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 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
Commission file number: 0-13341
HUTTON/GSH COMMERCIAL PROPERTIES 3
Exact name of registrant as specified in its charter
Virginia 11-2680561
State or other jurisdiction of incorporation I.R.S. Employer Identification No.
3 World Financial Center, 29th Floor, New York, New York 10285
Address of principal executive offices zip code
Registrant's telephone number, including area code: (212) 526-3237
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)
Documents Incorporated by Reference: Portions of Prospectus of Registrant
dated December 13, 1983 (included in Amendment No. 1 to Registration Statement
No. 2-85936, of Registrant filed December 13, 1983) are incorporated by
reference to Part III.
Portions of Parts I, II and IV are incorporated by reference to the
Partnership's Annual Report to Unitholders for the year ended December 31, 1994
filed as an exhibit under Item 14.
PART I
Item 1. Business
General Development of Business
Hutton/GSH Commercial Properties 3 (the "Registrant" or the "Partnership"), is
a Virginia limited partnership formed on April 19, 1984, of which Real Estate
Services VII, Inc. ("RES"), 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 (the "General Partners"). Commencing
December 13, 1983, the Registrant began offering through E.F. Hutton & Company
Inc., a former affiliate of the Registrant, up to a maximum of 120,000 units of
limited partnership interest (the "Units") at $500 per Unit. Investors who
purchased the Units (hereafter referred to as "Unitholders" or the "Limited
Partners") are not required to make any additional capital contributions. The
Units were registered under the Securities Act of 1933, as amended (the "Act"),
under Registration Statement No. 2-85936, which Registration Statement was
declared effective on December 13, 1983.
The offering of Units was terminated on August 9, 1984. Upon termination of
the offering, the Registrant had accepted subscriptions for 109,378 Units for
an aggregate of $54,689,000. After deducting offering costs and initial
working capital reserves, approximately $46,000,000 was available for
investment in real estate. As of December 31, 1994, $44,995,452 of such
proceeds had been invested in an office and light industrial complex, one
limited partnership and two joint ventures, each of which owns a specific
office building, and $1,093,780 of uncommitted funds were distributed to the
Limited Partners as a return of capital on May 15, 1986. The Registrant also
distributed $437,512 in 1986 and $218,756 in 1985 to the Limited Partners as a
return of capital, which sums represented the excess of the initial working
capital reserves set aside for present and future operating requirements. To
the extent that funds committed for investment or held as a working capital
reserve have not been expended (and have not otherwise been distributed to the
Limited Partners as a return of capital), the Registrant has invested such
funds in bank certificates of deposit, unaffiliated money market funds or other
highly liquid short-term investments where there is appropriate safety of
principal, in accordance with the Registrant's investment objectives and
policies.
Narrative Description of Business
Incorporated by reference to Note 1 "Organization" and Note 4 "Real Estate
Investments" of the Notes to Consolidated Financial Statements on pages 9 and
10, respectively, of the Partnership's Annual Report to Unitholders for the
year ended December 31, 1994 filed as an exhibit under Item 14.
The Registrant's principal investment objectives with respect to the Properties
(in no particular order of priority) are:
1) Preservation and protection of capital;
2) Distributions of net cash from operations attributable to rental income;
and
3) Capital appreciation.
Distributions of net cash from operations will be the Registrant's objective
during its operational phase, while the preservation of and appreciation of
capital will be the Registrant's long-term objectives. The attainment of the
Registrant's investment objectives will depend on many factors, including,
among others, successful management of the operations of the Properties.
The Registrant expects to sell its Properties at such time or times as it deems
appropriate, taking into consideration such factors as market conditions for
these types of properties, leasing conditions, property cash flow and the
possible risks of continued ownership. No Property will be sold, financed or
refinanced by the Registrant without agreement of both General Partners.
Proceeds from any future sale, financing or refinancing of the Properties will
not be reinvested but will be distributed to the Limited Partners as a return
of capital, so that the Registrant, in effect, will be self-liquidating. As
partial payment for Properties sold, the Registrant may receive purchase money
obligations collateralized 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 Limited Partners) until and to the extent the
obligations are realized in cash, sold or otherwise liquidated.
Competition
A detailed description of the Properties, leases considered material to the
Partnership's operations and competition relevant to the specific markets in
which the Properties are located is incorporated by reference to the section
entitled Property Profiles & Leasing Update on pages 3 and 4 of the
Partnership's Annual Report to Unitholders for the year ended December 31, 1994
filed as an exhibit under Item 14.
Employees
The Registrant has no employees.
Item 2. Properties
A detailed description of the Properties, leases considered material to the
Partnership's operations and competition relevant to the specific markets in
which the Properties are located is incorporated by reference to the section
entitled Property Profiles & Leasing Update on pages 3 and 4 of the
Partnership's Annual Report to Unitholders for the year ended December 31, 1994
filed as an exhibit under Item 14.
Item 3. Legal Proceedings
During June 1992, a purported class action on behalf of all Unitholders was
served upon Hutton Real Estate Services IV, Inc., Hutton Real Estate Services
VII, Inc., HS Advisors II, Ltd. and HS Advisors III, Ltd. in the Circuit Court
of Loudoun County, Virginia. The complaint alleges that, among other things,
the General Partners were negligent in their duties, as a result of having
failed to conclude a sale of the Registrant's properties within seven to ten
years. The defendants, on August 11, 1992, filed a Demurrer and Pleas of
Statute of Limitations and Laches. On December 16, 1994, the Circuit Court of
Loudoun County, Virginia dismissed the case since two years had lapsed since
any action was taken or any pleading filed. Furthermore, plaintiffs attorneys
were notified that the proceeding would be dismissed unless they show cause why
it should be retained, and none appeared or answered to object to such notice.
Neither the Registrant nor any of the Properties is subject to any material
legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the year ended December 31, 1994, no matter was
submitted to a vote of security holders through the solicitation of proxies or
otherwise.
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 - As of December 31, 1994, the number of holders of Units was
5,508.
(c) Distributions - Cash distributions paid to the Limited Partners for the
three years ended December 31, 1994 incorporated by reference to the section
entitled Message to Investors on page 1 of the Partnership's Annual Report to
Unitholders for the year ended December 31, 1994 filed as an exhibit under Item
14.
Item 6. Selected Financial Data
Incorporated by reference to the section entitled Financial Highlights on page
5 of the Partnership's Annual Report to Unitholders for the year ended December
31, 1994, which is filed as an exhibit under Item 14.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Partnership had cash and cash equivalents totaling $1,637,501 at December
31, 1994, compared with $734,361 at December 31, 1993. The increase of
$903,140 is due to net cash provided by operating activities in excess of
additions to real estate assets totaling $504,597 and the payment of cash
distributions to partners totaling $451,044. The Partnership had a restricted
cash balance of $216,079 at December 31, 1994, compared with $212,154 at
December 31, 1993. Tenant security deposits comprise the restricted cash
balance. Unexpended funds and working capital reserves are invested in
unaffiliated money market funds and interest on such invested balances accrues
to the benefit of the Partnership.
