of Real Estate Services VII, Inc. and HS
Advisors III, Ltd., are listed respectively below:
<PAGE>
8
Real Estate Services VII, Inc.
- ------------------------------
Real Estate Services VII, Inc., formerly known as Hutton Real Estate Services
VII, Inc., is a Delaware corporation formed on August 2, 1982 and is an
indirect, wholly-owned subsidiary of Lehman Brothers Inc. ("Lehman"). See the
section captioned "Certain Matters Involving Affiliates" below for a description
of the sale of certain of Shearson Lehman Brothers, Inc.'s ("Shearson") 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 Real Estate Services VII, Inc. are set forth below. There are no
family relationships between any officer or director and any other officer or
director.
Certain officers and directors of Real Estate Services VII, Inc. are now serving
(or in the past have served) as officers and 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 such
real estate is located and, consequently, the partnerships sought the protection
of the bankruptcy laws to protect the partnership's assets from loss through
foreclosure.
Name Office
---- ------
Rocco F. Andriola Director
Michael T. Marron President and Chief Financial Officer
William T. McDermott Vice President
Rocco F. Andriola, 40, is a Managing Director of Lehman Brothers in its
Diversified Asset Group and has held such position since October 1996. Since
joining Lehman in 1986, Mr. Andriola has been involved in a wide range of
restructuring and asset management activities involving real estate and other
direct investment transactions. From June 1991 through September 1996, Mr.
Andriola held the position of Senior Vice President in Lehman's Diversified
Asset Group. From June 1989 through May 1991, Mr. Andriola held the position of
First Vice President in Lehman's Capital Preservation and Restructuring Group.
From 1986 to 1989, Mr. Andriola served as a Vice President in the Corporate
Transactions Group of Shearson Lehman Brothers' office of the general counsel.
Prior to joining Lehman, Mr. Andriola practiced corporate and securities law at
Donovan Leisure Newton & Irvine in New York. Mr. Andriola received a B.A. from
Fordham University, a J.D. from New York University School of Law, and an LL.M
in Corporate Law from New York University's Graduate School of Law.
Michael T. Marron, 35, is a Vice President of Lehman Brothers and has been a
member of the Diversified Asset Group since 1990 where he has actively
managed and restructured a diverse portfolio of syndicated limited
partnerships. Prior to joining Lehman Brothers, Mr. Marron was associated
with Peat Marwick Mitchell & Co. serving in both its audit and tax divisions
from 1985 to 1989. Mr. Marron received a B.S. degree from the State
University of New York at Albany and an M.B.A. degree from Columbia
University and is a Certified Public Accountant.
William T. McDermott, 35, is a Vice President of Lehman Brothers and has been
a member of the Diversified Asset Group since 1998. Mr. McDermott joined
Lehman Brothers in 1993 and held various positions within the firm before
joining the Diversified Asset Group. Prior to joining Lehman Brothers, Mr.
McDermott was a financial analyst with Cantor Fitzgerald Inc. from 1991 -
1993 and was associated with Arthur Andersen & Co. serving in both its audit
and bankruptcy consulting divisions from 1985 to 1991. Mr. McDermott
received his B.B.A. degree from the University of Notre Dame and is a
Certified Public Accountant.
HS Advisors III, Ltd.
- ---------------------
HS Advisors III, Ltd. is a California limited partnership formed on August 11,
1982, the sole general partner of which is Hogan Stanton Investment, Inc. ("HS
Inc."), a wholly-owned subsidiary of Goodman Segar Hogan, Inc. ("GSH"). 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
---- ------
Mark P. Mikuta President
Julie R. Adie Vice President, Secretary
and Treasurer
<PAGE>
9
Mark P. Mikuta, 45, is Senior Vice President of Goodman Segar Hogan, Inc. and is
Vice President and 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.
Julie R. Adie, 44, is a Vice President of Goodman Segar Hogan, Inc. and
Senior 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 GSH, 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 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. The transaction did not
affect the ownership of the General Partners. However, the assets acquired by
Smith Barney included the name "Hutton." Consequently, Hutton Real Estate
Services VII, Inc., a General Partner, changed its name to Real Estate Services
VII, Inc. Additionally, effective August 3, 1995, the Partnership changed its
name to Commercial Properties 2, 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 1% interest in
GSHH. The stockholders of GSHH Inc. are GSH with a 62% interest and H.K.
Associates, L.P., an affiliate of HK, with a 38% interest. The remaining
interests in GSHH are limited partnership interests owned by GSH, HK and 23
employees of GSHH. On September 28, 1998 GSH sold its general partner and
limited partner interests in GSHH to The St. Joe Company, an unaffiliated
company. The transactions 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 Certain 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 November 30,
1998.
(b) Security Ownership of Management
--------------------------------
No officer or director of the General Partners beneficially owned or owned of
record directly or indirectly any Units of the Registrant as of November 30,
1998.
<PAGE>
10
(c) Changes In Control
------------------
None.
