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, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number: 0-13341
COMMERCIAL PROPERTIES 3, L.P.
(formerly Hutton/GSH Commercial Properties 3)
Exact name of registrant as specified in its charter
Virginia 11-2680561
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State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization
3 World Financial Center, 29th Floor
New York, NY ATTN: Andre Anderson 10285
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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, 1995
filed as an exhibit under Item 14.
PART I
Item 1. Business
(a) General Development of Business
Commercial Properties 3, L.P. (the "Registrant" or the "Partnership")
(formerly Hutton/GSH Commercial Properties 3), 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. 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, 1995, $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.
(b) Financial Information About Industry Segment
The Registrant's sole business is the ownership and operation of the
Properties. 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 December 31, 1995 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) 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 will be the Registrant's objective
during its operational phase, while the preservation and appreciation of
capital will be the Registrant's long-term objective. Future distributions
will be made from rental operations with respect to the Registrant's investment
in the Properties, as well as from interest on short-term investments and
return of capital. 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 localities in which the
Registrant's Properties are located, especially with regard to achievement of
capital appreciation.
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.
(d) Competition
Incorporated by reference to the section entitled "Property Profiles & Leasing
Update" in the Partnership's Annual Report to Unitholders for the year ended
December 31, 1995 filed as an exhibit under Item 14.
(e) Employees
The Registrant has no employees.
Item 2. Properties
Description of Properties and material leases incorporated by reference to the
section entitled "Property Profiles & Leasing Update" in the Partnership's
Annual Report to Unitholders for the year ended December 31, 1995 filed as an
exhibit under Item 14 and Note 5 "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
1995.
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, 1995, the number of holders of Units was 5,452.
(c) Distributions
Cash distributions paid to the Limited Partners for the two years ended
December 31, 1995 incorporated by reference to the section entitled "Message to
Investors" in the Partnership's Annual Report to Unitholders for the year ended
December 31, 1995 filed as an exhibit under Item 14.
Item 6. Selected Financial Data
Incorporated by reference to the section entitled "Financial Highlights" in the
Partnership's Annual Report to Unitholders for the year ended December 31,
1995, 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
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The Partnership had cash and cash equivalents totaling $2,134,370 at December
31, 1995, compared with $1,637,501 at December 31, 1994. The increase is due
to net cash provided by operating activities in excess of additions to real
estate assets totaling $458,496 and the payment of cash distributions to
partners totaling $1,212,179. The Partnership had a restricted cash balance of
<PAGE>
$237,566 at December 31, 1995, compared with $216,079 at December 31, 1994.
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 totaled $64,616 at December 31, 1995
compared to $28,326 at December 31, 1994. The increase is due primarily to the
timing of the receipt of rental payments.
Real estate assets decreased by $5,532,585 in 1995 due primarily to the
Partnership's write down of the Quorum property to its estimated fair market
value, pursuant to the requirements of FAS 121. The determination of the
estimated fair market value of the property was based upon the most recent
appraisal of the property, which is conducted annually. The balance of the
decrease is due to depreciation of $2,062,083 offset by additions to real
estate of $458,496.
Accounts payable and accrued expenses decreased to $237,185 at December 31,
1995 from $426,642 at year-end 1994. The decrease is primarily due to tenant
and building improvement invoices received but unpaid at December 31, 1994.
Due to affiliates totaled $28,479 at December 31, 1995, compared to $50,702 at
December 31, 1994. The decrease is due largely to the timing of payments.
Distribution payable increased to $563,804 at December 31, 1995 from $281,902
at December 31, 1994 primarily reflecting an increase in the Partnership's
quarterly cash distribution.
The Registrant declared cash distributions to Limited Partners of $13.25 per
Unit for the year ended December 31, 1995. Included in this total is a cash
distribution of $5.00 per Unit for the quarter ended December 31, 1995, which
was paid on February 12, 1996. Due to improving Partnership operations, and
following a review of the Partnership's anticipated future cash needs and
current cash position, the General Partners increased the 1995 fourth quarter
distribution from its previous level of $2.50 per Unit for the first and second
quarters and $3.25 per Unit for the third quarter to $5 per Unit. In addition,
on March 29, 1996 the Partnership paid a special cash distribution in the
amount of $13.30 per Unit. The distribution was made from the Partnership's
cash reserves. The timing and amount of future distributions will be
determined quarterly and will depend on several factors, including the adequacy
of rental income generated by current leases and Partnership cash flow.
On March 15, 1996, based upon, among other things, the advice of Partnership
counsel, Skadden, Arps, Slate, Meagher & Flom, the General Partners adopted a
resolution that states, among other things, if a Change of Control (as defined
below) occurs, the General Partners may distribute the Partnership's cash
balances not required for its ordinary course day-to-day operations. "Change
of Control" means any purchase or offer to purchase more than 10% of the Units
that is not approved in advance by the General Partners. In determining the
amount of the distribution, the General Partners may take into account all
material factors. In addition, the Partnership will not be obligated to make
any distribution to any partner and no partner will be entitled to receive any
distribution until the General Partners have declared the distribution and
established a record date and distribution date for the distribution. The
Partnership filed a Form 8-K disclosing this resolution on March 21, 1996.