Accounts and rent receivable were $28,326 at December 31, 1994 compared to
$141,297 at December 31, 1993. The decrease is due to the collection of rents
and the write off of uncollectible rent. Deferred rent receivable increased to
$235,246 at December 31, 1994 from $98,373 at December 31, 1993. The increase
is primarily attributable to the straight-lining of rental income from new
leases. Prepaid expenses increased to $645,993 at December 31, 1994 from
$624,200 at December 31, 1993 mainly due to prepaid leasing commissions,
partially offset by the amortization of existing leasing commissions in the
amount of $208,985. Accounts payable and accrued expenses increased to
$426,642 at December 31, 1994 from $381,463 at year-end 1993. The increase is
primarily due to an increase in prepaid rent from tenants, and to tenant
improvement invoices received but unpaid at December 31, 1994.
The Registrant declared cash distributions to Limited Partners of $5.50 per
Unit for the year ended December 31, 1994. Included in this total is a cash
distribution of $2.50 per Unit for the quarter ended December 31, 1994, which
was paid on February 13, 1995. Due to leasing progress at the Partnership's
properties which resulted in increased rental income, and the completion of
various tenant and other capital improvements during 1993 and 1994, the General
Partners were able to increase cash distributions from its previous level of
$1.00 per Unit to $2.50 per Unit in the fourth quarter of 1994. The timing and
amount of future cash distributions will be determined quarterly by the General
Partners, and will depend on the adequacy of cash flow and the Partnership's
cash reserve requirements. A significant number of leases will be expiring in
1995. Accordingly, the General Partners will closely monitor the Partnership's
cash needs and, if necessary, will reduce future distribution l evels to ensure
that adequate reserves are available to fund leasing costs or other Partnership
obligations.
Results of Operations
1994 vs 1993
For the year ended December 31, 1994, the Partnership's operations
resulted in a net loss of $331,534, compared to a net loss of $910,071 for the
corresponding period in 1993. The decrease in net loss is primarily
attributable to an increase in rental income and lower depreciation and
amortization expense.
Rental income totaled $4,641,823 for the year ended December 31, 1994 compared
to $4,181,367 for the year ended December 31, 1993. The increase is due to
higher occupancy and rent escalations at three of the Partnership's four
properties.
Property operating expenses totaled $2,231,683 for the year ended December 31,
1994 compared with $2,114,664 for the year ended December 31, 1993. The
increase is primarily attributable to an increase in building repairs and
maintenance during 1994, and to increases in insurance premiums. Bad debt
expense, reflecting the uncollectibility of delinquent rent, was $77,710 for
the year ended December 31, 1994, compared to $14,427 for the corresponding
period in 1993. Depreciation and amortization decreased to $2,388,925 for the
year ended December 31, 1994, from $2,680,516 for the year ended December 31,
1993. The decline is primarily attributable to a lower depreciable asset base
in 1994.
For the year ended December 31, 1994, net income of $62,186 and $22,225, was
allocated to the co-venturers of Three Financial Centre and Quorum,
respectively. This allocation resulted from the properties' net income, prior
to depreciation expense, being in excess of net cash distributed from
operations.
As of December 31, 1994, lease levels at each of the properties were as
follows: Metro Park Executive Center - 91%; Fort Lauderdale Commerce Center -
82%; Three Financial Centre - 93 %; Quorum II Office Building - 90%.
1993 vs 1992
The Registrant's operations resulted in a net loss of $910,071 for
the year ended December 31, 1993, compared with a net loss of $712,236 for the
year ended December 31, 1992. The larger net loss in 1993 is primarily
attributable to an increase in depreciation and amortization expenses
associated with building and tenant improvements completed during 1993.
For the year ended December 31, 1993, net income of $86,904 was allocated to
the co-venturer of Three Financial Centre. This allocation resulted from the
property's net income, prior to depreciation expenses, being in excess of net
cash distributed from operations. For the year ended December 31, 1992, the
property's net cash distributions from operations were in excess of net income
prior to depreciation; consequently, no income was allocated to the
co-venturer.
Rental income totaled $4,181,367 for the twelve months ended December 31, 1993,
as compared to $3,986,736 for the corresponding period in 1992. The increase
is largely due to increased rental income at the Registrant's properties.
Interest income totaled $29,571 for the twelve months ended December 31, 1993
compared with $47,044 for the twelve months ended December 31, 1992. The
decrease in 1993 is attributable to the Registrant's lower average cash balance
and lower interest rates.
Property operating expenses totaled $2,114,664 for the year ended December 31,
1993, largely unchanged from $2,103,000 for the corresponding period in 1992.
Depreciation and amortization expense totaled $2,680,516 for the year ended
December 31, 1993 compared to $2,357,140 for the year ended December 31, 1992.
The increase in 1993 is primarily attributable to substantial tenant and
capital improvements completed at Three Financial Centre, Fort Lauderdale
Commerce Center and Metro Park Executive Center. General and administrative
expenses totaled $224,498 for the year ended December 31, 1993 compared to
$263,400 for the comparable period in 1992.
As of December 31, 1993, lease levels at each of the properties were as
follows: Metro Park Executive Center - 85%; Fort Lauderdale Commerce Center -
78%; Three Financial Centre - 84%; Quorum II Office Building - 99%.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1994, which is 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. RES and HS Advisors, the 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.
Real Estate Services VII, Inc.
Real Estate Services VII, Inc. ("RES"), formerly known as Hutton Real Estate
Services VII, Inc., is a Delaware corporation formed on August 2, 1982 and is
an affiliate of Lehman Brothers Inc. ("Lehman"). The names and ages of, as
well as the positions held by, the directors and executive officers of RES 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 RES 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 that 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 Age Office
Rocco F. Andriola 36 Director, President,
Chief Financial Officer
Kenneth L. Zakin 47 Director, Vice President
William Caulfield 35 Vice President
Michael Marron 31 Vice President
Rocco F. Andriola is a Senior Vice President of Lehman Brothers in its
Diversified Asset Group. Since joining Lehman Brothers 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 1986-89, 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 Brothers, Mr. Andriola practiced corporate and
securities law at Donovan Leisure Newton & Irvine in New York. Mr. Andriola
received a B.A. degree from Fordham University, a J.D. degree from New York
University School of Law, and an LL.M degree in Corporate Law from New York
University's Graduate School of Law.
Kenneth L. Zakin is a Senior Vice President of Lehman Brothers and has held
such title since November 1988. He is currently a senior manager in Lehman
Brothers' Diversified Asset Group and was formerly group head of the Commercial
Property Division of Shearson Lehman Brothers' Direct Investment Management
Group responsible for the management and restructuring of limited partnerships
owning commercial properties throughout the United States. From January 1985
through November 1988, Mr. Zakin was a Vice President of Shearson Lehman
Brothers Inc. Mr. Zakin is a director of Lexington Corporate Properties, Inc.
He is a member of the Bar of the State of New York and previously practiced as
an attorney in New York City from 1973 to 1984 specializing in the financing,
acquisition, disposition, and restructuring of real estate transactions. Mr.
Zakin is currently an associate member of the Urban Land Institute and a member
of the New York District Council Advisory Services Committee. He r eceived a
Juris Doctor degree from St. John's University School of Law in 1973 and a B.A.
degree from Syracuse University in 1969.
William Caulfield is a Vice President of Lehman Brothers and is responsible for
investment management of commercial real estate in the Diversified Asset Group.
Prior to the Shearson/Hutton merger in 1988, Mr. Caulfield was a Senior Analyst
with E.F. Hutton since October 1986 in Hutton's Partnership Administration
Group. Before joining Hutton, Mr. Caulfield was a Business Systems Analyst at
Eaton Corp. from 1985 to 1986. Prior to Eaton, he was an Assistant Treasurer
with National Westminster Bank USA. Mr. Caulfield holds a B.S. degree in
Finance from St. John's University and an M.B.A. from Long Island University.