Item 13. Certain Relationships and Related Transactions
Pursuant to the Certificate and Agreement of Limited Partnership of the
Registrant, $43,023 of the Registrant's net income was allocated to the General
Partners ($21,511 to RE Services and $21,512 to HS Advisors) for the year ended
November 30, 1998. 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 the material contained on pages 75 through 78 of
the Prospectus of Registrant dated June 3, 1983 (the "Prospectus"), contained in
Amendment No. 2 to Registrant's Registration Statement No. 2-79072, under the
section captioned "Profits and Losses and Cash Distributions," which section is
incorporated herein by reference thereto.
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 the Property owned by the Registrant or its joint venture. Services
with respect to which GSH is entitled to receive a management fee are described
under the section captioned "Investment Objectives and Policies - Management of
Properties" on page 36 of 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 of their 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.
During 1998 and 1997, certain administrative expenses incurred in servicing the
Partnership, which were voluntarily absorbed by affiliates of Real Estate
Services VII, Inc. in prior periods, were reimbursed to Real Estate Services
VII, Inc. and its affiliates to the extent permitted by the Partnership
Agreement. Disclosure relating to amounts paid to the General Partners or their
affiliates during the past three years is incorporated herein by reference to
Note 4 "Transactions with Related Parties" of Notes to the Consolidated
Financial Statements contained in the Partnership's Annual Report to Unitholders
for the year ended November 30, 1998, filed as an exhibit under Item 14.
<PAGE>
11
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8K
(a) The following documents are filed as part of this report:
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
(1) Financial Statements:
Consolidated Balance Sheets -- At November 30, 1998 and 1997 ... (1)
Consolidated Statements of Partners' Capital (Deficit) --
For the years ended November 30, 1998, 1997 and 1996 ........... (1)
Consolidated Statements of Operations --
For the years ended November 30, 1998, 1997 and 1996 ........... (1)
Consolidated Statements of Cash Flows --
For the years ended November 30, 1998, 1997 and 1996 ........... (1)
Notes to the Consolidated Financial Statements ................. (1)
(2) Financial Statement Schedules:
Schedule III - Real Estate and Accumulated Depreciation ....... F-1
No other schedules are presented because either the information is
not applicable or is included in the consolidated financial
statements or notes thereto.
<FN>
(1) Incorporated by reference to the Partnership's Annual Report to Unitholders
for the year ended November 30, 1998, which is filed as an exhibit under
Item 14.
</FN>
</TABLE>
(a)(3) See Exhibit Index contained herein.
(4)(A) Certificate and Agreement of Limited Partnership (included as, and
incorporated herein by reference to, Exhibit A to the Prospectus of
Registrant dated June 3, 1983, contained in Amendment No. 2 to the
Registration Statement, No. 2-79072, of Registrant filed June 1,
1983).
(4)(B) Subscription Agreement and Signature Page (included as, and
incorporated herein by reference to, Exhibit 3.1 to Amendment No. 1
to Registration Statement No. 2-79072 of Registrant filed May 25,
1983).
(10)(A) Funding Commitment relating to Maitland Center Office Building C,
and the exhibits thereto (included as, and incorporated herein by
reference to, Exhibit (10)(A) to the Registrant's Annual Report on
Form 10-K filed February 28, 1984).
(10)(B) Agreement for Purchase and Sale relating to Quorum I Office
Building, and the exhibits thereto (included as, and incorporated
herein by reference to, Exhibit 28 to the Registrant's Current
Report on Form 8-K filed on or about February 22, 1984).
(10)(C) Agreements relating to Maryland Trade Center Building II (included
as, and incorporated herein by reference to, Exhibit (10)(C) to the
Registrant's Annual Report on Form 10-K filed February 28, 1985
(the "1984 Annual Report").
<PAGE>
12
(10)(D) Funding Commitment relating to Swenson Business Park - Building C
(included as, and incorporated herein by reference to, Exhibit
(10)(D)to the 1984 Annual Report).
(10)(E) Agreements relating to Two Financial Centre Office Building
(included as, and incorporated herein by reference to, Exhibit
(10)(E)to the 1984 Annual Report).
(13) Annual Report to the Unitholders for the year ended November 30,
1998.
(23) Consent of Independent Auditors.
(27) Financial Data Schedule.
(28) Portions of Prospectus of Registrant dated June 3, 1983 (included
as, and incorporated herein by reference to, Exhibit (28) to the
Registrant's Annual Report on Form 10-K filed February 27, 1988).
(b)(3) Reports on Form 8-K:
--------------------
No reports on Form 8-K were filed during the three months ended
November 30, 1998.
<PAGE>
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
COMMERCIAL PROPERTIES 2, L.P.
BY: HS Advisors III, Ltd.
General Partner
BY: Hogan Stanton Investment, Inc.
General Partner
Date: March 8, 1999 BY: /s/Mark P. Mikuta
-----------------
Name: Mark P. Mikuta
Title: President
BY: Real Estate Services VII, Inc.
General Partner
Date: March 8, 1999 BY: /s/Michael T. Marron
--------------------
Name: Michael T. Marron
Title: Director, President and
Chief Financial Officer
<PAGE>
14
SIGNATURES
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 Partnership in
the capabilities and on the dates indicated.
REAL ESTATE SERVICES VII, INC.
