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, 1999
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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
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COMMERCIAL PROPERTIES 3, L.P.
-----------------------------
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
Incorporation or Organization 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
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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
--- ---
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<PAGE>
2
COMMERCIAL PROPERTIES 3, L.P.
AND CONSOLIDATED VENTURES
<TABLE>
<CAPTION>
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CONSOLIDATED BALANCE SHEETS
At June 30, At December 31,
1999 1998
(unaudited) (audited)
- -------------------------------------------------------------------------------
<S> <C> <C>
Assets
Real estate assets held for disposition $ 5,825,973 $22,429,538
Cash and cash equivalents 26,705,576 2,246,926
Restricted cash 160,306 143,536
Accounts and rent receivable, net of allowance
for doubtful accounts of $93,362 in 1999 and
$5,444 in 1998 7,811 136,156
Prepaid expenses and other assets 37,635 51,093
- -------------------------------------------------------------------------------
Total Assets $32,737,301 $25,007,249
===============================================================================
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 419,190 $ 512,546
Due to affiliates 68,200 47,930
Prepaid rent 15,473 --
Security deposits 50,306 240,423
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Total Liabilities 553,169 800,899
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Minority interest 459,704 605,691
-----------------------------
Partners' Capital (Deficit):
General Partners (174,565) (255,803)
Limited Partners (109,378 units outstanding) 31,898,993 23,856,462
-----------------------------
Total Partners' Capital 31,724,428 23,600,659
- -------------------------------------------------------------------------------
Total Liabilities and Partners' Capital $32,737,301 $25,007,249
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
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CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
(UNAUDITED)
For the six months ended June 30, 1999
General Limited
Partners Partners Total
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<S> <C> <C> <C>
Balance at December 31, 1998 $(255,803) $23,856,462 $23,600,659
Net Income 81,238 8,042,531 8,123,769
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Balance at June 30, 1999 $(174,565) $31,898,993 $31,724,428
===============================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
3
COMMERCIAL PROPERTIES 3, L.P.
AND CONSOLIDATED VENTURES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended June 30, Six months ended June 30,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Income
Rent $ 471,357 $1,316,443 $1,522,856 $2,699,245
Interest 285,918 17,404 413,303 35,341
----------------------------------------------------
Total Income 757,275 1,333,847 1,936,159 2,734,586
- -----------------------------------------------------------------------------------------
Expenses
Property operating 210,547 624,716 665,293 1,203,988
Depreciation and amortization -- 530,686 -- 1,077,838
General and administrative (80,293) 65,468 211,654 155,397
----------------------------------------------------
Total Expenses 130,254 1,220,870 876,947 2,437,223
----------------------------------------------------
Income before minority interest
and gain on sale of real estate 627,021 112,977 1,059,212 297,363
----------------------------------------------------
Minority interest 207,266 (8,623) 124,610 (36,683)
Income before gain on sale of
real estate 834,287 104,354 1,183,822 260,680
Gain on sale of real estate 3,363,306 -- 6,939,947 --
- -----------------------------------------------------------------------------------------
Net Income $4,197,593 $ 104,354 $8,123,769 $ 260,680
=========================================================================================
Net Income Allocated:
To the General Partners $ 41,976 $ 1,044 $ 81,238 $ 2,607
To the Limited Partners 4,155,617 103,310 8,042,531 258,073
- -----------------------------------------------------------------------------------------
$4,197,593 $ 104,354 $8,123,769 $ 260,680
=========================================================================================
Per limited partnership unit
(109,378 outstanding) $ 37.99 $ .94 $ 73.53 $ 2.36
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</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
4
COMMERCIAL PROPERTIES 3, L.P.
AND CONSOLIDATED VENTURES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the six months ended June 30,
1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 8,123,769 $ 260,680
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interest (124,610) 36,683
Depreciation and amortization -- 1,077,838
Gain on sale of real estate (6,939,947) --
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Restricted cash (16,770) (3,695)
Accounts and rent receivable, net 128,345 (172,153)
Deferred rent receivable -- 50,668
Prepaid expenses and other assets 13,458 (153,590)
Accounts payable and accrued expenses (93,356) 187,417
Due to affiliates 20,270 (38,270)
Prepaid rent 15,473 (58,937)
Security deposits (190,117) 10,876
----------- ----------
Net cash provided by operating activities 936,515 1,197,517
- -------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Proceeds from sale of real estate 23,983,252 --
Additions to real estate assets held for disposition (439,740) (325,764)
----------- ----------
Net cash provided by (used for) investing activities 23,543,512 (325,764)
- -------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Cash distributions -- (902,086)
Cash distribution to minority interest joint venture (21,377) --
----------- ----------
Net cash used for financing activities (21,377) (902,086)
- -------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 24,458,650 (30,333)
Cash and cash equivalents, beginning of period 2,246,926 1,273,014
- -------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $26,705,576 $1,242,681
=====================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
5
COMMERCIAL PROPERTIES 3, L.P.