Results of Operations
1995 vs 1994
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Partnership operations resulted in a net loss of $3,631,162 for the year ended
December 31, 1995, compared to net loss of $331,534 for the corresponding
period in 1994. The increase in net loss is primarily attributable to a
$3,928,998 loss recognized on the write down of the Quorum II property. This
write down was recorded on the 1995 Financial Statements only and had no impact
on Limited Partners' tax basis capital accounts. See Note 2 "Significant
Accounting Policies - Accounting for Impairment", Note 4 "Real Estate
Investments" and Note 7 "Reconciliation of Financial Statement Net Loss to
Federal Income Tax Basis Net Loss" of the Notes to the Consolidated Financial
Statements in the Partnership's Annual Report to Unitholders for the year ended
December 31, 1995 filed as an exhibit under Item 14.
Rental income totaled $5,047,528 for the year ended December 31, 1995 compared
to $4,641,823 for the year ended December 31, 1994. The increase is due to
higher occupancy and rent escalations at three of the Partnership's four
properties. Interest income totaled $110,529 for the year ended December 31,
1995, compared to $49,446 for the year ended December 31, 1994. The increase
is due primarily to a larger average cash balance in 1995.
Property operating expenses totaled $2,283,025 for the year ended December 31,
1995, compared to $2,231,683 for the year ended December 31, 1994. The
increase is largely due to higher grounds maintenance expense at Fort
Lauderdale Commerce Center. Depreciation and amortization decreased to
$2,278,567 for the year ended December 31, 1995 from $2,388,925 for the year
ended December 31, 1994, primarily due to a lower depreciable asset base in
1995. The Partnership incurred bad debt expense of $77,710 for the year ended
December 31, 1994 reflecting the uncollectibility of delinquent rent. The
Partnership incurred no bad debt expense in 1995.
For the year ended December 31, 1995, net income of $50,022 was allocated to
the co-venturer of Three Financial Centre. This allocation resulted from the
property's net income, prior to depreciation expense, being in excess of net
cash distributed from operations.
As of December 31, 1995, lease levels at each of the properties were as
follows: Metro Park Executive Center - 78%; Fort Lauderdale Commerce Center -
88%; Three Financial Centre - 94 %; Quorum II Office Building - 98%.
1994 vs 1993
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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%.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1995, 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.
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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"). See the section captioned
"Certain Matters Involving Hutton Affiliates" below for a description of the
Hutton Group's acquisition by Shearson Lehman Brothers, Inc. ("Shearson") and
the subsequent sale of certain of Shearson's 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
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 Office
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Rocco F. Andriola Director, President, Chief Financial Officer
Kenneth L. Zakin Director, Vice President
William Caulfield Vice President
Michael Marron Vice President
Lawrence M. Ostow Vice President
Roy W. Pollitt Vice President
Rocco F. Andriola, 37, 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, 48, is a Senior Vice President of Lehman Brothers Inc. 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 a member of the Real Estate Lender's
Association and is currently an associate member of the Urban Land Institute
and a member o f the New York District Council Advisory Services Committee. He
received 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, 36, is a Vice President of Lehman Brothers Inc. 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 - C.W. Post Campus.
Michael Marron, 32, is a Vice President of Lehman Brothers Inc. 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 in accounting from the State University of
New York at Albany in 1985 and is a Certified Public Accountant.
Lawrence M. Ostow, 28, is a Vice President of Lehman Brothers Inc. and is
responsible for the management of commercial real estate in the Diversified
Asset Group. Mr. Ostow joined Lehman Brothers in September 1992. Prior to
that, Mr. Ostow was a Senior Consultant with Arthur Andersen & Co. in the Real
Estate Services Group, beginning in July 1990. Mr. Ostow is a candidate for an
M.B.A. from the Stern School of Business in 1997 and earned a B.A. degree in
Economics from the University of Michigan in 1990.
Roy W. Pollitt, 24, is an Associate of Lehman Brothers Inc. and is responsible
for the management of various commercial real estate portfolios in the
Diversified Asset Group. Mr. Pollitt joined Lehman Brothers in November 1995.
Prior to that, Mr. Pollitt had attained Senior status with Arthur Anderson
L.L.P. in the Real Estate Services Group, where he had been employed since May
1992. Mr. Pollitt is a candidate to become a Certified Public Accountant and
earned a B.A. degree in Accounting from the Hagan School of Business at Iona
College in May 1993.
HS Advisors III, Ltd.
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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 Office
Robert M. Stanton Chairman
Mark P. Mikuta President
John L. Cote Vice President and Treasurer
Julie R. Adie Vice President and Secretary
Robert M. Stanton, 57, is the retired 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 and retired from the company in 1993. He is currently President of
Stanton Partners, Inc., a real estate investment and advisory firm. Mr.
Stanton serves as a Trustee of the Urban Land Institute (ULI) and 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. Mr. Stanton co-authored The Valuation of
Shopping Centers, published by the American Institute of Real Estate
Appraisers. Currently, he serves on <PAGE>
the advisory board of Norfolk Southern
Corporation and is Chairman of the Greater Norfolk Corporation. He holds the
Certified Property Manager (CPM) designation conferred by the Institute of Real
Estate Management. Mr. Stanton also serves as Chairman of American Storage
Properties. A graduate of Old Dominion University with a B.A. Degree in
Banking and Finance, he served as Rector of the Board of Visitors.