Michael Marron is a Vice President of Lehman Brothers and has been a member of
the Diversified Asset Group since 1990. 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
in accounting from the State University of New York at Albany in 1985 and is a
Certified Public Accountant.
HS Advisors III, Ltd.
HS Advisors, 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. 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 Age Office
Robert M. Stanton 56 Chairman of the Board, Principal Executive
Officer
Stewart H. Buckle, III 42 President
Mark P. Mikuta 37 Treasurer, Secretary
Robert M. Stanton is Chairman and Chief Executive Officer of Goodman Segar
Hogan, Inc., a diversified commercial real estate company headquartered in
Norfolk, Virginia. Mr. Stanton joined Goodman Segar Hogan in 1966, was named
to the company's board of directors in 1972 and was named President and Chief
Executive Officer in 1975. Early in 1990, he assumed the position of Chairman
and CEO of the company, responsible for managing the brokerage, management and
development divisions. Mr. Stanton currently serves as a Trustee of the Urban
Land Institute (ULI) and chair of the Commercial and Retail Development
Council. He is a past Trustee and State Director of the International Council
of Shopping Centers (ICSC). He was chairman of the 1981 edition of The Dollars
and Cents of Shopping Centers, published by ULI. He also served on the Board
of Editors of the 1979 edition. Mr. Stanton co-authored The Valuation of
Shopping Centers, published by the American Institute of Real Estate Appr
aisers. Currently, he serves on the advisory board of Norfolk Southern
Corporation and on the board of directors of Forward Hampton Roads, the Future
of Hampton Roads and Greater Norfolk Corporation. He holds the Certified
Property Manager (CPM) designation conferred by the Institute of Real Estate
Management, as well as the Certified Shopping Center Manager (CSM) designation
conferred by the International Council of Shopping Centers. Mr. Stanton also
serves as Chairman of American Storage Properties and as Managing Partner of
Bayville Holstein Associates. A graduate of Old Dominion University with a
B.A. Degree in Banking and Finance, he served as Rector of the Board of
Visitors. Active in civic affairs, Mr. Stanton was named First Citizen of
Virginia Beach in 1976.
Stewart H. Buckle, III is President of Goodman Segar Hogan, Inc. He is
responsible for the company's finance, asset management and acquisition
divisions. Prior to his promotion to President, Mr. Buckle served as the
company's Director of Acquisitions and Project Finance. Before joining Goodman
Segar Hogan, Inc. in 1986, he was Project Manager for Essex Financial Group in
1985 and Vice President of Elizabeth River Terminals from 1983 to 1985. He had
also held the position of Vice President of Lance J. Eller, Inc. and Senior
Accountant at Price Waterhouse & Company. Mr. Buckle received his bachelor of
science degree in accounting from Virginia Polytechnic Institute and State
University in 1974 and his MBA from University of Colorado in 1977. He is a
member of the Urban Land Institute and the International Council of Shopping
Centers.
Mark P. Mikuta is Chief Financial Officer of Goodman Segar Hogan, Inc. and is
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.
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., and the name of the Partnership is expected to change in the near
future to delete any references 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, thte 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 one percent
interest in GSHH. The stockholders of GSHH Inc. are GSH with a sixty-two
percent stock interest and H.K. Associates, L.P., and affiliate of HK, with a
thirty-eight percent stock interest. The remaining ninety-nine percentage
interests in GSHH are limited partnership interests owned fifty percent by GSH
and forty-nine percent by HK. The transaction 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. "Certain
Relationships and Related Transactions" 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
Security Ownership of Beneficial Owners
As of December 31, 1994, no person was known by the Registrant to be the
beneficial owner of more than five percent of the Units of the Registrant.
Neither of the General Partners of the Registrant, nor any of their directors
and officers own any Units.
Changes in Control
The Registrant has been advised by representatives of HS Advisors that the
following transactions occurred on October 19, 1992, resulting in an indirect
change of control of HS Advisors and, therefore, of the Registrant. Capital
stock of Stanton Associates, Inc., a Virginia Corporation ("Stanton"), which
indirectly owns 100% of the capital stock of the sole general partner of HS
Advisors, was acquired by Dominion Capital, Inc., a Virginia Corporation
("Dominion Capital"). The shares were acquired in connection with a
restructuring of indebtedness owed by Stanton to Dominion Capital. On October
19, 1992, Dominion Capital acquired 51,993 shares of common stock of Stanton
upon conversion of Series A convertible preferred stock and, thereafter,
acquired from Stanton an additional 387,418 shares of common stock of Stanton,
resulting in Dominion Capital's owning approximately 83% of the outstanding
common stock of Stanton. Since, as a result of these transactions, Dominion
Capital has th e indirect power to control HS Advisors, a change of control of
the Registrant is deemed to have occurred. The consideration received by
Stanton for the issuance of the 387,418 shares consisted of a covenant on the
part of Dominion Capital not to sue on an aggregate of $7,473,567.44 owed to
Dominion Capital by Stanton provided that certain conditions are met by
Stanton. No borrowings were incurred in connection with the transactions.
To the knowledge of the Registrant, there are no arrangements or understandings
between Dominion Capital and Stanton with respect to the selection of general
partners of the Registrant or other matters regarding the Registrant.
Item 13. Certain Relationships and Related Transactions
Pursuant to the Certificate and Agreement of Limited Partnership of the
Registrant, for the year ended December 31, 1994, $3,315 of the Registrant's
loss was allocated to the General Partners ($2,210 to RES and $1,105 to HS
Advisors). 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 45 through 48 of the
Prospectus of Registrant dated December 13, 1983 (the "Prospectus"), contained
in Amendment No. 1 to Registrant's Registration Statement No. 2-85936, under
the section captioned "Distributions and Allocations," 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 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.
TSSG provides partnership accounting and investor relations services for the
Registrant. Prior to May 1993, these services were provided by an affiliate of
a general partner. The Registrant's transfer agent and certain tax reporting
services are provided by Service Data Corporation. Disclosure relating to
amounts paid to the General Partners or their affiliates during the past three
years is incorporated by reference to Note 6 "Transactions With the General
Partners and Affiliates" of Notes to Consolidated Financial Statements
contained in the Partnership's Annual Report to Unitholders for the year ended
December 31, 1994 filed as an exhibit under Item 14.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
Page
Number
(1) Financial Statements:
Report of Independent Auditors (1)
Consolidated Balance Sheets - At December 31, 1994 and 1993 (1)
Consolidated Statements of Partners' Capital (Deficit) -
For the years ended December 31, 1994, 1993 and 1992 (1)
Consolidated Statements of Operations -
For the years ended December 31, 1994, 1993 and 1992 (1)
Consolidated Statements of Cash Flows -
For the years ended December 31, 1994, 1993 and 1992 (1)
Notes to the Consolidated Financial Statements (1)
(2) Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation F-1
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have
been omitted.
(3) See Exhibit Index contained herein.
(1) Incorporated by reference to the Partnership's Annual Report to
Unitholders for the year ended December 31, 1994, which is filed as an exhibit
under Item 14.
(b) Reports on Form 8-K filed in the fourth quarter of calendar year 1994:
None.
(c) See Exhibit Index contained herein.
(d) See page F-1.
EXHIBIT INDEX
Exhibit No.