A General Partner
Date: March 8, 1999 BY: /s/Rocco F. Andriola
--------------------
Name: Rocco F. Andriola
Title: Director
Date: March 8, 1999 BY: /s/Michael T. Marron
--------------------
Name Michael T. Marron
Title: Director, President and
Chief Financial Officer
Date: March 8, 1999 BY: /s/William T. McDermott
-----------------------
Name: William T. McDermott
Title: Vice President
<PAGE>
15
SIGNATURES
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 Partnership in
the capabilities and on the dates indicated.
HS ADVISORS III, LTD.
A General Partner
Date: March 8, 1999 BY: /s/Mark P. Mikuta
-----------------
Name: Mark P. Mikuta
Title: President of Hogan Stanton Investment, Inc.,
as general partner of HS Advisors III, Ltd.
Date: March 8, 1999 BY: /s/Julie R. Adie
----------------
Name: Julie R. Adie
Title: Vice President and Secretary and Treasurer of
Hogan Stanton Investment, Inc.,
as general partner of HS Advisors III, Ltd.
EXHIBIT 13
1998 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
COMMERCIAL PROPERTIES 2, L.P.
- --------------------------------------------------------------------------------
Commercial Properties 2, L.P. is a limited partnership formed in 1983
to acquire, operate and hold for investment commercial real estate.
The Partnership's investment currently consists of one commercial
office building, situated in the Financial Centre Complex in West
Little Rock, AR. Two Financial Centre is a 113,983 square foot,
four-story brick office building located near two interstate highways,
I-630 and I-430, affording easy access to downtown Little Rock and the
Little Rock Regional Airport.
Contents
1 Message to Investors
2 Consolidated Financial Statements
5 Notes to the Consolidated Financial Statements
10 Report of Independent Auditors
11 Net Asset Valuation
<PAGE>
- --------------------------------------------------------------------------------
MESSAGE TO INVESTORS
- --------------------------------------------------------------------------------
We are pleased to present the 1998 Annual Report for Commercial Properties 2,
L.P. (the "Partnership"). Included in this report is an update on the status of
the Partnership's remaining property, Two Financial Centre. Also included are
the Partnership's audited consolidated financial statements for the year ended
November 30, 1998.
Marketing Update
Our primary objective during 1999 is to complete a sale of Two Financial Centre.
As discussed in prior correspondence, we have engaged a real estate brokerage
firm and are in the process of actively marketing the property. While we
currently anticipate that the property will be sold and the Partnership
liquidated this year, there can be no assurance that a sale will be completed
within this time frame, or that a sale will result in a particular price. 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.
Property Update
The Little Rock office market remained stable during the past year, with an
overall 1998 average occupancy rate of 87%. Two Financial Centre is located
within the West Little Rock submarket, a prestigious submarket with more than
4.4 million square feet. It is also one of the area's strongest submarkets, with
a 1998 average occupancy rate of approximately 90% despite the addition of three
new buildings representing about 75,000 square feet, in 1998.
During the year, the General Partners executed nine new leases totaling 47,834
square feet and five lease renewals totaling 37,444 square feet. However, five
tenants representing 38,092 square feet vacated the property upon the expiration
of their respective leases, or upon the early termination of their leases with
the Partnership's approval. As a result the property was 84% leased as of
November 30, 1998, as compared to 76% as of November 30, 1997. Since two
additional leases totaling 15,651 square feet were signed subsequent to year-end
1998, the property is currently 96% leased.
During 1999, four leases totaling 16,099 square feet, or approximately 13% of
the property's leasable area, are scheduled to expire.
Cash Distributions
The Partnership paid a special cash distribution to Limited Partners on February
18, 1998 totaling $195.39 per Unit. This distribution included your share of the
net proceeds received from the sales of Swenson Business Park - Building C in
November 1997 and Maitland Center Office Building C in December 1997. To date,
Limited Partners have received cash distributions totaling $488.65 per original
$500 Unit. This total includes distributions of cash flow from operations in the
amount of $114.87 per Unit and return of capital payments in the amount of
$373.78 per Unit. Limited Partners will receive one or more additional
distributions when the Two Financial Centre property is ultimately sold.
General Information
We will keep you updated with respect to our marketing efforts at Two Financial
Centre in future reports. In the interim, questions regarding the Partnership
should be directed to your Financial Consultant or Partnership Investor
Services. All requests for a change of address or transfer should be submitted
in writing to the Partnership's administrative agent at P.O. Box 7090, Troy, MI
48007-7090. Partnership Investor Services can be reached at (617) 342-4225, and
the Partnership's administrative agent can be reached at (248) 637-7900.
Very truly yours,
Real Estate Services VII, Inc. Hogan Stanton Investment, Inc.
General Partner General Partner of HS Advisors III, Ltd.
/s/Michael T. Marron /s/Mark P. Mikuta
Michael T. Marron Mark P. Mikuta
President President
March 8, 1999
<PAGE>
2
COMMERCIAL PROPERTIES 2, L.P.