Mark P. Mikuta, 41, is President 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.
John L. Cote, 51, is a Vice President of Goodman Segar Hogan, Inc. and Senior
Vice President of Goodman Segar Hogan Hoffler, L.P. ("GSHH"). He heads that
company's Asset Management Division, where he is responsible for the portfolio
of the office, retail and industrial properties throughout the southeastern
United States. Prior to joining GSHH, Mr. Cote was Vice President of
Armada-Hoffler Holdings, Inc., a real estate developer and construction company
located in Chesapeake, Virginia. He was employed by Armada-Hoffler from 1980
through 1993. He holds a B.S. Degree in Political Science from the University
of Southern Mississippi.
Julie R. Adie, 41, is a Vice President of Goodman Segar Hogan, Inc. and Vice
President of Goodman Segar Hogan Hoffler, L.P. ("GSHH"). She responsible for
investment management of a commercial real estate portfolio for the company's
Asset Management Division. Prior to GSHH, 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 3, 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 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., an 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 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
December 31, 1995.
(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 December 31,
1995.
(c) Changes In Control
None
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, 1995, $36,312 of the Registrant's
loss was allocated to the General Partners ($24,208 to RES and $12,104 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.
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 certain Properties owned by the Registrant or its joint
ventures. For such services GSH will be entitled to receive a management fee
as described under the section captioned "Investment Objectives and Policies --
Management of Properties" in 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 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.
First Data Investor Services Group (formerly "The Shareholder Services Group")
("FDISG") 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 ("SDC"). Both
FDISG and SDC are unaffiliated companies. 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 the Consolidated Financial Statements contained in the
Partnership's Annual Report to Unitholders for the year ended December 31, 1995
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, 1995 and 1994 (1)
Consolidated Statements of Partners' Capital (Deficit) -
For the years ended December 31, 1995, 1994 and 1993 (1)
Consolidated Statements of Operations -
For the years ended December 31, 1995, 1994 and 1993 (1)
Consolidated Statements of Cash Flows -
For the years ended December 31, 1995, 1994 and 1993 (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.
(1) Incorporated by reference to the Partnership's Annual Report to Unitholders
for the year ended December 31, 1995, which is filed as exhibit 13.
(b) Reports on Form 8-K filed in the fourth quarter of calendar year 1995:
None.
(c) See Exhibit Index contained herein.
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, 1995.
(27) Financial Data Schedule
(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: April 1, 1996
COMMERCIAL PROPERTIES 3, L.P.
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: April 1, 1996
BY: /s/Rocco F. Andriola
Rocco F. Andriola
Director, President and
Chief Financial Officer
Date: April 1, 1996
BY: /s/William Caulfield
William Caulfield
Vice President
Date: April 1, 1996
BY: /s/Kenneth L. Zakin
Kenneth L. Zakin
Vice President and Director
Date: April 1, 1996
BY: /s/Michael T. Marron
Michael T. Marron
Vice President
Date: April 1, 1996
BY: /s/Lawrence M. Ostow
Lawrence M. Ostow
Vice President
Date: April 1, 1996
BY: /s/Roy W. Pollitt
Roy W. Pollitt
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: April 1, 1996
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: April 1, 1996
BY: /s/Mark P. Mikuta
Mark P. Mikuta
President of Hogan Stanton
Investment, Inc., as general
partner of HS Advisors III, Ltd.
Date: April 1, 1996
BY: /s/John L. Cote
John L. Cote
Vice President and Treasurer of
Hogan Stanton Investment, Inc.,
as general partner of
HS Advisors III, Ltd.
Date: April 1, 1996
BY: /s/Julie R. Adie
Julie R. Adie
Vice President and Secretary of
Hogan Stanton Investments, Inc.
as general partner of HS Advisors III,
Ltd.
Exhibit 13
-------------
Commercial Properties 3, L.P.
1995 Annual Report
----------------------------------
Commercial Properties 3, L.P., formerly Hutton/GSH Commercial Properties 3 (the
"Partnership"), 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, 1995
and 1994.
Percentage Leased
Property Location 1995 1994
Metro Park Executive Center Fort Myers, FL 78% 91%
Fort Lauderdale Commerce Center Fort Lauderdale, FL 88% 82%
Three Financial Centre Little Rock, AR 94% 93%
Quorum II Office Building Dallas, TX 98% 90%
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144-2596 Attn: Financial Communications
800-223-3464 (select option 1) 800-223-3464 (select option 2)
---------- Message to Investors ----------
Presented for your review is the 1995 Annual Report for Commercial Properties
3, L.P. Included in this report is an update of property operations, cash
distributions, a review of national and local market conditions for each of the
Partnership's properties, and financial highlights.
