UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d)
--- of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1998
or
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition period from ______ to ______
Commission File Number: 0-13341
COMMERCIAL PROPERTIES 3, L.P.
Exact Name of Registrant as Specified in its Charter
Virginia 11-2680561
State or Other Jurisdiction of
Incorporation or Organization I.R.S. Employer Identification No.
3 World Financial Center, 29th Floor,
New York, NY Attn.: Andre Anderson 10285
Address of Principal Executive Offices Zip Code
(212) 526-3183
Registrant's Telephone Number, Including Area Code
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
<PAGE>
2
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
At September 30, At December 31,
1998 1997
------------ ------------
<S> <C> <C>
Assets
Property:
Land $ -- $ 5,808,694
Buildings, building improvements
and equipment -- 31,133,800
------------ ------------
-- 36,942,494
Less accumulated depreciation -- (14,910,677)
------------ ------------
-- 22,031,817
Real estate assets held for disposition 22,387,310 --
Cash and cash equivalents 1,618,590 1,273,014
Restricted cash 230,904 222,883
Accounts and rent receivable, net of
allowance for doubtful accounts of $5,444
in 1998 and 1997 55,310 80,601
Deferred rent receivable -- 152,030
Prepaid leasing costs and other assets, net
of accumulated amortization of $664,496
in 1997 87,921 704,043
------------ ------------
Total Assets $ 24,380,035 $ 24,464,388
============ ============
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 744,289 $ 437,027
Due to affiliates 34,100 55,270
Distribution payable -- 338,282
Prepaid rent -- 58,937
Security deposits 235,085 222,883
------------ ------------
Total Liabilities 1,013,474 1,112,399
------------ ------------
Minority interest 440,717 370,936
------------ ------------
Partners' Capital (Deficit):
General Partners (364,036) (340,932)
Limited Partners (109,378 units
outstanding) 23,289,880 23,321,985
------------ ------------
Total Partners' Capital 22,925,844 22,981,053
------------ ------------
Total Liabilities and Partners' Capital $ 24,380,035 $ 24,464,388
============ ============
</TABLE>
<TABLE>
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
For the nine months ended September 30, 1998
<CAPTION>
General Limited
Partners Partners Total
--------- ----------- -----------
<S> <C> <C> <C>
Balance at December 31, 1997 $(340,932) $23,321,985 $22,981,053
Net Income 10,724 1,061,675 1,072,399
Distributions (33,828) (1,093,780) (1,127,608)
--------- ----------- -----------
Balance at September 30, 1998 $(364,036) $23,289,880 $22,925,844
========= =========== ===========
</TABLE>
<PAGE>
3
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income
Rent $1,531,802 $1,252,692 $4,231,047 $3,552,770
Interest 16,486 20,524 51,827 59,954
---------- ---------- ---------- ----------
Total Income 1,548,288 1,273,216 4,282,874 3,612,724
---------- ---------- ---------- ----------
Expenses
Property operating 579,608 572,948 1,783,596 1,700,482
Depreciation and
amortization -- 538,877 1,077,838 1,553,613
General and
administrative 123,863 100,718 279,260 367,909
---------- ---------- ---------- ----------
Total Expenses 703,471 1,212,543 3,140,694 3,622,004
---------- ---------- ---------- ----------
Net income (loss) before
minority interest 844,817 60,673 1,142,180 (9,280)
Minority interest (33,098) -- (69,781) --
---------- ---------- ---------- ----------
Net Income (Loss) $ 811,719 $ 60,673 $1,072,399 $ (9,280)
========== ========== ========== ==========
Net Income (Loss) Allocated:
To the General Partners $ 8,117 $ 607 $ 10,724 $ (93)
To the Limited Partners 803,602 60,066 1,061,675 (9,187)
---------- ---------- ---------- ----------
$ 811,719 $ 60,673 $1,072,399 $ (9,280)
========== ========== ========== ==========
Per limited partnership unit
(109,378 outstanding) $ 7.35 $ .55 $ 9.71 $ (.08)
------ ------ ------ ------
</TABLE>
<PAGE>
4
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30,
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ 1,072,399 $ (9,280)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Minority interest 69,781 --
Depreciation and amortization 1,077,838 1,553,613
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Restricted cash (8,021) 28,115
Accounts and rent receivable, net 25,291 26,053
Deferred rent receivable 50,521 110,227
Prepaid leasing costs and other assets (246,640) (291,867)
Accounts payable and accrued expenses 307,262 314,407