AND CONSOLIDATED VENTURES
<TABLE>
- -------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<CAPTION>
At November 30, At November 30,
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Assets
Real estate assets held for disposition $7,222,460 $12,310,284
Cash and cash equivalents 1,446,089 11,803,602
Restricted cash 21,386 65,600
Rent and other receivables, net of
allowance for doubtful accounts of
$-0- in 1998 and $48,670 in 1997 291,360 180,295
Prepaid expenses, net of accumulated amortization
of $-0- in 1998 and $1,230,450 in 1997 10,997 16,811
- -------------------------------------------------------------------------------
Total Assets $8,992,292 $24,376,592
===============================================================================
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 258,394 $ 323,179
Due to affiliates 67,910 105,612
Distribution payable -- 10,780,847
Security deposits payable 18,528 59,514
----------------------------
Total Liabilities 344,832 11,269,152
----------------------------
Partners' Capital (Deficit):
General Partners (148,959) (191,982)
Limited Partners (100,000 units outstanding) 8,796,419 13,299,422
----------------------------
Total Partners' Capital 8,647,460 13,107,440
- -------------------------------------------------------------------------------
Total Liabilities and Partners' Capital $8,992,292 $24,376,592
===============================================================================
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
For the years ended November 30, 1998, 1997, and 1996
<CAPTION>
General Limited
Partners Partners Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at November 30, 1995 $(213,356) $ 21,534,873 $ 21,321,517
Net income 7,399 732,511 739,910
Distributions (27,273) (2,700,000) (2,727,273)
- -------------------------------------------------------------------------------
Balance at November 30, 1996 (233,230) 19,567,384 19,334,154
Net income 58,420 5,783,592 5,842,012
Distributions (17,172) (12,051,554) (12,068,726)
- -------------------------------------------------------------------------------
Balance at November 30, 1997 (191,982) 13,299,422 13,107,440
Net income 43,023 4,259,315 4,302,338
Distributions -- (8,762,318) (8,762,318)
- -------------------------------------------------------------------------------
Balance at November 30, 1998 $(148,959) $ 8,796,419 $ 8,647,460
===============================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
3
COMMERCIAL PROPERTIES 2, L.P.
AND CONSOLIDATED VENTURES
<TABLE>
- --------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended November 30,
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Rental $1,809,825 $3,471,538 $3,660,110
Interest 275,122 116,728 116,034
Other 157,039 42,206 4,808
--------------------------------------
Total Income 2,241,985 3,630,472 3,780,952
- --------------------------------------------------------------------------------------
Expenses
Property operating 863,874 1,642,425 1,447,759
Depreciation and amortization -- 490,359 1,369,375
General and administrative - other 274,713 255,872 185,513
General and administrative - affiliates 33,192 156,766 38,395
--------------------------------------
Total Expenses 1,171,779 2,545,422 3,041,042
- --------------------------------------------------------------------------------------
Operating income 1,070,206 1,085,050 739,910
Gain on sale of real estate assets 3,232,132 4,756,962 --
- --------------------------------------------------------------------------------------
Net Income $4,302,338 $5,842,012 $ 739,910
======================================================================================
Net Income Allocated:
To the General Partners $ 43,023 $ 58,420 $ 7,399
To the Limited Partners 4,259,315 5,783,592 732,511
- --------------------------------------------------------------------------------------
$4,302,338 $5,842,012 $ 739,910
======================================================================================
Per limited partnership unit
(100,000 outstanding) $42.59 $57.84 $7.33
- --------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
4
COMMERCIAL PROPERTIES 2, L.P.
AND CONSOLIDATED VENTURES
<TABLE>
- -------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended November 30,
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Net income $ 4,302,338 $ 5,842,012 $ 739,910
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation -- 442,075 1,233,889
Amortization -- 48,284 135,486
Gain on sale of real estate assets (3,232,132) (4,756,962) --
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Restricted cash 44,214 91,395 8,124
Rent and other receivables (111,065) (45,371) 12,039
Prepaid expenses 5,814 (47,075) (51,753)
Deferred rent receivable -- 4,597 33,336
Accounts payable and accrued expenses (64,785) (82,096) 148,814
Due to affiliates (37,702) 62,766 4,571
Security deposits payable (40,986) (97,612) 1,282
------------------------------------------
Net cash provided by operating activities 865,696 1,462,013 2,265,698
- -------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from sale of real estate 8,762,317 10,351,554 --
Additions to real estate (442,361) (32,291) (260,828)
------------------------------------------
Net cash provided by (used for)
investing activities 8,319,956 10,319,263 (260,828)
- -------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Cash distributions (19,543,165) (1,717,172) (2,727,273)
------------------------------------------
Net cash used for financing activities (19,543,165) (1,717,172) (2,727,273)
- -------------------------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents (10,357,513) 10,064,104 (722,403)
Cash and cash equivalents, beginning of year 11,803,602 1,739,498 2,461,901
------------------------------------------
Cash and cash equivalents, end of year $ 1,446,089 $11,803,602 $ 1,739,498
===========================================================================================
Supplemental Schedule of Non-Cash
Investing Activities:
Write-off of fully depreciated
building improvements $ -- $ 10,666 $ 327,453
- -------------------------------------------------------------------------------------------
Supplemental Disclosure of Non-Cash Operating Activities:
In connection with the General Partners' intent to sell the properties, real estate held
for investment, deferred rent receivable and prepaid leasing commissions in the amounts of
$17,469,570, $130,692 and $294,814, respectively, were reclassified to "Real estate assets
held for disposition" in 1997. In connection with the sale of Maitland Center Office
Building C, deferred rent receivable, and prepaid leasing commissions in the amounts of
$50,555 and $65,899 were netted against Gain on sale of real estate assets. In connection
with the sale of Swenson Business Park - Building C, restricted cash, deferred rent
receivable, and prepaid leasing commissions in the amounts of $9,800, $34,502, and $98,965,
respectively, were netted against Gain on sale of real estate assets.