1995 was a challenging year for the Partnership as a significant number of
leases expired at the Partnership's properties. We are pleased to report that
the majority of the expiring leases at Fort Lauderdale Commerce Center, Quorum
II Office Building and Three Financial Centre were renewed. The General
Partners also executed new leases at these three properties which not only
replaced the tenants that vacated during the year, but also resulted in
increased occupancy. As a result of such higher occupancy levels, the
Partnership's 1995 fourth quarter cash distribution was increased, as discussed
below. This leasing progress was partially offset by the vacancy of several
tenants at Metro Park Executive Center. A complete leasing update for each of
the Partnership's properties is provided in the Property Profiles & Leasing
Update, beginning on page 3 of this report.
Cash Distributions
We are pleased to report that due to higher occupancy and improved operations
at three of the Partnership's properties and following a review of the
Partnership's anticipated future cash needs and current cash position, the
General Partners increased the 1995 fourth quarter distribution from its
previous level of $3.25 per Unit to $5.00 per Unit. This distribution was paid
on February 12, 1996 and was either credited to your brokerage account or sent
directly to you. For the year ended December 31, 1995, the Partnership
declared cash distributions to the Limited Partners totaling $13.25 per Unit.
In addition, on March 29, 1996 the Partnership paid a special cash distribution
in the amount of $13.30 per Unit. This distribution was made from the
Partnership's cash reserves.
Since inception, including the special distribution, the Partnership has paid
cash distributions totaling $149.81 per original $500 Unit, including $16 per
Unit in return of capital payments which have reduced the Unit size from $500
to $484. The timing and amount of future cash distributions will depend on
several factors, including the adequacy of cash flow and the Partnership's cash
reserve requirements. Information regarding the payment of cash distributions
for the last two years is provided below.
Cash Distributions Per Limited Partnership Unit
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
1994 $1.00 $1.00 $1.00 $2.50 $ 5.50
1995 $2.50 $2.50 $3.25 $5.00 $13.25
Market Overview
Although still lagging behind other sectors of real estate, the commercial
office market showed signs of improvement during 1995, particularly in the
suburban office sector. The national vacancy rate declined to 11.5% as of the
fourth quarter of 1995, down from approximately 16% as of year-end 1994. In
general, the gap between supply and demand is gradually narrowing as the
existing supply of office space continues to be absorbed. However, demand for
office space varies widely from region to region as corporate layoffs persist
and companies continue to be very selective in their choice of location.
Moreover, despite the resurgence of investment in other segments of the real
estate industry, lenders continue to be selective in providing capital for
commercial office properties. With the exception of the Metro Park Executive
Center's submarket, which was adversely impacted by the relocation of several
tenants during 1995 outside of the market, the markets in which the
Partnership's properties are located improved during 1995, with declines in
their respective vacancy rates and slight increases in rental rates.
Summary
During 1996, we will focus on leasing the vacant space at the Partnership's
properties, particularly at Metro Park Executive Center, and renewing any
leases which are scheduled to expire, especially at Fort Lauderdale Commerce
Center and Quorum II Office Building. Additionally, the General Partners
intend to closely monitor generally improving market conditions to determine
the future strategy for marketing the properties for sale. We will update you
with respect to any such 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
April 1, 1996
---------- Property Profiles and Leasing Update ----------
METRO PARK EXECUTIVE CENTER Fort Myers, Florida
Metro Park Executive Center is situated in a suburban office park just east of
the Fort Myers central business district in the Edison Central submarket. The
property is one of five class "A" commercial office buildings located within
the office park. The property contains 60,597 leasable square feet of
commercial office space.
Leasing Update - The General Partners executed two new leases totaling 3,332
square feet and two lease renewals in 1995. In addition, a tenant expanded its
space by 4,008 square feet to lease a total of 20,525 square feet. Three
tenants leasing a total of 8,479 square feet vacated their spaces upon
expiration of their respective leases, one tenant reduced its occupancy by
3,514 square feet, and another tenant prematurely vacated 1,965 square feet.
As a result, the property was 78% leased at December 31, 1995, compared with
91% at year-end 1994. None of the property's tenants generated rental income
in excess of 10% of the Partnership's consolidated rental income. Four leases
totaling 10,723 square feet or approximately 19% of the property's space are
scheduled to expire during 1996, and one lease for 16,517 square feet can be
cancelled at any time throughout 1996 by the tenant. The General Partners will
approach each of these tenants regarding lease renewals when appropriate.
Fort Myers Market Update - The commercial office market in Fort Myers remained
stable during 1995 as the vacancy rate declined to approximately 14% as of the
fourth quarter of 1995, down from 18% for the fourth quarter of 1994. However,
the Edison Central submarket was adversely impacted by the relocation of
several tenants during 1995 outside of the market resulting in an increased
vacancy rate for commercial office space of approximately 17% as of the fourth
quarter of 1995, compared with 15% for the fourth quarter of 1994. Leasing
conditions are expected to remain competitive in the Edison Central submarket
and throughout the Fort Myers market in 1996.
FORT LAUDERDALE COMMERCE CENTER Fort Lauderdale, Florida
Fort Lauderdale Commerce Center contains 186,884 leasable square feet of
office/showroom and office/warehouse space. The property is located in the
Cypress Creek submarket in the north central section of Broward County,
approximately five miles north of the central business district of Fort
Lauderdale.
