<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
---------------------------------------------
For Quarter Ended March 31, 1997 Commission File Number 0-17809
COPLEY REALTY INCOME PARTNERS 3;
A LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Massachusetts 04-3005973
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
225 Franklin Street, 25th Fl.
Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(617) 261-9000
- -------------------------------------------------------------------------------
Former name, former address and former fiscal year if changed since last report
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 twelve (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>
COPLEY REALTY INCOME PARTNERS 3;
A LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1997
PART I
FINANCIAL INFORMATION
<PAGE>
BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Assets
Real estate investments:
Joint ventures $ 5,354,869 $ 5,531,652
Property, net 11,675,310 11,789,227
----------- -----------
17,030,179 17,320,879
Cash and cash equivalents 2,033,465 1,798,785
Short-term investments 372,478 503,111
----------- -----------
$ 19,436,122 $ 19,622,775
=========== ===========
</TABLE>
Liabilities and Partners' Capital
<TABLE>
<S> <C> <C>
Accounts payable $ 41,960 $ 45,692
Accrued management fee 44,872 41,420
----------- -----------
Total liabilities 86,832 87,112
----------- -----------
Partners' capital (deficit):
Limited partners ($1,000 per unit;
100,000 units authorized, 27,641
units issued and outstanding) 19,398,132 19,582,641
General partners (48,842) (46,978)
----------- -----------
Total partners' capital 19,349,290 19,535,663
----------- -----------
$ 19,436,122 $ 19,622,775
=========== ===========
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
STATEMENT OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31,
---------------------------
1997 1996
----------- ----------
<S> <C> <C>
Investment Activity
Property rentals $ 365,383 $ 387,733
Property operating expenses (53,749) (70,863)
Depreciation and amortization (108,661) (101,139)
----------- ----------
202,973 215,731
Joint venture earnings 81,235 97,454
----------- ----------
Total real estate operations 284,208 313,185
Interest on cash equivalents
and short-term investments 27,784 25,578
----------- ----------
Total investment activity 311,992 338,763
----------- ----------
Portfolio Expenses
Management fee 44,872 41,420
General and administrative 34,690 25,966
----------- ----------
79,562 67,386
----------- ----------
Net Income $ 232,430 $ 271,377
=========== ==========
Net income per limited partnership
unit $ 8.32 $ 9.72
=========== ==========
Cash distributions per limited
partnership unit $ 15.00 $ 15.00
=========== ==========
Number of limited partnership units
outstanding during the period 27,641 27,641
=========== ==========
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31,
1997 1996
----------------------- ------------------------
General Limited General Limited
Partners Partners Partners Partners
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance at beginning
of period $ (46,978) $ 19,582,641 $ (40,809) $ 20,193,397
Cash distributions (4,188) (414,615) (4,188) (414,615)
Net income 2,324 230,106 2,714 268,663
--------- ------------ ---------- -----------
Balance at end of
period $ (48,842) $ 19,398,132 $ (42,283) $ 20,047,445
========= ============ ========== ===========
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
SUMMARIZED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Net cash provided by operating activities $ 525,767 $ 447,632
---------- ----------
Cash flows from investing activity:
Decrease (increase) in short-term
investments, net 127,716 (95,636)
---------- ----------
Cash flows from financing activity:
Distributions to partners (418,803) (418,803)
---------- ----------
Net increase (decrease) in cash and
cash equivalents 234,680 (66,807)
Cash and cash equivalents:
Beginning of period 1,798,785 1,695,180
---------- ----------
End of period $ 2,033,465 $ 1,628,373
========== ==========
</TABLE>
Non-cash transaction:
Effective January 1, 1996, the Partnership's joint venture investment in South
Bay/CRIP 3 Associates was converted to a wholly-owned property. The carrying
value of this investment at conversion was $4,180,704.
(See accompanying notes to financial statements)
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary to present fairly the Partnership's financial
position as of March 31, 1997 and December 31, 1996 and the results of its
operations, its cash flows and changes in partners' capital (deficit) for the
interim periods ended March 31, 1997 and 1996. These adjustments are of a
normal recurring nature.
See notes to financial statements included in the Partnership's 1996 Annual
Report on Form 10-K for additional information relating to the Partnership's
financial statements.
NOTE 1 - ORGANIZATION AND BUSINESS
- ----------------------------------
Copley Realty Income Partners 3; A Limited Partnership (the "Partnership") is
a Massachusetts limited partnership organized for the purpose of investing
primarily in newly-constructed and existing income-producing real properties.
It commenced operations in October 1988, and acquired the three real estate
investments it currently owns prior to the end of 1989. It intends to dispose
of its investments within nine years of their acquisition, and then liquidate.
NOTE 2 - PROPERTY
- -----------------
Effective January 1, 1996, the South Bay/CRIP 3 Associates joint venture was
restructured and the venture partner's ownership interest was assigned 99% to
the Partnership, and 1% to an affiliate of the Partnership. Accordingly, as of
this date, the investment is being accounted for as a wholly-owned property.
The carrying value of the joint venture investment at conversion ($4,180,704)
was allocated to land, building and improvements, and other net operating
assets.