- -------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
5
COMMERCIAL PROPERTIES 2, L.P.
AND CONSOLIDATED VENTURES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998, 1997 and 1996
1. Organization
Commercial Properties 2, L.P. (the "Partnership") was organized as a limited
partnership under the laws of the Commonwealth of Virginia pursuant to a
Certificate and Agreement of Limited Partnership dated and filed September 1,
1983 (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 Real Estate Services VII, Inc.,
which is an affiliate of Lehman Brothers Inc. (see below), and HS Advisors III,
Ltd. ("HS Advisors"), which is an affiliate of Goodman Segar Hogan, Inc.
("GSH"). The Partnership will continue until December 31, 2010, unless
terminated sooner 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 12, 1993, the Hutton Real Estate
Services VII Inc. General Partner changed its name to Real Estate Services
VII, Inc. ("Real Estate Services"), and effective August 3, 1995, Hutton/GSH
Commercial Properties 2, L.P. changed its name to Commercial Properties 2,
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 1% interest in
GSHH. The stockholders of GSHH Inc. are GSH with a 62% stock interest and H.K.
Associates, L.P., an affiliate of HK, with a 38% percent stock interest. The
remaining 99% interests in GSHH are limited partnership interests owned 50% by
GSH and 49% by HK. On September 28, 1998 GSH sold its general partner and
limited partner interests in GSHH to The St. Joe Company, an unaffiliated
company. The transactions did not affect the ownership of the General Partners.
On November 10, 1997, the Partnership closed on the sale of The Swenson Property
- - Building C (the "Swenson Property"). The Swenson Property was sold for net
proceeds of $10,351,554 to WW&LJ Gateways, LTD. (the "Swenson Buyer"), which is
unaffiliated with the Partnership. The selling price was determined by arm's
length negotiations between the Partnership and the Swenson Buyer. The
transaction resulted in a gain on sale of $4,756,962, which is reflected in the
Partnership's statement of operations for the period ended November 30, 1997.
On December 19, 1997, the Partnership closed on the sale of Maitland Center
Office Building C (the "Maitland Property"). The Maitland Property, classified
as "real estate assets held for disposition" at November 30, 1997, in the amount
of approximately $5.5 million, was sold for net proceeds of $8,762,317 to CMD
Realty Investment Fund III, L.P., an Illinois limited partnership (the "Maitland
Buyer"), which is unaffiliated with the Partnership. The selling price was
determined by arm's length negotiations between the Partnership and the Maitland
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 period
ended November 30, 1998.
<PAGE>
6
COMMERCIAL PROPERTIES 2, L.P.
AND CONSOLIDATED VENTURES
2. Significant Accounting Policies
Consolidation The consolidated financial statements include the accounts of the
Partnership and its ventures, Two Financial Centre Joint Venture and Swenson
Building C Joint Venture, and Maitland Building C, which was a wholly-owned
property. Intercompany accounts and transactions between the Partnership and the
ventures have been eliminated in consolidation.
Real Estate Assets Held for Disposition Real estate assets held for disposition
are carried at the lower of carrying value or fair market value less costs to
sell. During the second quarter of 1997, Swenson Business Park - Building C and
Maitland Center Office Building C, and during the third quarter of 1997, Two
Financial Centre real estate assets were reclassified as held for disposition
and were no longer depreciated.
Leases Leases are accounted for as operating leases. Leasing commissions are
amortized over the terms of the respective leases. Leasing commissions were
reclassified as real estate assets held for disposition and were no longer
amortized.
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 for 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 during the fourth fiscal quarter of 1995.
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. However, in many instances
current exchange prices are not available for certain of the Partnership's
financial instruments, since no active market generally exists for such
financial instruments.
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.
Cash and Cash Equivalents Cash and cash equivalents consist of short-term
highly liquid investments which have maturities of three months or less from the
date of purchase. The carrying value approximates fair value because of the
short maturity of these instruments.
Restricted Cash Restricted cash represents cash held in connection with tenant
security deposits.
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.
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 amount 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.
<PAGE>
7
COMMERCIAL PROPERTIES 2, L.P.
AND CONSOLIDATED VENTURES
3. The Partnership Agreement and Cash Distributions
The Partnership Agreement provides that the net cash from operations, as
defined, for each fiscal year will be distributed on a quarterly basis 99% to
the Limited Partners and 1% to the General Partners until each Limited Partner
has received a 9% annual non-cumulative return on his adjusted capital
investment, as defined. The net cash from operations will then be distributed to
the General Partners until the General Partners have received 10% of the
aggregate net cash from operations distributed to all partners. Thereafter, net
cash from operations will be distributed 90% to the Limited Partners and 10% to
the General Partners.