(4) (A) Certificate and Agreement of Limited Partnership (included as, and
incorporated herein by reference to, Exhibit A to the
Prospectus of Registrant dated December 13, 1983 (the
"Prospectus"), contained in Amendment No. 1 to
Registration Statement, No. 2-85936, of the Registrant
filed December 13, 1983 (the "Registration
Statement")).
(B) First Amendment to Certificate and Agreement of Limited Partnership
(included as, and incorporated herein by reference to,
Exhibit 4(B) of the Registrant's Annual Report on Form
10-K for the fiscal year ended November 30, 1984 (the
"1984 Annual Report")).
(C) Subscription Agreement and Signature Page (included as, and
incorporated herein by reference to, Exhibit 3.1 to the
1983 Registration Statement).
(10)(A) Agreements relating to Quorum II Office Building (included as, and
incorporated herein by reference to, Exhibit (10)(A) to
the 1984 Annual Report).
(B) Agreements relating to Three Financial Centre Office Building
(included as, and incorporated herein by reference to,
Exhibit (10)(B) to the 1984 Annual Report).
(C) Agreements relating to Fort Lauderdale Commerce Center (included as,
and incorporated herein by reference to, Exhibit (10)(C) to the 1984
Annual Report).
(D) Agreements relating to Metro Park Executive Center (included as, and
incorporated herein by reference to, Exhibit (10)(D) to
the 1984 Annual Report).
(13) Annual report to the Unitholders for the year ended December 31,
1994.
(23) Consent of Independent Auditors
(28) Portions of Prospectus of Registrant dated December 13, 1983.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 29, 1995
HUTTON/GSH COMMERCIAL PROPERTIES 3
BY: HS Advisors III, Ltd. General Partner
Hogan Stanton Investment, Inc. General Partner
BY: /s/Robert M. Stanton
Name: Robert M. Stanton
Title: Chairman of the Board
BY: Real Estate Services VII, Inc. General Partner
BY: /s/Rocco F. Andriola
Name: Rocco F. Andriola
Title: Director, President and Chief
Financial Officer
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
Registrant in the capabilities and on the dates indicated.
REAL ESTATE SERVICES VII, INC.
A General Partner
Date: March 29, 1995
BY: /s/Rocco F. Andriola
Rocco F. Andriola Director,
President and Chief Financial Officer
Date: March 29, 1995
BY: /s/William Caulfield
William Caulfield
Vice President
Date: March 29, 1995
BY: /s/Kenneth L. Zakin
Kenneth L. Zakin
Vice President and Director
Date: March 29, 1995
BY: /s/Michael T. Marron
Michael T. Marron
Vice President
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
Registrant in the capabilities and on the dates indicated.
HS ADVISORS III, LTD.
A General Partner
Date: March 29, 1995
BY: /s/Robert M. Stanton
Robert M. Stanton
Chairman of the Board of Hogan
Stanton Investment, Inc., as general
partner of HS Advisors III, Ltd.
Date: March 29, 1995
BY: /s/Stewart H. Buckle, III
Stewart H.Buckle, III
President, Asst. Treasurer and
Asst. Secretary of Hogan Stanton
Investment, Inc., as general
partner of HS Advisors III, Ltd.
Date: March 29, 1995
BY: /s/Mark P. Mikuta
Mark P. Mikuta
Treasurer and Secretary of
Hogan Stanton Investment, Inc.,
as general partner of HS Advisors III, Ltd.
HUTTON/GSH COMMERCIAL PROPERTIES 3
Schedule 3 - Real Estate and Accumulated Depreciation
December 31, 1994
Cost Capitalized
Subsequent
Initial Cost to Partnership To Acquisition
Buildings Buildings and
Description Encumbrances Land Improvements Improvements
Commercial Property:
Consolidated Ventures:
Partnership Owned:
Ft. Lauderdale
Commerce Center
Ft. Lauderdale, FL $ - $2,741,551 $10,102,018 $2,648,957
Consolidated Ventures:
Metro Park
Executive Center
Ft. Myers, FL - 548,643 4,587,861 697,443
Three Financial Center
Little Rock, AK - 1,018,332 9,433,673 909,216
Quorum II Office Building
Dallas, TX - 2,113,775 10,881,609 504,154
$ $6,422,301 $35,005,161 $4,759,770
HUTTON/GSH COMMERCIAL PROPERTIES 3
Schedule 3 - Real Estate and Accumulated Depreciation
December 31, 1994
Gross Amount at Which Carried at Close of Period
Buildings and Accumulated
Description Land Improvements Total(2) Depreciation(1)
Commercial Property:
Consolidated Ventures:
Partnership Owned:
Ft. Lauderdale
Commerce Center
Ft. Lauderdale, FL $2,741,551 $12,750,975 $15,492,526 $5,222,281
Consolidated Ventures:
Metro Park
Executive Center
Ft. Myers, Fl 548,643 5,285,304 5,833,947 2,162,124
Three Financial Center
Little Rock, AK 1,018,332 10,342,889 11,361,221 4,295,601
Quorum II Office Building
Dallas, TX 2,113,775 11,385,763 13,499,538 4,433,290
$6,422,301 $39,764,931 $46,187,232 $16,113,296
HUTTON/GSH COMMERCIAL PROPERTIES 3
Schedule 3 - Real Estate and Accumulated Depreciation
December 31, 1994
Life on which
Depreciation
in Latest
Date of Date Income Statements
Description Construction Acquired is Computed
Commercial Property:
Consolidated Venture:
Partnership Owned:
Ft. Lauderdale
Commerce Center
Ft. Lauderdale, FL 1985 04/18/85 25 years
Consolidated Ventures:
Metro Park
Executive Center
Ft. Myers, FL 1984 01/07/85 25 years
Three Financial Center
Little Rock, AK 1984 01/22/85 25 years
Quorum II Office Building
Dallas, TX 1985 06/12/85 25 years
(1) For Federal income tax purposes, the amount of accumulated depreciation is
$21,322,696.
(2) For Federal income tax purposes, the basis of land, building
and improvements is $46,965,336.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1994, 1993 and 1992:
Real Estate investments: 1994 1993 1992
Beginning of year $45,533,902 $46,247,218 $45,740,585
Additions 654,844 646,560 956,285
Basis adjustment (1,514) (1,359,876) (449,652)
End of year $46,187,232 $45,533,902 $46,247,218
Accumulated Depreciation:
Beginning of year $13,941,302 $12,840,967 $11,121,026
Depreciation expense 2,173,508 2,460,211 2,169,593
Deletions (1,514) (1,359,876) (449,652)
End of year $16,113,296 $13,941,302 $12,840,967
Exhibit 13
1994 Annual Report to Unitholders
Hutton/GSH Commercial Properties 3 is a limited partnership formed in 1984 to
acquire, operate and hold for investment commercial real estate properties.
The Partnership's investments are comprised of three office buildings located
in Dallas, Texas, Little Rock, Arkansas, and Fort Myers, Florida, and a
combined office/warehouse and office/showroom property located in Fort
Lauderdale, Florida. Provided below is a comparison of lease levels at the
properties as of December 31, 1994 and 1993.