Leasing Update - During the year, the General Partners executed two new leases
totaling 9,200 square feet and five lease renewals totaling 17,853 square feet,
including two tenants which expanded their space by a total of 2,860 square
feet. Another tenant leasing 5,428 square feet terminated its lease during the
fourth quarter. Consequently, the property's lease level was 88% at December
31, 1995, compared with 82% at December 31, 1994. None of the property's
tenants accounted for 10% or more of the Partnership's consolidated rental
income. As reported previously, the property currently has 15,000 square feet
of contiguous vacant space, which the General Partners are aggressively
marketing. While a number of prospective tenants have expressed an interest in
the space, no assurance can be made that the space will be leased, in the near
term. During 1996, seven leases representing 33,202 square feet or
approximately 17% of the property's leasable space, are scheduled to expire.
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 Lauderdale Market Update - Demand for office space in Broward County was
relatively strong during 1995 as companies continued to relocate to the area to
expand their businesses into the Caribbean and South America. Although the
overall vacancy rate for office/service space in Broward County was unchanged
from the previous year, at 7.5% as of the 1995 fourth quarter, rental
concessions are no longer required to attract and retain tenants and rental
rates have increased slightly. The Cypress Creek submarket benefitted by the
relatively strong demand and the vacancy rate for office/service space and
distribution space decreased to 12.1% and 7.3%, respectively, as of the 1995
fourth quarter, from 15.5% and 10.4%, respectively, a year earlier. Market
conditions are expected to gradually improve throughout 1996.
THREE FINANCIAL CENTRE Little Rock, Arkansas
Three Financial Centre is a 123,833 leasable square foot, eight-story brick
office building situated in the Financial Centre Complex located in west Little
Rock. 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.
Leasing Update - The General Partners faced significant challenges at the
property during 1995 as a tenant which occupied 18,854 square feet or
approximately 15% of the property's leasable area vacated the premises in July
1995, upon the expiration of its lease. Nevertheless, they were able to
re-lease all of the space by year-end. The General Partners executed a lease
expansion with an existing tenant for the space pursuant to a lease scheduled
to expire in September 2000. The tenant now leases 37,352 square feet or
approximately 30% of the property's leasable space. In addition, the General
Partners executed three lease renewals totaling 11,100 square feet during the
year and two tenants expanded their spaces by 8,910 square feet. At year-end
1995, the property's lease level was 94%, relatively unchanged from 93% a year
earlier. None of the property's tenants accounted for 10% or more of the
Partnership's consolidated rental income. Six leases representing 21,230
square feet or approximately 17% of the property's leasable area are scheduled
to expire during 1996. The General Partners will approach each of these
tenants regarding lease renewals when appropriate.
Little Rock Market Update - The Little Rock office market remained stable
during 1995 as evidenced by an overall vacancy rate for office properties of
10%, unchanged from 1994. The suburban office market also remained stable with
a slight increase in rental rates. Despite the completion of three new office
buildings in 1995 for 248,613 square feet, the vacancy rate for office space in
the suburban market was 8% for the fourth quarter of 1995, compared with 7% for
the same period a year earlier. Although three additional new office buildings
for approximately 265,000 square feet are slated for completion in the Little
Rock area in late 1996 and 1997, demand is expected to remain in line with the
available supply.
QUORUM II OFFICE BUILDING Dallas, Texas
Quorum II Office Building is located in the LBJ/Quorum submarket in
northwestern Dallas. The property contains 84,094 leasable square feet of
commercial office space and affords easy access to Loop 635, Dallas Parkway,
the Dallas North Tollway and Inwood Road.
Leasing Update - The General Partners executed five new leases totaling 9,162
square feet, during 1995, including a three-year lease for 4,977 square feet.
Additionally, three tenants leasing 15,317 square feet each executed three-year
lease renewals for their respective spaces. In addition, a lease totaling
9,761 square feet that was scheduled to expire on December 31, 1995, was
extended to March 31, 1997. As a result, the property was 98% leased at
December 31, 1995, compared to 90% leased at year-end 1994. None of the
property's tenants accounted for 10% or more of the Partnership's consolidated
rental income. Three leases representing 24,777 square feet or approximately
29% of the property's leasable area are scheduled to expire in 1996. These
tenants have been contacted by the General Partners to discuss the renewal of
their leases, however, it is uncertain whether they will renew or extend their
terms.
Dallas Market Update - The Dallas commercial real estate market improved in
1995 primarily as a result of companies migrating into the region, increasing
demand for office space. Accordingly, operating conditions for property owners
in the LBJ/Quorum submarket improved during the past year. As of the second
quarter of 1995, the submarket's vacancy rate for office space declined to 10%
versus 16% a year earlier. The use of rental concessions has abated and rental
rates have increased by approximately 5% in 1995. The improving conditions are
expected to continue in 1996 as no new office construction is planned for the
submarket.