AND CONSOLIDATED VENTURES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The unaudited interim financial statements should be read in conjunction with
Commercial Properties 3, L.P. `s (the "Partnership") annual 1998 audited
consolidated 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, 1999 and the results of operations and cash
flows for the six months ended June 30, 1999 and 1998 and the statement of
partners' capital (deficit) for the six months ended June 30, 1999. Results of
operations for the period are not necessarily indicative of the results to be
expected for the full year.
The following significant events have occurred subsequent to fiscal year 1998,
which require disclosure in this interim report per Regulation S-X, Rule 10-01,
Paragraph (a)(5).
On January 12, 1999, the Partnership sold Quorum II Office Building ("Quorum")
to an unaffiliated partnership, CMD Realty Investment Fund IV, L.P. ("CMD"), for
a selling price of approximately $7,674,000, net of closing adjustments and
selling costs.
On February 9, 1999, the Partnership sold Metro Park Executive Center ("Metro
Park") to an unaffiliated partnership, Triad Properties Holdings, Ft. Myers, LTD
("TPH"), for a selling price of approximately $3,797,000, net of closing
adjustments and selling costs.
On April 14, 1999, the Partnership sold Fort Lauderdale Commerce Center ("Ft.
Lauderdale Commerce Center") to an unaffiliated partnership, Fort Lauderdale
Flexxspace, LTD. ("FLF") for a selling price of approximately $12,512,000, net
of closing adjustments and selling costs.
The selling prices were determined by arm's length negotiations between the
Partnership and the buyers.
The General Partners are currently marketing the remaining property, Three
Financial Centre, for sale. While it is anticipated that Three Financial Centre
will be sold during 1999, there can be no assurance that the sale will occur
within this time frame.
<PAGE>
6
COMMERCIAL PROPERTIES 3, L.P.
AND CONSOLIDATED VENTURES
Part I, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
On January 12, 1999, the Partnership completed the sale of Quorum to an
unaffiliated partnership, CMD, for a selling price of approximately $7,674,000,
net of closing adjustments and selling costs, resulting in a gain of
approximately $2,956,000, which is reflected in the Partnership's consolidated
statement of operations for the six months ended June 30, 1999.
On February 9, 1999, the Partnership completed the sale of Metro Park to an
unaffiliated partnership, TPH, for a selling price of approximately $3,797,000,
net of closing adjustments and selling costs, resulting in a gain of
approximately $566,000, which is reflected in the Partnership's consolidated
statement of operations for the six months ended June 30, 1999.
On April 14, 1999, the Partnership sold Ft. Lauderdale Commerce Center to an
unaffiliated partnership, FLF, for a selling price of approximately $12,512,000,
net of closing adjustments and selling costs, resulting in a gain of
approximately $3,418,000 which is reflected in the Partnership's consolidated
operations for the six months ended June 30, 1999.
The selling prices were determined by arm's length negotiations between the
Partnership and the buyers.
The General Partners are currently marketing the remaining property, Three
Financial Centre, for sale. While it is anticipated that Three Financial Centre
will be sold during 1999, there can be no assurance that the sale will occur
within this time frame.
In anticipation of the Partnership being dissolved, the minority interest
allocation has been conformed to the tax basis.
In view of the anticipated sale of the properties, the Partnership's real estate
has been recorded on the Partnership's June 30, 1999 balance sheet as "Real
estate assets held for disposition." Real estate assets held for disposition at
June 30, 1999 totaled $5,825,973.
The Partnership had cash and cash equivalents totaling $26,705,576 at June 30,
1999, compared to $2,246,926 at December 31, 1998. The increase is primarily due
to net cash proceeds from the sale of Quorum, Metro Park and Ft. Lauderdale
Commerce Center. The Partnership also had restricted cash, which primarily
consists of escrow funds of $110,000 from the sale of Ft. Lauderdale Commerce
Center and security deposits of $50,306 at June 30, 1999, down from $143,536 at
December 31, 1998, resulting from the sale of Quorum, Metro Park and Ft.
Lauderdale Commerce Center.
Accounts and rent receivable, net of allowance for doubtful accounts, totaled
$7,811 at June 30, 1999, compared to $136,156 at December 31, 1998. The decrease
is mainly due to the sale of Quorum, Metro Park and Ft. Lauderdale Commerce
Center.
Prepaid expenses and other assets totaled $37,635 at June 30, 1999, compared to
$51,093 at December 31, 1998. The decrease is due to prepaid insurance expiring
in the current period and not being renewed due to the sale of Quorum, Metro
Park and Ft. Lauderdale Commerce Center.