Due to affiliates (21,170) 21,371
Prepaid rent (58,937) --
Security deposits payable 12,202 247
----------- -----------
Net cash provided by operating activities 2,280,526 1,752,886
----------- -----------
Cash Flows From Investing Activities
Additions to real estate (469,060) (712,835)
----------- -----------
Net cash used for investing activities (469,060) (712,835)
----------- -----------
Cash Flows From Financing Activities
Cash distributions (1,465,890) (1,014,846)
----------- -----------
Net cash used for financing activities (1,465,890) (1,014,846)
----------- -----------
Net increase in cash and cash equivalents 345,576 25,205
Cash and cash equivalents, beginning of period 1,273,014 1,228,502
----------- -----------
Cash and cash equivalents, end of period $ 1,618,590 $ 1,253,707
=========== ===========
Supplemental Disclosure of Non-Cash
Operating Activities:
Write-off of fully amortized leasing costs $ -- $ 311,967
----------- -----------
Supplemental Disclosure of Non-Cash
Investing Activities:
Write-off of fully depreciated improvements $ -- $ 253,087
----------- -----------
</TABLE>
Supplemental Disclosure of Non-Cash Operating Activities:
In connection with the General Partners' intent to sell the property, real
estate held for investment, deferred rent receivable and prepaid leasing
commissions in the amounts of $21,403,550, $101,362, and $628,865, respectively,
were reclassified to "Real estate assets held for disposition" in June of 1998.
<PAGE>
5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The unaudited interim financial statements should be read in conjunction with
the Partnership's annual 1997 audited financial statements within Form 10-K.
The unaudited financial statements include all normal and recurring adjustments
which are, in the opinion of management, necessary to present a fair statement
of financial position as of September 30, 1998 and the results of operations and
cash flows for the nine months ended September 30, 1998 and 1997 and the
statement of partners' capital (deficit) for the nine months ended September 30,
1998. Results of operations for the period are not necessarily indicative of the
results to be expected for the full year.
Certain prior year amounts have been reclassified in order to conform to the
current year's presentation.
The Partnership's real estate assets, deferred rent receivable and prepaid
leasing costs were reclassified on the consolidated balance sheets at June 30,
1998 to "Real estate assets held for disposition." Accordingly, the Partnership
has suspended depreciation and amortization in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
No significant events have occurred subsequent to fiscal year 1997, and no
material contingencies exist which would require disclosure in this interim
report per Regulation S-X, Rule 10-01, Paragraph (a)(5).
<PAGE>
6
Part I, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
The General Partners are currently marketing three of the Partnership's four
remaining properties for sale. While it is anticipated that the properties will
be sold by the end of the first quarter of 1999, there can be no assurance that
the sales will occur within this time frame.
In view of the anticipated sale of the properties, the Partnership's real estate
has been recorded on the Partnership's September 30, 1998 balance sheet as "Real
estate assets held for disposition." Real estate assets held for disposition at
September 30, 1998 totaled $22,387,310.
The Partnership had cash and cash equivalents totaling $1,618,590 at September
30, 1998, compared to $1,273,014 at December 31, 1997. The increase is primarily
due to net cash provided by operating activities exceeding cash used for
investing activities and distributions. The Partnership also had restricted
cash, which primarily consists of security deposits of $230,904 at September 30,
1998, largely unchanged from $222,883 at December 31, 1997.
Accounts and rent receivable, net of allowance for doubtful accounts, totaled
$55,310 at September 30, 1998, compared to $80,601 at December 31, 1997. The
decrease is mainly due to the timing of rental receipts. Deferred rent
receivable totaled $-0- at September 30, 1998, compared to $152,030 at December
31, 1997. The decrease is due to the amortization of deferred rent associated
with older leases at all of the Partnership's properties, and the
reclassification of certain deferred rents to "Real estate assets held for
disposition."