---------- Financial Highlights ----------
For the years ended December 31,
(dollars in thousands, except for per Unit data)
1995 1994 1993 1992 1991
Total income $ 5,158 $ 4,691 $ 4,211 $ 4,034 $ 3,981
Net loss (3,631) (332) (910) (712) (766)
Total assets 27,842 32,837 33,454 35,220 37,448
Net cash from operations 2,168 1,859 1,536 1,592 1,221
Net loss per
Limited Partnership Unit (32.87) (3.00) (8.24) (6.45) (6.94)
Cash distributions per
Limited Partnership Unit 13.25 5.50 4.00 14.00 14.00
The above selected financial data should be read in conjunction with the
financial statements and related notes included in this report.
- - Total income increased in 1995 primarily as a result of higher rental income
generated by three of the Partnership's four properties, in addition to
higher other income.
- - The increase in net loss is primarily attributable to a $3,928,998 loss
recognized on the write down of the Quorum II Office Building, implemented
in compliance with Financial Accounting Standard No. 121, a new accounting
standard which was issued in March 1995. Please see Notes 2 and 4 to the
Consolidated Financial Statements for more details. It should be noted that
as a result of this write down, the present book value of the property is now
consistent with the property's 1995 appraised value. Additionally, this
write down was recorded on the 1995 Consolidated Financial Statements only
and had no impact on Limited Partners' tax basis capital accounts.
- - The increase in net cash from operations in 1995 is primarily attributable to
higher total income.
- - Total assets declined by approximately $5 million, largely as a result of the
write down of the Quorum II Office Building as cited above. Total assets are
now consistent with the Partnership's current calculation of Net Asset Value
and in line with prior years' calculation of Net Asset Value, which has been
previously reported.
Consolidated Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Real estate investments, at cost:
Land $ 5,808,694 $ 6,422,301
Buildings and improvements 31,446,737 39,764,931
37,255,431 46,187,232
Less accumulated depreciation (12,714,080) (16,113,296)
24,541,351 30,073,936
Cash and cash equivalents 2,134,370 1,637,501
Restricted cash 237,566 216,079
Accounts and rent receivable, net of
allowance for doubtful accounts of $5,486
in 1995 and $14,557 in 1994 64,616 28,326
Deferred rent receivable 230,626 235,246
Prepaid leasing costs and other assets, net
of accumulated amortization of $900,609
in 1995 and $718,547 in 1994 633,476 645,993
Total Assets $27,842,005 $32,837,081
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 237,185 $ 426,642
Due to affiliates 28,479 50,702
Distributions payable 563,804 281,902
Security deposits 214,388 204,465
Total Liabilities 1,043,856 963,711
Minority Interest 221,337 171,315
Partners' Capital (Deficit):
General Partners (402,866) (321,732)
Limited Partners (109,378 units outstanding) 26,979,678 32,023,787
Total Partners' Capital 26,576,812 31,702,055
Total Liabilities and Partners' Capital $27,842,005 $32,837,081
Consolidated Statements of Partners' Capital (Deficit)
For the years ended December 31, 1995, 1994 and 1993
General Limited
Partners Partners Total
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
Net loss (36,312) (3,594,850) (3,631,162)
Distributions (44,822) (1,449,259) (1,494,081)
Balance at December 31, 1995 $ (402,866) $26,979,678 $26,576,812
Consolidated Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Income 1995 1994 1993
- ----------------
Rent $5,047,528 $4,641,823 $4,181,367
Interest 110,529 49,446 29,571
Total Income 5,158,057 4,691,269 4,210,938
Expenses
- ----------------
Property operating 2,283,025 2,231,683 2,114,664
Loss on write-down of real estate 3,928,998 -- --
Depreciation and amortization 2,278,567 2,388,925 2,680,516
General and administrative 248,607 240,074 224,498
Bad debt -- 77,710 14,427
Total Expenses 8,739,197 4,938,392 5,034,105
Net loss before minority interest (3,581,140) (247,123) (823,167)
Minority interest (50,022) (84,411) (86,904)
Net Loss $(3,631,162) $ (331,534) $ (910,071)
Net Loss Allocated:
To the General Partners $ (36,312) $ (3,315) $ (9,101)
To the Limited Partners (3,594,850) (328,219) (900,970)
$(3,631,162) $ (331,534) $ (910,071)
Per limited partnership unit
(109,378 outstanding) $(32.87) $(3.00) $(8.24)
Consolidated Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
Cash Flows from Operating Activities: 1995 1994 1993
Net loss $(3,631,162) $ (331,534) $ (910,071)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Minority Interest 50,022 84,411 86,904
Loss on write-down of real estate 3,928,998 -- --
Depreciation and amortization 2,278,567 2,388,925 2,680,516
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Restricted cash (21,487) (3,925) (6,039)
Accounts and rent receivable, net (36,290) 112,971 9,248
Deferred rent receivable 4,620 (136,873) 34,755
Notes receivable -- 51,403 58,519
Prepaid expenses (203,967) (237,210) (207,489)
Accounts payable and accrued expenses (189,457) (105,068) (218,713)
Due to affiliates (22,223) 18,446 4,234
Security deposits 9,923 17,235 4,630
Net cash provided by operating activities 2,167,544 1,858,781 1,536,494
Cash Flows from Investing Activities:
Additions to real estate assets (458,496) (504,597) (646,560)
Net cash used for investing activities (458,496) (504,597) (646,560)
Cash Flows from Financing Activities:
Cash distributions (1,212,179) (451,044) (732,947)
Net cash used for financing activities (1,212,179) (451,044) (732,947)
Net increase in cash and cash equivalents 496,869 903,140 156,987
Cash and cash equivalents at
beginning of year 1,637,501 734,361 577,374
Cash and cash equivalents at end of year $2,134,370 $1,637,501 $ 734,361
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, 1995, 1994 and 1993
1. Organization
Commercial Properties 3, L.P. (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. 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. Additionally, effective August 3,
1995, the Partnership changed its name to Commercial Properties 3, L.P., to
delete any reference to "Hutton."