Net proceeds from sales or refinancing shall generally be distributed 99% to the
Limited Partners and 1% to the General Partners until each Limited Partner has
received an amount equal to his adjusted capital investment, as defined, and 10%
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 then be distributed 85% to the Limited Partners and 15% to the General
Partners.
Upon the dissolution and termination of the Partnership, the General Partners
will be required to contribute to the Partnership an amount not to exceed 1% of
the total capital contributions from all of the Partners of the Partnership less
prior contributions of the General Partners. In no event shall the General
Partners be obligated to contribute more than the negative balances in their
respective capital accounts. In addition, if upon dissolution and termination of
the Partnership the sum of (i) the Limited Partners' Capital Contributions and
(ii) an amount equal to a 6% cumulative annual return with respect to each
Limited Partner's Adjusted Capital Value reduced by any Net Cash From Operations
distributed to such Limited Partner, exceeds the aggregate distributions to the
Limited Partners of Net Proceeds From Sale or Refinancing, the General Partners
shall contribute to the Partnership for distribution to the Limited Partners an
amount equal to the lesser of such excess or the aggregate distributions of Net
Proceeds From Sale or Refinancing to the General Partners.
For the year ended November 30, 1998, the Partnership paid cash distributions
totaling $8,762,317, or $87.62 per Limited Partnership Unit, representing net
proceeds from the sale of the Maitland Property. For the year ended November 30,
1997, the Partnership paid cash distributions totaling $1,275,000 and $12,879 to
the Limited and General Partners, respectively, representing $12.75 per Limited
Partnership Unit. An additional $10,780,847 was accrued in 1997 for a
distribution, which was paid in February 1998, and comprised of $429,293
representing cash flow from operations for the three months ended November 30,
1997, and $10,351,554 representing net proceeds from the sale of Swenson
Business Park - Building C. For the year ended November 30, 1996, the
Partnership paid cash distributions totaling $2,700,000 and $27,273 to the
Limited and General Partners, respectively, representing $27 per Limited
Partnership Unit. Quarterly cash distributions from operations were suspended
beginning with the 1998 first quarter distribution, which would have been paid
on or about April 15, 1998. Once the Partnership's remaining 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.
Losses and all depreciation for any fiscal year shall be allocated 99% to the
Limited Partners and 1% to the General Partners. Income before depreciation for
any fiscal year and all gains from sales will be allocated in substantially the
same manner as net cash from operations.
4. Transactions with Related Parties
The following is a summary of amounts paid or accrued to the General Partners
for the reimbursement of administrative salaries and expenses that have been
included in general and administrative expenses for the years ended November 30,
1998, 1997 and 1996.
<PAGE>
8
COMMERCIAL PROPERTIES 2, L.P.
AND CONSOLIDATED VENTURES
<TABLE>
<CAPTION>
Unpaid at, Paid
November 30, -----------------------------------------
1998 1998 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real Estate Services VII, Inc.
and affiliates:
Out-of-pocket expenses $ 56,846 $ 45,909 $ 60,933 $ 5,615
HS Advisors III, Ltd.:
Administrative salaries
and expenses 11,064 22,128 43,783 40,148
- ------------------------------------------------------------------------------------------------------
$ 67,910 $ 68,037 $ 104,716 $ 45,763
========================================================
</TABLE>
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.
5. Real Estate Investments
Since inception, the Partnership has acquired four commercial office buildings
and a research and development facility through investments in joint ventures or
limited partnerships with unaffiliated co-venturers, of which one remained as of
November 30, 1998:
<TABLE>
<CAPTION>
Square Date Purchase
Property Name Feet Location Acquired Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Two Financial Centre 113,983 Little Rock, AR 3/29/84 $10,700,000
</TABLE>
The joint venture agreements substantially provide that:
(a) Net cash from operations will be distributed 100% to the Partnership until
it has received an annual, non-cumulative return on its capital
contribution, as adjusted, ranging from 7% to 11%. Thereafter, any
remaining cash from operations will be shared in a ratio relating to the
various ownership interests of the Partnership.
(b) Net proceeds from a sale or refinancing will be distributed 100% to the
Partnership until it has received an annual, cumulative return ranging
from 7% to 11% and an amount equal to 110% to 120% of its adjusted capital
contribution. Any remaining balance will be shared in a ratio relating to
the various ownership interests of the Partnership.
(c) Taxable income of the joint ventures and limited partnerships will be
allocated in substantially the same manner as net cash from operations.
For Two Financial Centre, taxable losses will generally be allocated 100%
to the Partnership.
For financial statement purposes, net income and net losses are allocated in the
same manner as taxable income and taxable losses.
For the year ended November 30, 1998, Two Financial Centre had income from
operations totaling approximately $107,124 and Maitland Center Office Building C
had a loss from operations totaling approximately $85,067.
<PAGE>
9
COMMERCIAL PROPERTIES 2, L.P.