Percentage Leased
Property Location 1994 1993
Metro Park Executive Center Fort Myers, FL 91% 85%
Fort Lauderdale Commerce Center Fort Lauderdale, FL 82% 78%
Three Financial Centre Little Rock, AR 93% 84%
Quorum II Office Building Dallas, TX 90% 99%
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers The Shareholder Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144 Attn: Financial Communications
(800) 223-3464 (800) 223-3464
Contents
1 Message to Investors
3 Property Profiles & Leasing Update
5 Financial Highlights
6 Consolidated Financial Statements
9 Notes to the Consolidated Financial Statements
13 Report of Independent Auditors
14 Net Asset Valuation
MESSAGE TO INVESTORS
Presented for your review is the 1994 Annual Report for Hutton/GSH Commercial
Properties 3 (the "Partnership"). The General Partners made significant
leasing progress during 1994 as operating conditions in the markets in which
several of the Partnership's properties are located began to show signs of
improvement. At Fort Lauderdale Commerce Center, we executed four new leases,
increasing occupancy to 82% by year-end 1994 from 78% a year earlier.
Additionally, we were able to increase occupancy at Metro Park Executive Center
and Three Financial Centre to 91% and 93%, respectively, at December 31, 1994
from 85% and 84%, respectively, a year earlier. Details regarding our leasing
progress at each of the Partnership's properties is provided in the Property
Profiles & Leasing Update beginning on page 3.
Cash Distributions
For the year ended December 31, 1994, the Partnership paid
cash distributions to the Limited Partners totaling $5.50 per Unit. Included
in this total was a fourth quarter cash distribution of $2.50 per Unit which
was paid on February 15, 1995. Since inception, Limited Partners have received
distributions totaling $125.76 per Unit including return of capital payments in
the amount of $16.00 per Unit which reduced each Limited Partner's Unit size
from $500 to $484. Due to the increase in occupancy at the Partnership's
properties the corresponding increase in rental income, and the completion of
tenant and capital improvements, the General Partners were able to increase the
quarterly cash distribution rate in the fourth quarter of 1994 from its
previous level of $1.00 per Unit to $2.50 per Unit.
The timing and amount of future distributions will depend on several factors,
including the adequacy of rental income generated by current leases and
Partnership cash flow. As discussed in the Property Profiles and Leasing
Update section of this report, a significant number of leases will be expiring
in 1995. Accordingly, the General Partners will closely monitor the
Partnership's cash needs and, if necessary, will adjust future distribution
levels to ensure that adequate reserves are available to fund leasing costs or
other Partnership obligations. Information regarding cash distributions paid
over the past two years is provided below.
CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP UNIT
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- ------
1993 $1.00 $1.00 $1.00 $1.00 $4.00
1994 $1.00 $1.00 $1.00 $2.50 $5.50
Market Overview
The real estate industry, in general, continued its slow
recovery during 1994. The apartment complex and warehouse and distribution
sectors exhibited the strongest performance, and certain types of commercial
office properties began to show signs of improvement. Specifically, the
suburban office market has experienced declining vacancies and little new
development. While the downtown office market continues to lag in the
recovery, rental concessions have diminished and rental rates have stabilized.
As a result of these conditions, the national vacancy rate for commercial
office space declined to approximately 16% as of the fourth quarter of 1994,
down from approximately 19% in the fourth quarter of 1993. The ongoing
recovery of this market, however, is expected to be gradual, as technological
advancements have made it easier and more efficient for traditional users of
office space to work from home or satellite locations. As a result of this
trend and continued corporate layoffs in many markets, a meaningful recovery in
the value of office buildings, except for certain select markets, is not
anticipated in the immediate future.
The financing environment for commercial real estate also began to show signs
of improvement during 1994. According to National Investor Survey, a CB
Commercial publication, there are new sources of capital from commercial
securitization and mortgage conduits. Additionally, Emerging Trends in Real
Estate indicated that traditional sources of capital such as pension funds,
banks and, to a lesser degree, insurance companies, are showing renewed
interest in commercial real estate investment. It is important to note,
however, that lenders are extremely selective in choosing their real estate
investments, and there remains a gap between supply and demand for funds,
particularly with respect to the office sector. As a result, it is difficult
for many potential buyers of commercial office space to obtain adequate
financing, and sales opportunities remain limited.
Summary
While we are pleased with the improved performance of the Partnership's
properties, 1995 is expected to be a challenging year as a significant number
of leases are scheduled to expire at Three Financial Centre, Quorum II Office
Building and Metro Park Executive Center. We have contacted several tenants
whose leases are expiring and will approach the balance throughout 1995,
however, there can be no assurance that renewals will be executed.
Additionally, we will focus on efficient and responsive management to attract
and retain tenants, and enhance our ability to ultimately sell the properties.
As discussed above, the real estate market is generally not currently conducive
to the sale of office property, as real estate asset values remain depressed,
and capital markets restricted. However, it is the General Partners' objective
that, as market conditions gradually improve, the properties will be well
positioned in their respective markets to take advantage of any favorable sales
oppo rtunities which may arise. We will update you with respect to these
efforts in future investor reports.
Very truly yours,
Real Estate Services VII, Inc. Hogan Stanton Investment, Inc.
General Partner General Partner of HS Advisors III, Ltd.
/s/Kenneth L. Zakin /s/Robert M. Stanton
Kenneth L. Zakin Robert M. Stanton
Vice President Chairman
March 31, 1995
PROPERTY PROFILES AND LEASING UPDATE
METRO PARK EXECUTIVE CENTER Fort Myers, Florida
Metro Park Executive Center contains 60,597 square feet of commercial office
space. The property is one of five class "A" commercial office buildings
located in a suburban office park just east of the Fort Myers central business
district in the Edison Central submarket.
Leasing Update - During 1994, we executed two new leases totaling 3,044 square
feet, two lease renewals totaling 1,681 square feet, and three lease
expansions. As a result, the property was 91% leased at December 31, 1994
compared to 85% leased a year earlier. None of the property's tenants
generated rental income in excess of 10% of the Partnership's consolidated
rental income. Four leases representing 14,387 square feet or approximately
24% of the property's leasable area are scheduled to expire in 1995 and two
tenants leasing 3,470 square feet continue to pay rent on a month to month
basis. These tenants have been contacted by the General Partners to discuss
the renewal of their leases, however, it is uncertain whether they will renew.
Fort Myers Market Update - Although operating conditions improved somewhat in
the Fort Myers office market during 1994, the leasing environment remained
competitive. As of the fourth quarter of 1994, the vacancy rate for commercial
office space in Fort Myers increased to approximately 18%, from 15% a year
earlier. However, the vacancy rate for the Edison Central submarket improved
significantly to approximately 15% as of the fourth quarter of 1994, down from
21.2% a year earlier as the area attracted new business, primarily in the
financial services industry. Nevertheless, leasing conditions are expected to
remain competitive throughout 1995.
FORT LAUDERDALE COMMERCE CENTER Fort Lauderdale, Florida
Fort Lauderdale Commerce Center is located in a planned business and industrial
park in the Cypress Creek submarket of Fort Lauderdale in Broward County,
Florida. The property contains 186,936 square feet and consists of six
office/showroom and office/warehouse buildings.
Leasing Update - We are pleased to report the execution of four new leases
totaling 22,509 square feet, including a three-year lease for 8,000 square
feet. Additionally, a tenant whose lease was originally scheduled to expire in
May 1995, executed an early renewal and expanded its leasable space from 4,000
square feet to 10,000 square feet. The new lease is scheduled to expire in
2000. The property was 82% leased as of year-end 1994, compared to 78% as of
year-end 1993. None of the property's tenants accounted for 10% or more of the
Partnership's consolidated rental income. Three leases representing 12,195
square feet are scheduled to expire in 1995 and four leases representing 10,893
square feet continue on a month to month basis while their lease renewals are
being negotiated.