Prepaid leasing costs and other assets totaled $87,921 at September 30, 1998,
compared to $704,043 at December 31, 1997. The decrease is due to the
reclassification of prepaid leasing costs to "Real estate assets held for
disposition." The current balance primarily represents prepaid insurance.
Accounts payable and accrued expenses totaled $744,289 at September 30, 1998,
compared to $437,027 at December 31, 1997. The increase is largely due to the
accrual of real estate taxes for all four properties.
Prepaid rent decreased to $-0- at September 30, 1998, compared to $58,937 at
December 31, 1997 primarily due to the timing of rental payments.
Since inception, the Partnership has paid total cash distributions of $183.81
per original $500 Unit, including $16.00 per Unit in return of capital payments
which have reduced the Unit size from $500 to $484. In consideration of the
Partnership's marketing efforts and the need to fund several capital
improvements at the properties to better position them for sale, cash
distributions were suspended commencing with the 1998 third quarter distribution
which would have been paid in November. Once the properties are sold, the
General Partners will distribute the net proceeds, together with the
Partnership's remaining cash reserves (after payment of a provision for the
Partnership's liabilities and expenses), and dissolve the Partnership.
<PAGE>
7
Results of Operations
The Partnership's operations resulted in net income of $811,719 and $1,072,399,
for the three and nine months ended September 30, 1998, respectively, compared
to a net income (loss) of $60,673 and $(9,280) in the corresponding 1997
periods. The change from net loss to net income is primarily attributable to
higher rental income and a decrease in depreciation expense due to the
reclassification of the properties as "Real estate assets held for disposition."
Rental income totaled $1,531,802 and $4,231,047 for the three and nine months
ended September 30, 1998, respectively, compared to $1,252,692 and $3,552,770
for the corresponding periods a year ago. The increase is largely attributable
to higher rental income at Quorum II Office Building, the occupancy of which
increased on average for the quarter, although down at period end. Interest
income totaled $16,486 and $51,827 for the three and nine months ended September
30, 1998, respectively, compared to $20,524 and $59,954 a year ago. The slight
decrease is primarily attributable to the Partnership's lower average cash
balances in 1998.
Property operating expenses totaled $579,608 and $1,783,596 for the three and
nine months ended September 30, 1998, respectively, compared to $572,948 and
$1,700,482 a year ago. The increase is primarily due to higher real estate tax
expense at Quorum II Office Building and Fort Lauderdale Commerce Center.
Depreciation and amortization expense totaled $-0- and $1,077,838 for the three
and nine months ended September 30, 1998, respectively, compared with $538,877
and $1,553,613 for the corresponding periods in 1997. The Partnership suspended
depreciation and amortization on July 1, 1998, in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
General and administrative expenses for the three and nine months ended
September 30, 1998 totaled $123,863 and $279,260, respectively, compared to
$100,718 and $367,909 for the same periods in 1997. The decrease for the
nine-month period is primarily due to lower management, appraisal, postage and
printing expenses.
As of September 30, 1998, lease levels at each of the Properties were as
follows: Metro Park Executive Center - 76%; Fort Lauderdale Commerce Center -
87%; Three Financial Centre - 92%; and Quorum II Office Building - 86%.
Part II Other Information
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1998.
<PAGE>
8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMMERCIAL PROPERTIES 3, L.P.
BY: Real Estate Services VII, Inc.
General Partner
Date: November 13, 1998 BY: /s/Michael T. Marron
Director, President and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Sep-30-1998
<CASH> 1,849,494
<SECURITIES> 000
<RECEIVABLES> 55,310
<ALLOWANCES> 5,444
<INVENTORY> 000
<CURRENT-ASSETS> 1,992,725
<PP&E> 22,387,310
<DEPRECIATION> 000
<TOTAL-ASSETS> 24,380,035
<CURRENT-LIABILITIES> 1,013,474
<BONDS> 000
000
000
<COMMON> 000
<OTHER-SE> 22,925,844
<TOTAL-LIABILITY-AND-EQUITY> 24,380,035
<SALES> 4,231,047
<TOTAL-REVENUES> 4,282,874
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 3,140,694
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> 1,072,399
<INCOME-TAX> 000
<INCOME-CONTINUING> 1,072,399
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 1,072,399
<EPS-PRIMARY> 9.71
<EPS-DILUTED> 9.71
</TABLE>