Accounts payable and accrued expenses totaled $419,190 at June 30, 1999,
compared to $512,546 at December 31, 1998. The decrease is largely due to a
decrease in real estate taxes payable resulting from the sale of Quorum, Metro
Park and Ft. Lauderdale Commerce Center and the timing of invoices and payments.
<PAGE>
7
COMMERCIAL PROPERTIES 3, L.P.
AND CONSOLIDATED VENTURES
Prepaid rent increased to $15,473 at June 30, 1999, compared to $-0- at December
31, 1998, primarily due to timing of rental payments.
Security deposits totaled $50,306 at June 30, 1999, compared to $240,423 at
December 31, 1998. The decrease is due to the sale of Quorum, Metro Park and Ft.
Lauderdale Commerce Center.
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. The General Partners intend
to distribute the net proceeds from the sale of Quorum, Metro Park and Ft.
Lauderdale Commerce Center in the third quarter of 1999. Once the remaining
property is 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.
Results of Operations
- ---------------------
The Partnership's operations resulted in net income of $4,197,593 and $8,123,769
for the three and six months ended June 30, 1999, compared to a net income of
$104,354 and $260,680 in the corresponding 1998 period. The change is primarily
attributable to the gain on the sale of Quorum, Metro Park and Ft. Lauderdale
Commerce Center, a decrease in depreciation expense due to the reclassification
of the properties as "Real estate assets held for disposition," and a decrease
in Property operating expense, offset by lower rental income in 1999.
Rental income totaled $471,357 and $1,522,856 for the three and six months ended
June 30, 1999, compared to $1,316,443 and $2,699,245 for the corresponding
period a year ago. The decrease is largely attributable to lower rental income
resulting in the sale of Quorum, Metro Park and Ft. Lauderdale Commerce Center.
Interest income totaled $285,918 and $413,303 for the three and six months ended
June 30, 1999, compared to $17,404 and $35,341 in the corresponding 1998 period.
The increase is primarily attributable to the Partnership's higher average cash
balances in 1999 from the proceeds of the sale of Quorum, Metro Park and Ft.
Lauderdale Commerce Center.
Property operating expenses totaled $210,547 and $665,293 for the three and six
months ended June 30, 1999, compared to $624,716 and $1,203,988 for the same
period in 1998. The decrease is primarily due to the sale of Quorum, Metro Park
and Ft. Lauderdale Commerce Center.
Depreciation and amortization expense totaled $-0- for both the three and six
months ended June 30, 1999, compared with $530,686 and $1,077,838 for the
corresponding period in 1998. 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 six months ended June 30,
1999 totaled $(80,293) and $211,654, compared to $65,468 and $155,397 for the
same period in 1998. The decrease for the three months ended June 30, 1999 is
primarily due to a reclassification of legal fees related to the sale of the
properties. The increase for the six months ended June 30, 1999 is primarily due
to higher administrative and marketing fees on the sale of the properties.
As of June 30, 1999, the remaining property, Three Financial Centre, was 89%
leased.
<PAGE>
8
COMMERCIAL PROPERTIES 3, L.P.
AND CONSOLIDATED VENTURES
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 -
On January 26, 1999, the Partnership filed a Form 8-K reporting
that on January 12, 1999, the Partnership executed a sale of
Quorum II Office Building.
On February 24, 1999, the Partnership filed a Form 8-K reporting
that on February 9, 1999, the Partnership executed a sale of
Metro Park Executive Center.
On April 25, 1999, the Partnership filed a Form 8-K reporting
that on April 17, 1999, the Partnership executed a sale of Fort
Lauderdale Commerce Center.
<PAGE>
9
COMMERCIAL PROPERTIES 3, L.P.
AND CONSOLIDATED VENTURES
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, 1999 BY: /s/Michael T. Marron
-----------------------------------------------
Name: Michael T. Marron
Title: Director, President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Jun-30-1999
<CASH> 26,865,882
<SECURITIES> 000
<RECEIVABLES> 101,173
<ALLOWANCES> 93,362
<INVENTORY> 000
<CURRENT-ASSETS> 26,911,328
<PP&E> 5,825,973
<DEPRECIATION> 000
<TOTAL-ASSETS> 32,737,301
<CURRENT-LIABILITIES> 459,704
<BONDS> 000
000
000
<COMMON> 000
<OTHER-SE> 31,724,428
<TOTAL-LIABILITY-AND-EQUITY> 32,737,301
<SALES> 1,522,856
<TOTAL-REVENUES> 1,936,159
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 876,947
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> 1,183,822
<INCOME-TAX> 000
<INCOME-CONTINUING> 1,183,822
<DISCONTINUED> 000
<EXTRAORDINARY> 6,939,947
<CHANGES> 000
<NET-INCOME> 8,123,769
<EPS-BASIC> 73.53
<EPS-DILUTED> 73.53
</TABLE>