Fort Lauderdale Market Update - The Broward County office market improved
somewhat during 1994 as demand for space increased. As of the third quarter of
1994, the vacancy rate for office/service space and distribution space in the
Cypress Creek submarket, where the property is located, decreased significantly
to 15.5% and 10.4%, respectively, from 23.9% and 11.1%, respectively, a year
earlier. Additionally, improved conditions allowed commercial property owners,
in general, to cease offering rental concessions and in some cases to increase
rental rates, particularly in the warehouse/distribution sector which
experienced a 33% increase in rental rates in 1994. Despite this improvement,
the leasing environment remains competitive.
THREE FINANCIAL CENTRE Little Rock, Arkansas
Situated in the Financial Centre Complex located in west Little Rock, Three
Financial Centre is a 123,123 square foot, eight-story brick office building.
The property affords easy access to downtown Little Rock and the Little Rock
Regional Airport, and is located near two interstate highways, I-630 and I-430.
Several restaurants, hotels, hospitals and a country club are within the
immediate vicinity.
Leasing Update - The General Partners executed three new leases, totalling
5,914 square feet, and two lease renewals in 1994. One tenant executed two
lease expansions during 1994 and now leases 18,498 square feet or approximately
15% of the property's leasable space pursuant to leases scheduled to expire in
April 1998. As a result, the property was 93% leased as of December 31, 1994
compared to 84% leased a year earlier. No tenant accounted for 10% or more of
the Partnership's consolidated rental income. Approximately eight leases
representing over 45,000 square feet, or 39% of the property's space, will
expire in 1995. Many of these tenants have been contacted to discuss the
renewal of their lease, however, there can be no assurance that any renewals
will be executed.
Little Rock Market Update - The Little Rock office market improved somewhat in
1994 as a lack of new construction, combined with an increase in business
activity, narrowed the gap between supply and demand for office space. Although
the overall vacancy rate for office property remained largely unchanged from
1993, at approximately 10%, average rental rates increased by approximately 3%
during the year including the suburban submarket where the property is located.
Vacancy rates in the suburban office market remained at approximately 7%,
unchanged from 1993.
QUORUM II OFFICE BUILDING Dallas, Texas
Quorum II Office Building contains 84,094 square feet of commercial office
space and is located within the Quorum/North Tollway sector of northwestern
Dallas. This area is within close proximity to Loop 635, Dallas Parkway, the
Dallas North Tollway and Inwood Road, providing easy access to downtown Dallas.
Leasing Update - As previously reported, during the first quarter of 1994, a
tenant which leased 30,158 square feet downsized to 9,761 square feet. The
General Partners executed three new leases representing 14,955 square feet and
two lease renewals representing 17,439 square feet. As a result, the property
was 90% leased at December 31, 1994 compared to 99% leased at December 31,
1993. Five leases totaling 26,401 square feet or approximately 31% of the
property's leasable space are scheduled to expire in 1995. These tenants have
been contacted by the General Partners to discuss the renewal of their leases,
however, it is uncertain whether they will renew. No tenant accounted for 10%
or more of the Partnership's consolidated rental income.
Dallas Market Update - The Dallas office market improved in 1994 as the area
led the country in job growth and benefitted from a lack of new office
construction. As a result, the overall vacancy rate in Dallas declined
slightly to 18.0% as of mid-year 1994, from 18.5% at year-end 1993. The
primary beneficiaries of Dallas' improving conditions were those submarkets
which contain a greater concentration of high-quality office properties such as
the LBJ Freeway submarket where the property is located. The vacancy rate for
office space within this submarket declined to approximately 16% at mid-year
1994, from 21% a year earlier. With the increase in demand for office space,
the use of rental concessions to attract prospective tenants has diminished.
Despite this improvement, the area has not yet experienced any meaningful
increase in rental rates and property values remain depressed.
FINANCIAL HIGHLIGHTS
For the years ended December 31,
(dollars in thousands, except for per Unit data)
1994 1993 1992 1991 1990
Total income $ 4,691 $ 4,211 $ 4,034 $ 3,981 $ 3,750
Net loss (332) (910) (712) (766) (683)
Total assets 32,837 33,454 35,220 37,448 40,490
Net cash from operations 1,859 1,536 1,592 1,221 1,265
Net loss per
Limited Partnership Unit (3.00) (8.24) (6.45) (6.94) (6.18)
Cash distributions per
Limited Partnership Unit(1) 5.50 4.00 14.00 14.00 14.00(2)
(1) Cash distributions are paid approximately 45 days following the quarter for
which they are declared.
(2) Includes $3.00 special distribution resulting from
improved property operations in 1990.
The above selected financial data should be read in conjunction with the
financial statements and related notes included in this report.
* Total income increased 11% in 1994 primarily as a result of higher
occupancy at three of the Partnership's properties.
* Net loss was lower in 1994 as a result of increased rental income and
lower depreciation and amortization expense. Operating expenses during
1994 were largely unchanged from a year earlier. Depreciation and
amortization expense declined as a result of a lower depreciable asset
base in 1994, compared with 1993.