On March 15, 1996, based upon, among other things, the advice of Partnership
counsel, Skadden, Arps, Slate, Meagher & Flom, the General Partners adopted a
resolution that states, among other things, if a Change of Control (as defined
below) occurs, the General Partners may distribute the Partnership's cash
balances not required for its ordinary course day-to-day operations. "Change
of Control" means any purchase or offer to purchase more than 10% of the Units
that is not approved in advance by the General Partners. In determining the
amount of the distribution, the General Partners may take into account all
material factors. In addition, the Partnership will not be obligated to make
any distribution to any partner and no partner will be entitled to receive any
distribution until the General Partners have declared the distribution and
established a record date and distribution date for the distribution. The
Partnership filed a Form 8-K disclosing this resolution on March 21, 1996.
2. Significant Accounting Policies
Basis of Accounting - The accompanying financial statements have been prepared
on the accrual basis of accounting in accordance with generally accepted
accounting principles. Revenues are recognized as earned and expenses are
recorded as obligations are incurred.
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 and capital improvements (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.
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. Pursuant to this
issuance, the Partnership implemented FAS 121 in the fourth quarter of 1995.
The effect of the adoption was the recognition of an impairment loss on the
Partnership's investments in real estate in 1995 in the amount of $3,928,998
(see note 4).
Cash Equivalents - Cash equivalents consist of short-term highly liquid
investments which have maturities of three months or less from the date of
purchase. The carrying amount approximates fair value because of the short
maturity of these instruments.
Restricted Cash - Restricted cash consists of amounts held for tenant security
deposits.
Concentration of Credit Risk - Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash
in excess of the financial institution's insurance limits. The Partnership
invests available cash with high credit quality financial institutions.
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.
Prepaid Leasing Costs - Leases are accounted for as operating leases. Leasing
commissions generally are amortized over the terms of the respective leases.
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 amounts 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.
3. Partnership Agreement
The Partnership agreement provides that net cash from operations, as defined,
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.
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. If income does not exceed the amount of net cash
from operations distributable to the Partners for any fiscal year, income will
be allocated 90% to the Limited Partners and 10% 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 123,833 Arkansas 1/22/85 Venture $10,452,005
Fort Lauderdale Fort Lauderdale, Fee
Commerce Center 186,884 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.
During the fourth quarter of 1995 management evaluated its plans for the Quorum
II Office Building ("Quorum"). At such time, management concluded that it may
not hold Quorum for a period sufficient for rental rates to improve and the
Partnership to recover its December 31, 1995 carrying value. As a consequence
of this decision, and pursuant to the requirements of FAS 121, the Partnership
recognized an impairment loss of $3,928,998 to write down Quorum to its
estimated fair value of $4.6 million as of December 31, 1995. The loss is
reflected as a loss on the write-down of real estate in the accompanying
consolidated statement of operations. Fair value was determined using an
independent appraisal of the operating property, which is consistent with that
used to determine the Partnership's Net Asset Value. Such appraisals make use
of a combination of certain generally accepted valuation techniques, including
direct capitalization, discounted cash flows and comparative sales analysis.
5. Rental Income Under Operating Leases
Future minimum rental income to be received on noncancellable operating leases
as of December 31, 1995 is as follows:
1996 $ 4,016,343
1997 2,979,828
1998 1,771,191
1999 897,684
2000 658,282
Thereafter 890,520
$11,213,848
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.
6. Transactions with General Partners and Affiliates
The following is a summary of the amounts earned by or reimbursed to the
General Partners and their affiliates for administrative salaries and expenses
during the years ended December 31, 1995, 1994 and 1993:
Unpaid at
December 31, Earned
---------------------------------
Administrative salaries
and expenses 1995 1995 1994 1993
Real Estate Services and
affiliates $20,000 $ 71,776 $ 96,376 $61,112
HS Advisors and affiliates 8,479 31,815 37,566 31,871
$28,479 $103,591 $133,942 $92,983
The above amounts have been included in general and administrative expenses.
