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 June 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 ____
Consolidated Balance Sheets At June 30, At December 31,
1998 1997
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 22,133,777 _
Cash and cash equivalents 1,242,681 1,273,014
Restricted cash 226,578 222,883
Accounts and rent receivable, net of
allowance for doubtful accounts of
$5,444 in 1998 and 1997 252,754 80,601
Deferred rent receivable _ 152,030
Prepaid leasing costs and other assets,
net of accumulated amortization of
$664,496 in 1997 104,961 704,043
Total Assets $23,960,751 $ 24,464,388
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 624,444 $ 437,027
Due to affiliates 17,000 55,270
Distribution payable 563,804 338,282
Prepaid rent _ 58,937
Security deposits 233,759 222,883
Total Liabilities 1,439,007 1,112,399
Minority interest 407,619 370,936
Partners' Capital (Deficit):
General Partners (372,153) (340,932)
Limited Partners
(109,378 units outstanding) 22,486,278 23,321,985
Total Partners' Capital 22,114,125 22,981,053
Total Liabilities and
Partners' Capital $23,960,751 $ 24,464,388
Consolidated Statement of Partners' Capital (Deficit)
For the six months ended June 30, 1998
General Limited
Partners Partners Total
Balance at December 31, 1997 $ (340,932) $ 23,321,985 $ 22,981,053
Net Income 2,607 258,073 260,680
Distributions (33,828) (1,093,780) (1,127,608)
Balance at June 30, 1998 $ (372,153) $ 22,486,278 $ 22,114,125
Consolidated Statements of Operations
Three months ended June 30, Six months ended June 30,
1998 1997 1998 1997
Income
Rent $ 1,316,443 $ 1,121,389 $ 2,699,245 $ 2,300,078
Interest 17,404 20,776 35,341 39,430
Total Income 1,333,847 1,142,165 2,734,586 2,339,508
Expenses
Property operating 624,716 575,366 1,203,988 1,127,534
Depreciation and amortization 530,686 508,976 1,077,838 1,014,736
General and administrative 65,468 120,469 155,397 267,191
Total Expenses 1,220,870 1,204,811 2,437,223 2,409,461
Net income (loss) before
minority interest 112,977 (62,646) 297,363 (69,953)
Minority interest (8,623) _ (36,683) _
Net Income (Loss) $ 104,354 $ (62,646) $ 260,680 $ (69,953)
Net Income (Loss) Allocated:
To the General Partners $ 1,044 $ (626) $ 2,607 $ (699)
To the Limited Partners 103,310 (62,020) 258,073 (69,254)
$ 104,354 $ (62,646) $ 260,680 $ (69,953)
Per limited partnership unit
(109,378 outstanding) $ .94 $ (.57) $ 2.36 $ (.63)
Consolidated Statements of Cash Flows
For the six months ended June 30, 1998 1997
Cash Flows From Operating Activities
Net income (loss) $ 260,680 $ (69,953)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Minority interest 36,683 _
Depreciation and amortization 1,077,838 1,014,736
Increase (decrease) in cash arising from
changes in operating assets and liabilities
Restricted cash (3,695) 9,507
Accounts and rent receivable, net (172,153) (16,038)
Deferred rent receivable 50,668 79,766
Prepaid leasing costs and other assets (153,590) (187,793)
Accounts payable and accrued expenses 187,417 189,680
Due to affiliates (38,270) 31,439
Prepaid rent (58,937) _
Security deposits payable 10,876 (16,362)
Net cash provided by operating activities 1,197,517 1,034,982
Cash Flows From Investing Activities
Additions to real estate (325,764) (201,250)
Net cash used for investing activities (325,764) (201,250)
Cash Flows From Financing Activities
Cash distributions (902,086) (676,564)
Net cash used for financing activities (902,086) (676,564)
Net increase (decrease) in cash and cash equivalents (30,333) 157,168
Cash and cash equivalents, beginning of period 1,273,014 1,228,502
Cash and cash equivalents, end of period $1,242,681 $1,385,670
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
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.
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
June 30, 1998 and the results of operations and cash flows for
the six months ended June 30, 1998 and 1997 and the statement of
partner's capital (deficit) for the six months ended June 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 the 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).