Consolidated Balance Sheets
December 31, 1994 and 1993
Assets 1994 1993
Real estate investments, at cost:
Land $ 6,422,301 $ 6,422,301
Buildings and improvements 39,764,931 39,111,601
46,187,232 45,533,902
Less accumulated depreciation (16,113,296) (13,941,302)
30,073,936 31,592,600
Cash and cash equivalents 1,637,501 734,361
Restricted cash 216,079 212,154
1,853,580 946,515
Accounts and rent receivable, net of allowance for
doubtful accounts of $14,557 in 1994 28,326 141,297
Deferred rent receivable 235,246 98,373
Notes receivable, net of allowance for
doubtful accounts of $14,427 in 1993 - 51,403
Prepaid expenses and other assets, net of
accumulated amortization of $718,547 in
1994 and $503,130 in 1993 645,993 624,200
Total Assets $ 32,837,081 $33,454,388
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 426,642 $ 381,463
Due to affiliates 50,702 32,256
Distributions payable 281,902 112,761
Security deposits 204,465 187,230
Total Liabilities 963,711 713,710
Minority Interest 171,315 86,904
Partners' Capital (Deficit):
General Partners (321,732) (299,811)
Limited Partners 32,023,787 32,953,585
Total Partners' Capital 31,702,055 32,653,774
Total Liabilities and Partners' Capital $32,837,081 $33,454,388
Consolidated Statements of Partners' Capital (Deficit)
For the years ended December 31, 1994, 1993 and 1992
General Limited Total
Partners' Partners' Partners'
Balance at December 31, 1991 $(222,695) $36,528,473 $36,305,778
Net loss (7,122) (705,114) (712,236)
Distributions (47,360) (1,531,292) (1,578,652)
Balance at December 31, 1992 (277,177) 34,292,067 34,014,890
Net loss (9,101) (900,970) (910,071)
Distributions (13,533) (437,512) (451,045)
Balance at December 31, 1993 (299,811) 32,953,585 32,653,774
Net loss (3,315) (328,219) (331,534)
Distributions (18,606) (601,579) (620,185)
Balance at December 31, 1994 $(321,732) $32,023,787 $31,702,055
Consolidated Statements of Operations
For the years ended December 31, 1994, 1993 and 1992
Income 1994 1993 1992
Rent $4,641,823 $4,181,367 $3,986,736
Interest 49,446 29,571 47,044
Total Income 4,691,269 4,210,938 4,033,780
Expenses
Property operating 2,231,683 2,114,664 2,103,000
Depreciation and amortization 2,388,925 2,680,516 2,357,140
General and administrative 240,074 224,498 263,400
Bad debt 77,710 14,427 22,476
Total Expenses 4,938,392 5,034,105 4,746,016
Net loss before minority interest (247,123) (823,167) (712,236)
Minority interest (84,411) (86,904) -
Net Loss $ (331,534) $ (910,071) $ (712,236)
Net Loss Allocated:
To the General Partners $ (3,315) $ (9,101) $ (7,122)
To the Limited Partners (328,219) (900,970) (705,114)
$ (331,534) $ (910,071) $ (712,236)
Per limited partnership unit
(109,378 outstanding) $ (3.00) $ (8.24) $ (6.45)
Consolidated Statements of Cash Flows
For the years ended December 31, 1994, 1993 and 1992
Cash Flows from Operating Activities: 1994 1993 1992
Net loss $ (331,534) $ (910,071) $ (712,236)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Minority Interest 84,411 86,904 -
Depreciation and amortization 2,388,925 2,680,516 2,357,140
Increase (decrease) in cash arising
from changes in operating assets
and liabilities:
Restricted cash (3,925) (6,039) (30,411)
Accounts and rent receivable, net 112,971 9,248 63,500
Deferred rent receivable (136,873) 34,755 127,876
Notes receivable 51,403 58,519 49,488
Prepaid expenses (237,210) (207,489) (326,964)
Accounts payable and
accrued expenses (105,068) (218,713) 42,705
Due to affiliates 18,446 4,234 (4,633)
Security deposits 17,235 4,630 25,442
Net cash provided by operating activities 1,858,781 1,536,494 1,591,907
Cash Flows from Investing Activities:
Additions to real estate assets (504,597) (646,560) (956,285)
Net cash used for investing activities (504,597) (646,560) (956,285)
Cash Flows from Financing Activities:
Cash distributions (451,044) (732,947) (1,578,652)
Net cash used for financing activities (451,044) (732,947) (1,578,652)
Net increase/(decrease) in cash and
cash equivalents 903,140 156,987 (943,030)
Cash and cash equivalents at beginning of year 734,361 577,374 1,520,404
Cash and cash equivalents at end of year $1,637,501 $ 734,361 $ 577,374
Supplemental Schedule of Non-Cash Investing Activity:
Additions to real estate assets capitalized
but unpaid at end of period $ 150,247 $ - $ -
Notes to the Consolidated Financial Statements
December 31, 1994, 1993 and 1992
1. Organization
Hutton/GSH Commercial Properties 3 (the "Partnership") was organized as a
limited partnership under the laws of the State of Virginia pursuant to a
Certificate and Agreement of Limited Partnership dated and filed April 19, 1984
(the "Partnership Agreement"). The Partnership was formed for the purpose of
acquiring and operating certain types of commercial real estate. The General
Partners of the Partnership are Real Estate Services VII, Inc. ("Real Estate
Services"), formerly Hutton Real Estate Services VII, Inc. , which is an
affiliate of Lehman Brothers Inc. ("Lehman Brothers") and HS Advisors III, Ltd.
("HS Advisors"), which is an affiliate of Goodman Segar Hogan, Inc. 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 22, 1993, the Hutton Real Estate Services VII, Inc. General
Partner changed its name to delete any reference to Hutton.
2. Significant Accounting Policies
Consolidation - The consolidated financial statements include the accounts of
the Partnership and its ventures, Metro Park Associates Joint Venture ("Metro
Park"), Three Financial Centre Joint Venture ("Three Financial Centre"), and
14850 Quorum Associates, Ltd. ("Quorum"). Intercompany accounts and
transactions between the Partnership and the ventures are eliminated in
consolidation.
Real Estate Investments - Real estate investments, which consist of commercial
buildings (the "Properties"), are recorded at cost, which includes the initial
purchase price of the property plus closing costs, acquisition and legal fees
and other miscellaneous acquisition costs.
Depreciation is computed using the straight-line method based upon the
estimated useful lives of 3 to 25 years except for tenant improvements which
are depreciated over the terms of the respective leases.
Leases are accounted for as operating leases. Leasing commissions generally
are amortized over the terms of the respective leases.
Deferred rent receivable - Deferred rent receivable consists of rental income
which is recognized on a straight-line basis over the terms of the respective
leases even though rent is not received until later periods as a result of
rental escalations.
Cash Equivalents - Cash equivalents consist of short-term highly liquid
investments which have maturities of three months or less from the date of
purchase.
Restricted Cash - Restricted cash consists of amounts held for 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.
Reclassification - Certain balances in the 1993 financial statements have been
reclassified to conform to the 1994 presentation.
3. Partnership Agreement
The Partnership agreement provides that net cash from operations, as defined,
for each fiscal year will be distributed on a quarterly basis as follows: 97%
to the Limited Partners and 3% to the General Partners until each Limited
Partner has received a 9% annual noncumulative 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. The balance of
net cash from operations, if any, will then be distributed 90% to the Limited
Partners and 10% to the General Partners.
Net proceeds from sales or refinancings shall be distributed as follows: 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 a 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.
Losses and all depreciation for any fiscal year shall be allocated 99% to the
Limited Partners and 1% to the General Partners. Income for each fiscal year
and all gain from sales will be allocated in substantially the same manner as
net cash from operations.
If income exceeds the amount of net cash from operations distributable to the
Partners for any fiscal year, the excess will be allocated (1) 100% to the
General Partners in an amount equal to the excess, if any, of General Partners'
deficit in their capital accounts, over an amount equal to 1% of the total
capital contributions to the Partnership as reduced by the amount of the
General Partners' capital contributions and (2) 99% to the Limited Partners and
1% to the General Partners.
Upon the dissolution of the Partnership, the General Partners shall contribute
to the capital of the Partnership, an amount not to exceed 1% of the total
capital contributions made by all the Partners, less any prior capital
contributions made by the General Partners. In no event shall the General
Partners be obligated to contribute an amount in excess of any negative balance
in their respective capital accounts.
If as a result of the dissolution of the Partnership, the sum of the Limited
Partners' capital contribution plus an amount equal to a 6% cumulative annual
return on each Limited Partner's adjusted capital value less any distributions
made to each Limited Partner from net cash flow from operations, exceeds total
distributions to the Limited Partners of net proceeds from a sale or
refinancing, the General Partners will contribute to the Partnership for
distribution to the Limited Partners an amount equal to the lesser of such
excess or the aggregate distribution of net proceeds from a sale or refinancing
distributed to the General Partners.
4. Real Estate Investments
Since inception, the Partnership has acquired, directly or indirectly, the
following three commercial office buildings and an office and light industrial
complex. The purchase price amounts exclude acquisition fees and other closing
costs.
Net
Leasable
Square Date Type of Purchase
Property Name Feet Location Acquired Ownership Price
Metro Park Fort Myers, Joint
Executive Center 60,597 Florida 1/17/85 Venture $ 5,136,504
Three Financial Little Rock, Joint
Centre 123,123 Arkansas 1/22/85 Venture $10,452,005
Fort Lauderdale Fort Lauderdale, Fee
Commerce Center 186,936 Florida 4/18/85 Simple $12,843,569
Quorum II Dallas,
Office Building 84,094 Texas 6/12/85 (A) $12,995,384
(A) The Partnership is the General Partner in a Limited Partnership.