7. Reconciliation of Financial Statement Net Loss to Federal Income Tax Basis
Net Income (Loss)
Years Ended December 31,
1995 1994 1993
Financial statement net loss $(3,631,162) $ (331,534) $ (910,071)
Tax basis depreciation over
financial statement depreciation (8,921) (192,309) 102,820
Write-down of real estate 3,928,998 -- --
Deferred rent 23,757 (82,128) 34,755
Minority interest adjustment 3,343 10,133 1,543
Prepaid rent (47,283) 48,674 --
Bad debt expense -- 134 14,423
Federal income tax basis
net income (loss) $ 268,732 $ (547,030) $ (756,530)
---------- Report of Independent Auditors ----------
The Partners
Commercial Properties 3
and Consolidated Ventures
We have audited the accompanying consolidated balance sheets of Commercial
Properties 3 and Consolidated Ventures as of December 31, 1995 and 1994, 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,
1995. 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 respects, the consolidated financial position of Commercial
Properties 3 and Consolidated Ventures at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 2 to the financial statements, in 1995 the Partnership
changed its method of accounting for impairment of long-lived assets.
ERNST & YOUNG LLP
Boston, Massachusetts
February 5, 1996,
except for Note 1, as to which the date is
March 15, 1996
Comparison of Acquisition Costs to Appraised Value and Determination of
Net Asset Value Per $484 Unit at December 31, 1995 (Unaudited)
Acquisition Appraised
Property Date of Acquisition Cost (1) Value (2)
Metro Park Executive Center 01-17-85 $ 5,543,159 $ 3,100,000
Three Financial Centre 01-22-85 11,378,512 11,000,000
Fort Lauderdale Commerce Center 04-18-85 14,125,050 11,085,000
Quorum Building II 06-12-85 13,939,093 4,600,000
$44,985,814 $29,785,000
Cash and cash equivalents 2,134,370
Accounts receivable 64,616
2,198,986
Less:
Accounts payable and accrued expenses (237,185)
Due to affiliates (28,479)
Distribution payable (563,804)
Minority Interest (221,337)
Partnership Net Asset Value (3) $30,933,181
Net Asset Value Allocated:
Limited Partners $30,623,849
General Partners 309,332
$30,933,181
Net Asset Value Per Unit (109,378 units outstanding) $279.98
(1) The acquisition cost of each property is comprised of fundings made through
December 31, 1995, 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, 1995 Appraised
Values which were determined by an independent property appraisal firm.
The Partnership's share of the December 31, 1995 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, 1995 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.
COMMERCIAL PROPERTIES 3, L.P.
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1995
Cost Capitalized
Subsequent
Initial Cost to Partnership To Acquisition
--------------------------- ----------------
Buildings and 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 $2,511,898
Consolidated Ventures:
Metro Park
Executive Center
Ft. Myers, FL -- 548,643 4,587,861 727,216
Three Financial Center
Little Rock, AK -- 1,018,332 9,433,673 985,487
Quorum II Office Building
Dallas, TX -- 2,113,775 10,881,609 539,368
Provision for Loss -- -- -- --
$ -- $6,422,301 $35,005,161 $4,763,969
COMMERCIAL PROPERTIES 3, L.P.
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1995
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 $12,613,916 $15,355,467 $5,480,615
Consolidated Ventures:
Metro Park
Executive Center
Ft. Myers, Fl 548,643 5,315,077 5,863,720 2,421,332
Three Financial Center
Little Rock, AK 1,018,332 10,419,160 11,437,492 4,812,133
Quorum II Office Building
Dallas, TX 2,113,775 11,420,977 13,534,752 5,007,002
Provision for Loss (613,607) (8,322,393) (8,936,000) (5,007,002)
$5,808,694 $31,446,737 $37,255,431 12,714,080
(1) (2)
COMMERCIAL PROPERTIES 3, L.P.
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1995
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
$24,334,676.
(2) For Federal income tax purposes, the basis of land, building and
improvements is $47,999,410.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1995, 1994 and 1993:
Real Estate Investments: 1995 1994 1993
Beginning of year $46,187,232 $45,533,902 $46,247,218
Additions 458,496 654,844 646,560
Write-down (8,936,000) -- --
Deletions (454,297) (1,514) (1,359,876)
End of year $37,255,431 $46,187,232 $45,533,902
Accumulated Depreciation:
Beginning of year $16,113,296 $13,941,302 $12,840,967
Depreciation expense 2,062,083 2,173,508 2,460,211
Deletions (454,297) (1,514) (1,359,876)
Write-down (5,007,002) -- --
End of year $12,714,080 $16,113,296 $13,941,302
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Commercial Properties 3, L.P. of our report dated February 5, 1996, except
for Note 1, as to which the date is March 15, 1996, included in the 1995 Annual
Report to Shareholders of Commercial Properties 3, L.P. and Consolidated
Ventures.
Our audit also included the financial statements schedule of Commercial
Properties 3, 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 herein.
ERNST & YOUNG LLP
Boston, Massachusetts
February 5, 1996,
except for Note 1, as to which the date is
March 15, 1996
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,371,936
<SECURITIES> 000
<RECEIVABLES> 300,728
<ALLOWANCES> (5,486)
<INVENTORY> 000
<CURRENT-ASSETS> 000
<PP&E> 37,255,431
<DEPRECIATION> (12,714,080)
<TOTAL-ASSETS> 27,842,005
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<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 26,576,812
<TOTAL-LIABILITY-AND-EQUITY> 27,842,005
<SALES> 000
<TOTAL-REVENUES> 5,158,057
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 4,810,199
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