Part I, Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
The General Partners have selected real estate brokerage firms to
market the Partnership's properties for sale. While the General
Partners currently anticipate that the properties will be sold
during 1998, there can be no assurance that the sales will occur
within this time frame.
In view of the anticipated sale of the properties in 1998, the
Partnership's real estate has been recorded on the Partnership's
June 30, 1998 balance sheet as "Real estate assets held for
disposition." Real estate assets held for disposition at June
30, 1998 totaled $22,133,777.
The Partnership had cash and cash equivalents totaling $1,242,681
at June 30, 1998, compared to $1,273,014 at December 31, 1997.
The slight decrease is primarily due to net cash used for
investing and cash distributions exceeding net cash provided by
operating activities. The Partnership also had restricted cash,
which primarily consists of security deposits, of $226,578 at
June 30, 1998, largely unchanged from $222,883 at December 31,
1997.
Accounts and rent receivable, net of allowance for doubtful
accounts, totaled $252,754 at June 30, 1998, compared to $80,601
at December 31, 1997. The increase is mainly due to the timing
of rental receipts. Deferred rent receivable totaled $0 at June
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 totaled $104,961 at June 30, 1998, compared to
$704,043 at December 31, 1997. The decrease is due to prepaid leasing
costs in the amount of $628,865 reclassified to "Real estate assets
held for disposition." The current balance primarily represents
prepaid insurance.
Accounts payable and accrued expenses totaled $624,444 at June
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. Due to affiliates decreased to $17,000 at
June 30, 1998, compared to $55,270 at December 31, 1997. The
decrease reflects lower administrative reimbursement accruals
during the 1998 period.
Prepaid rent decreased to $0 at June 30, 1998, compared to
$58,937 at December 31, 1997 primarily due to the timing of
rental payments.
The Partnership will pay a cash distribution to Limited Partners
totaling $5.00 per Unit for the quarter ended June 30, 1998, on
or about August 20, 1998. 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, future distributions may be reduced or suspended.
Results of Operations
The Partnership's operations resulted in net income of $104,354
and $260,680, for the three and six months ended June 30, 1998,
respectively, compared to a net loss of $62,646 and $69,953 in
the corresponding 1997 periods. The change from net loss to net
income is primarily attributable to higher rental income and
lower general and administrative fees, partially offset by higher
property operating expenses.
Rental income totaled $1,316,443 and $2,699,245 for the three and
six months ended June 30, 1998, respectively, compared to
$1,121,389 and $2,300,078 for the corresponding period 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 $17,404 and $35,341 for the three
and six months ended June 30, 1998, respectively, compared to
$20,776 and $39,430 a year ago. The slight decrease is primarily
attributable to the Partnership's lower average cash balances in
1998.
Property operating expenses totaled $624,716 and $1,203,988 for
the three and six months ended
June 30, 1998, respectively, compared to $575,366 and $1,127,534
for the three and six months ended
June 30, 1997. The increase is primarily due to higher real
estate tax expense at Quorum II Office Building and Fort
Lauderdale Commerce Center. Depreciation and amortization
totaled $530,686 and $1,077,838 for the three and six months
ended June 30, 1998, respectively, compared to $508,976 and
$1,014,736 for the comparable periods a year earlier. The
increase is mainly due to building and tenant improvements
completed since June 30, 1997.
General and administrative expenses for the three and six months
ended June 30, 1998 totaled $65,468 and $155,397, respectively,
compared to $120,469 and $267,191 for the same periods in 1997.
The decrease is primarily due to lower management, appraisal,
postage and printing expenses.
As of June 30, 1998, lease levels at each of the Properties were
as follows: Metro Park Executive Center - 79%; Fort Lauderdale
Commerce Center - 86%; Three Financial Centre - 95%; and Quorum
II Office Building - 94%.
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 June 30, 1998.
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: August 13, 1998 BY: /s/ Michael T. Marron
Director, President and Chief
Financial Officer
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<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Jun-30-1998
<CASH> 1,469,259
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<RECEIVABLES> 252,754
<ALLOWANCES> 5,444
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<PP&E> 22,133,777
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<OTHER-SE> 22,677,929
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