The Joint Venture and Limited Partnership agreements substantially provide that:
i. Net cash from operations will be distributed 100% to the
Partnership until it has received an annual, noncumulative return on
its adjusted capital balance, as defined, of 10.5% for Three Financial
Centre, 12% for Metro Park, and 10% for Quorum. With regard to Three
Financial Centre, net cash from operations will then be distributed
100% to the co-venturer until it has received an annual amount of
$115,000. Thereafter, any remaining net cash from operations will be
distributed 80% to the Partnership and 20% to the respective
co-venturers.
ii. Net proceeds from a sale or other refinancing of the properties
will be distributed 100% to the Partnership until it has received 115%
of its capital contribution and a cumulative return of 10.5% for Three
Financial Centre, 12% for Metro Park, and 10% for Quorum on its
adjusted capital investment, as defined. With regard to Three
Financial Centre, net proceeds will then be distributed 100% to the
co-venturer until it has received $1,100,000. Thereafter, any
remaining net proceeds will be distributed ranging from 75% to 80% to
the Partnership and the balance to the respective co-venturers.
iii. Income will be allocated in substantially the same manner as
net cash from operations. For Three Financial Centre and Metro Park,
net income in excess of net cash from operations distributed in such
year shall be allocated 80% to the Partnership and 20% to the
co-venturers. Losses and all depreciation will generally be allocated
100% to the Partnership.
5. Reconciliation of Net Loss to Tax Loss
The tax loss reported to the partners for the years ended December 31, 1994 and
1992, exceeded the net loss reported in the financial statements by $215,496
and $74,715, respectively. The net loss reported in the financial statements
for the year ended December 31, 1993, exceeded the tax loss reported to the
partners by $153,541. These variances are due to differences in the tax basis
versus the financial statement basis of the buildings and improvements and
different methods of recording depreciation expense. The Partnership uses
accelerated methods for depreciating real estate for tax purposes and the
straight-line method for financial statement purposes. In addition, rental
income is recognized when received or receivable for tax purposes and on a
straight-line basis for financial statement purposes.
6. Transactions with General Partners and Affiliates
The following is a summary of the amounts earned by the General Partners and
their affiliates during the years ended December 31, 1994, 1993 and 1992:
Unpaid at
December 31, Earned
1994 1994 1993 1992
Real Estate Services and
affiliates $ 43,135 $ 96,376 $ 61,112 $ 59,084
HS Advisors and affiliates 7,567 37,566 31,871 36,345
Administrative salaries
and expenses $ 50,702 $133,942 $ 92,983 $ 95,429
The above amounts have been included in general and administrative expenses.
7. Rental Income Under Operating Leases
Future minimum rental income to be received on noncancellable operating leases
as of December 31, 1994 is as follows:
1995 $ 3,376,884
1996 2,681,365
1997 1,668,440
1998 871,145
1999 290,537
Thereafter 570,867
$ 9,459,238
Generally, leases are for terms of 2 to 10 years and contain renewal options.
The leases allow for increases in certain property operating costs to be passed
on to the tenants.
REPORT OF INDEPENDENT AUDITORS
The Partners
Hutton/GSH Commercial Properties 3
and Consolidated Ventures
We have audited the accompanying consolidated balance sheets of Hutton/GSH
Commercial Properties 3 and Consolidated Ventures as of December 31, 1994 and
1993, and the related consolidated statements of operations, partners' capital
(deficit), and cash flows for each of the three years in the period ended
December 31, 1994. 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
statements presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respect, the consolidated financial position of Hutton/GSH
Commercial Properties 3 and Consolidated Ventures at December 31, 1994 and
1993, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
February 6, 1995
Comparison of Acquisition Costs to Appraised Value and Determination of
Net Asset Value Per $484 Unit at December 31, 1994 (Unaudited)
Acquisition Appraised
Property Date of Acquisition Cost (1) Value (2)
Metro Park Executive Center 01-17-85 $ 5,543,159 $ 3,500,000
Three Financial Centre 01-22-85 11,378,512 10,850,000
Fort Lauderdale Commerce Center 04-18-85 14,125,050 9,475,000
Quorum Building II 06-12-85 13,939,093 5,500,000
$44,985,814 $29,325,000
Cash and cash equivalents 1,637,501
Accounts receivable and Prepaid expenses 28,326
30,990,827
Less:
Accounts payable and accrued expenses (426,642)
Due to affiliates (50,702)
Distribution payable (281,902)
Minority Interest (171,315)
Partnership Net Asset Value (3) $30,060,266
Net Asset Value Allocated:
Limited Partners $29,759,663
General Partners 300,603
$30,060,266
Net Asset Value Per Unit (109,378 units outstanding) $272.08
(1) The acquisition cost of each property is comprised of fundings made
through December 31, 1994, the acquisition fee paid to the General Partners and
an amount estimated to fund the completion of tenant improvements.
(2) This represents the Partnership's share of the December 31, 1994
Appraised Values which were determined by an independent property appraisal
firm. The Partnership's share of the December 31, 1994 Appraised Values takes
into account the allocation provisions of the Joint Venture and Limited
Partnership Agreements governing the distribution of sales proceeds for each of
the above properties.
(3) The Net Asset Value assumes a hypothetical sale at December 31, 1994 of
all Partnership properties at their appraised values and the distribution of
the proceeds of such sales, together with the Partnership's cash and the
proceeds from temporary investments, to the Partners. 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 properties and other assets, cash
available for distribution to the Partners would be less than the appraised Net
Asset Value.
Limited Partners should note that appraisals are only estimates of current
value and actual values realizable upon sale may be significantly different. A
significant factor in establishing an appraised value is the actual selling
price for properties which the appraiser believes are comparable. Further, the
appraised 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 appraised
value of the Partnership's properties and the price at which Units of the
Partnership could be sold is likely to be significant. Fiduciaries of Limited
Partners which are subject to ERISA or other provisions of law requiring
valuation 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.
----------
Exhibit 23
----------
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Hutton/GSH Commercial Properties 3 of our report dated February 6, 1995,
included in the 1994 Annual Report to Shareholders of Hutton/GSH Commercial
Properties 3 and Consolidated Ventures.
Our audit also included the financial statement schedule of Hutton/GSH
Commercial Properties 3 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.
ERNST & YOUNG LLP
Boston, Massachusetts
February 6, 1995
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 1,853,580
<SECURITIES> 000
<RECEIVABLES> 278,129
<ALLOWANCES> 14,557
<INVENTORY> 000
<CURRENT-ASSETS> 000
<PP&E> 46,187,232
<DEPRECIATION> 16,113,296
<TOTAL-ASSETS> 32,837,081
<CURRENT-LIABILITIES> 1,135,026
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 31,702,055
<TOTAL-LIABILITY-AND-EQUITY> 32,837,081
<SALES> 000
<TOTAL-REVENUES> 4,860,682
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 4,945,093
<LOSS-PROVISION> 77,710
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> 331,534
<INCOME-TAX> 000
<INCOME-CONTINUING> 331,534
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 331,534
<EPS-PRIMARY> 3.00
<EPS-DILUTED> 000
</TABLE>