AND CONSOLIDATED VENTURES
6. Loan to Two Financial Centre Joint Venture
The Two Financial Centre Joint Venture ("TFC") has provided a demand promissory
note to the Partnership with a principal balance of $7,383,033 which bears
interest at 12% per annum, resulting in annual interest of $885,960. Monthly
payments of interest only are due in arrears in the amount of $73,830. On
September 17, 1993, TFC issued to the Partnership a new demand promissory note
in the amount of $610,113 representing the unpaid accrued interest as of
September 17, 1993 on the original principal balance of $7,383,033. The note
bears interest at 8% per annum, resulting in annual interest of $48,809. Monthly
interest of $4,067 is payable in arrears commencing October 17, 1993. As of
November 30, 1998, accrued interest of $940,167 remains unpaid. Interest of
$706,816, $612,143, and $1,055,674 has been paid by TFC to the Partnership
during the fiscal years ended November 30, 1998, 1997, and 1996, respectively.
All interest and principal activity and balances relating to the demand
promissory notes are eliminated in consolidation for financial statement
presentation purposes. Based on borrowing rates currently available to the
Partnership for mortgage loans with similar terms and average maturities, the
fair value of long-term debt approximates carrying value.
7. Rental Income Under Operating Leases
Future minimum rental income to be received on non cancelable operating leases
as of November 30, 1998 is as follows:
<TABLE>
-----------------------------------------------
<S> <C>
1999 $1,696,876
2000 896,108
2001 629,492
2002 578,642
2003 321,151
Thereafter 10,810
-----------------------------------------------
$4,133,080
==========
</TABLE>
Lease terms range from one to ten years. The leases allow for increases in
certain property operating expenses to be passed on to tenants.
Leases with two tenants at Two Financial Centre generated rental revenue in
excess of 10% of the Partnership's consolidated rental revenues for the year
ended November 30, 1998. One of the leases is with the Federal Bureau of
Investigation ("FBI"), which occupies approximately 28% of the property's
leasable space. This lease, which was scheduled to expire on July 14, 1998, was
renewed and now expires on January 31, 2000. The second tenant, Blue Cross/Blue
Shield ("BC/BS"), occupied approximately 33% of the property's leasable space.
In October 1998, BC/BS terminated its lease and the General Partner subsequently
re-leased the space. The rental income derived from the FBI and BC/BS leases
totaled $563,558 and $396,061, respectively, for 1998, $492,264 and $464,820,
respectively, for 1997, and $460,611 and $471,476, respectively, for 1996.
Rental income from both leases collectively represented 52% of the Partnership's
1998 consolidated rental income, 28% of 1997 consolidated rental income and 25%
of 1996 consolidated rental income.
On November 26, 1997, Northern Telecom ("Nortel") entered into an agreement with
the Partnership to buyout its lease at Two Financial Centre for the amount of
$147,620. Nortel occupied approximately 5% of the property's leasable space at
November 30, 1997.
8. Reconciliation of Net Income to Taxable Loss
Taxable income reported to the partners for the year ended November 30, 1998
exceeded net income reported in the financial statements by $408,140. The net
income reported in the financial statements for the years ended November 30,
1997 and 1996 exceeded the taxable income reported to the partners by $520,674
and $4,182, respectively.
These differences are primarily due to the use of different methods of recording
depreciation expense and rental income. The Partnership uses accelerated methods
of depreciating real estate for tax purposes and the straight-line method for
financial statement purposes. Rental income is recorded when received or
receivable for tax purposes and on a straight-line basis for financial statement
purposes.
<PAGE>
10
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Partners
Commercial Properties 2, L.P.
and Consolidated Ventures
We have audited the accompanying consolidated balance sheets of Commercial
Properties 2, L.P. and Consolidated Ventures as of November 30, 1998 and 1997,
and the related consolidated statements of operations, partners' capital
(deficit), and cash flows for each of the three years in the period ended
November 30, 1998. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Commercial Properties 2, L.P. and Consolidated Ventures at November 30, 1998 and
1997, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended November 30, 1998, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ERNST & YOUNG LLP
New York, New York
February 5, 1999
<PAGE>
11
- --------------------------------------------------------------------------------
NET ASSET VALUATION
- --------------------------------------------------------------------------------
Comparison of Acquisition Costs to Estimated Value and
Determination of Net Asset Value Per $126.22 Unit at November 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Acquisition Cost
(Purchase Price Partnership's
Plus General Share of
Partners' November 30,
Acquisition 1998 Estimated
Property Date of Acquisition Fees) Value (1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Two Financial Centre (2)(3) 03-29-84 $ 4,611,600 $ 206,854
Cash and cash equivalents 1,446,089
Rent and other receivables 291,360
Demand promissory note receivable 7,993,146
Prepaid expenses 10,997
-----------
9,948,446
Less:
Accounts payable and accrued expenses (258,394)
Due to affiliates (67,910)
-----------
Partnership Net Asset Value (4) $ 9,622,142
===========
Net Asset Value Allocated:
Limited Partners $ 9,525,921
General Partners 96,221
-----------
$ 9,622,142
===========
Net Asset Value Per Unit
(100,000 units outstanding) $ 95.25
- ----------------------------------------------------------------------------------------------------
<FN>
(1) This represents the Partnership's share of the November 30, 1998 estimated value of Two
Financial Centre which was determined by the General Partners, with the assistance of the
broker engaged to market the property. The Partnership's share of the November 30, 1998
estimated value takes into account the allocation provision of the joint venture agreement
governing the distribution of sales proceeds for the property.
(2) Acquisition Cost is net of the outstanding mortgage loan balance at the time of acquisition
and is comprised of the acquisition fee paid to the General Partners and the amount required to
fund the completion of tenant improvements and other capital items. The Partnership's share of
the November 30, 1998 estimated value is net of the demand promissory note.
(3) The property is currently carried on the Partnership's balance sheet as "Real estate assets
held for disposition" and therefore leasing commissions and the amortization of leasing
commissions are not considered in the calculation of Net Asset Value.
(4) The Net Asset Value assumes a hypothetical sale on November 30, 1998 of the Partnership's
property at its estimated value and the distribution of the proceeds of such sale, together
with the Partnership's cash and the proceeds from temporary investments, to the partners.
The real estate brokerage commissions payable to the General Partners or others are not
determinable at this time and have not been included in the determination. Since the
Partnership would incur real estate brokerage commissions and other selling expenses in
connection with the sale of its property and other assets, cash for distribution to the
partners would be less than the Net Asset Value.
</FN>
</TABLE>
Limited partners should note that the Property's value is estimated and the
actual value realizable upon sale may be significantly different. The estimated
value does not reflect the actual costs which would be incurred in selling the
property. As a result of these factors and the illiquid nature of an investment
in Units of the Partnership, the variation between the estimated value of the
Partnership's property and the price at which Units of the Partnership could be
sold may 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.
<PAGE>
F-1
COMMERCIAL PROPERTIES 2, L.P.
AND CONSOLIDATED VENTURES
Schedule III - Real Estate and Accumulated Depreciation
November 30, 1998
<TABLE>
<CAPTION>
Two
Consolidated Ventures: Financial Centre
- --------------------------------------------------------------------------------
<S> <C>
Location Little Rock, AR
Construction date 1981
Acquisition date 03-29-84
Life on which depreciation in latest
income statements is computed (1)
Encumbrances $ 7,993,146
Initial cost to Partnership (2):
Land 1,560,092
Buildings and improvements 9,583,430
Costs capitalized subsequent to acquisition:
Land, buildings and improvements 1,419,154
Deferred Rent 45,635
Leasing Commissions 329,437
Gross amount at which carried at close of period:
Land 1,560,092
Buildings and improvements 11,002,584
Deferred Rent 45,635
Leasing Commissions 329,437
- --------------------------------------------------------------------------------
$12,937,748 (4)
===============
Accumulated depreciation (3) $ 5,715,288 (4)
- ------------------------------------------------------------------------------------
<FN>
(1) Buildings and improvements - 25 years; personal property - 10 years.
(2) Represents aggregate cost for both financial reporting and Federal income
tax purposes.
(3) The amount of accumulated depreciation for Federal income tax purposes is
$9,897,200.
(4) The net of these numbers, $7,222,460, represents the amount of "Real
estate assets held for disposition."
</FN>
</TABLE>
<PAGE>
F-2
COMMERCIAL PROPERTIES 2, L.P.
AND CONSOLIDATED VENTURES
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended November 30, 1998, 1997, and 1996 follows:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real estate investments:
Beginning of year $21,826,594 $29,824,136 $29,890,761
Additions 242,875 32,291 260,828
Deferred Rent -- 96,190 --
Leasing Commissions 199,487 195,849 --
Dispositions (1) (9,331,208) (8,321,872) (327,453)
- --------------------------------------------------------------------------------------
End of year $12,937,748 $21,826,594 $29,824,136
=========================================
Accumulated depreciation:
Beginning of year $ 9,516,310 $11,944,782 $11,038,346
Depreciation expense -- 442,075 1,233,889
Dispositions (1) (3,801,022) (2,870,547) (327,453)
- --------------------------------------------------------------------------------------
End of year $ 5,715,288 $ 9,516,310 $11,944,782
=========================================
<FN>
(1) Dispositions include assets associated with the sale of Maitland Center
Office Building C in 1998 and the sale of Swenson Business Park - Building C
in 1997.
</FN>
</TABLE>
<PAGE>
F-3
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of Commercial Properties 2, L.P. of our
report dated February 5, 1999, included in the 1998 Annual
Report to Shareholders of Commercial Properties 2, L.P. and
Consolidated Ventures.
Our audit also included the financial statement schedule of
Commercial Properties 2, 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
therein.
/s/ERNST & YOUNG LLP
New York, New York
February 5, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-END> Nov-30-1998
<CASH> 1,446,089
<SECURITIES> 000
<RECEIVABLES> 291,360
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 10,997
<PP&E> 12,937,748
<DEPRECIATION> (5,715,288)
<TOTAL-ASSETS> 8,992,292
<CURRENT-LIABILITIES> 258,394
<BONDS> 000
000
000
<COMMON> 000
<OTHER-SE> 8,647,460
<TOTAL-LIABILITY-AND-EQUITY> 8,992,292
<SALES> 1,809,825
<TOTAL-REVENUES> 2,241,985
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 1,171,779
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> 1,070,206
<INCOME-TAX> 000
<INCOME-CONTINUING> 1,070,206
<DISCONTINUED> 000
<EXTRAORDINARY> 3,232,132
<CHANGES> 000
<NET-INCOME> 4,302,338
<EPS-PRIMARY> 42.59
<EPS-DILUTED> 42.59
</TABLE>