The following is a summary of the Partnership's two investments in wholly-
owned property:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Land $ 5,771,144 $ 5,771,144
Building and improvements 9,601,263 9,601,263
Accumulated depreciation (1,848,699) (1,758,213)
Investment valuation allowance (2,400,000) (2,400,000)
Deferred costs, net 424,407 445,638
Other net assets (liabilities) 127,195 129,395
------------ ---------------
Net carrying value $ 11,675,310 $ 11,789,227
============ ===============
</TABLE>
The net carrying value at March 31, 1997 was comprised of Brea West and South
Bay at $7,474,859 and $4,200,451, respectively.
<PAGE>
NOTE 3 - REAL ESTATE JOINT VENTURES
- -----------------------------------
The following summarized financial information relates to the Shasta Way
joint venture:
<TABLE>
<CAPTION>
Assets and Liabilities
----------------------
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Assets
Real property, at cost less
accumulated depreciation of
$1,815,427 and $1,709,771 $ 7,882,957 $ 7,988,613
Other 338,684 515,758
-------------- ----------------
8,221,641 8,504,371
Liabilities 93,164 74,585
-------------- ----------------
Net assets $ 8,128,477 $ 8,429,786
============== ================
<CAPTION>
Results of Operations
---------------------
Quarter Ended March 31,
1997 1996
---------- ----------
Revenue
Rental income $ 297,232 $ 323,408
Other 2,086 -
-------------- ----------------
299,318 323,408
-------------- ----------------
Expenses
Depreciation and amortization 115,196 115,012
Operating expenses 43,630 39,941
-------------- ----------------
158,826 154,953
-------------- ----------------
Net income $ 140,492 $ 168,455
============== ================
</TABLE>
Liabilities and expenses exclude amounts owed and attributable to the
Partnership and its affiliate on behalf of their various financing arrangements
with the joint venture.
<PAGE>
NOTE 4 - SUBSEQUENT EVENT
- -------------------------
Distributions of cash from operations relating to the quarter ended March 31,
1997 were made on April 24, 1997 in the amount of $453,703 ($16.25 per limited
partnership unit).
<PAGE>
Management's Discussion and Analysis of Financial Condition
- -----------------------------------------------------------
and Results of Operations
- -------------------------
Liquidity and Capital Resources
The Partnership completed its offering of units of limited partnership
interest in June 1989 and a total of 27,641 units were sold. The Partnership
received proceeds of $24,458,317, net of selling commissions and other offering
costs, which have been used for investment in real estate and to pay related
acquisition costs, or are being retained as working capital reserves.
At March 31, 1997, the Partnership had $2,405,943 in cash, cash
equivalents, and short-term investments, of which $453,703 was used for cash
distributions to partners on April 24, 1997; the remainder is being retained for
working capital reserves. The source of future liquidity and cash distributions
to partners will be cash generated by the Partnership's real estate and short-
term investments. Distributions of cash from operations relating to the first
quarter of 1996 were made at the annualized rate of 6.0% on a capital
contribution of $1,000 per unit. The annualized distribution rate for the first
quarter of 1997 was 6.5%. The increase in the distribution rate this quarter is
the result of increased cash flow from Shasta Way.
The carrying value of real estate investments in the financial statements
at March 31, 1997 is at depreciated cost, or if the investment's carrying value
is determined not to be recoverable through expected undiscounted future cash
flows, the carrying value is reduced to estimated fair market value. The fair
market value of such investments is further reduced by the estimated costs of
sale for properties held for sale. Carrying value may be greater or less than
current appraised value. At March 31, 1997, the aggregate appraised value of the
Partnership's investments was approximately $2,300,000 greater than their
aggregate carrying value. The current appraised value of real estate investments
has been estimated by the managing general partner and is generally based on a
combination of traditional appraisal approaches performed by the Partnership's
advisor and independent appraisers. Because of the subjectivity inherent in the
valuation process, the current appraised value may differ significantly from
that which could be realized if the real estate were actually offered for sale
in the marketplace.
Results of Operations
Form of Real Estate Investments
The Brea West and South Bay investments are wholly-owned properties. The
South Bay investment was structured as a joint venture with a real estate
management/development firm. Effective January 1, 1996, however, the venture was
restructured and the venture partner's ownership interest was assigned to the
Partnership and to an affiliate of the Partnership. Accordingly, as of that
date, this investment has been accounted for as a wholly-owned property. The
Shasta Way investment had been structured as a joint venture with a real estate
management/development firm and an affiliate of the Partnership. As of January
1, 1996, the ownership was restructured, and the management/development firm's
interest was assigned to the Partnership and its affiliate in proportion to
their respective ownership interests. The Partnership's ownership percentage
increased to 58%.
<PAGE>
Operating Factors
The South Bay property is 100% leased to a single tenant through
September, 2001. During 1994, the managing general partner determined that the
Partnership will likely not recover the carrying value of this investment over
the projected holding period. Accordingly, the carrying value was reduced to
estimated net realizable value, with a charge to operations of $2,400,000.
The Brea West and the Shasta Way properties are also 100% leased to single
tenants under long-term leases.
Investment Results
Interest earned on cash equivalents and short-term investments for the
first quarter of 1997 increased by approximately $2,000, or 9%, as compared to
the same period in 1996 due to higher average invested balances.
Total real estate operations decreased by approximately $29,000, or 9%,
for the first three months of 1997 as compared to the comparable period of 1996.
Each of the three properties contributed to the decline.
Net income decreased by approximately $39,000 between the first three
months of 1996 and 1997, while cash provided by operations increased by
approximately $78,000. The difference is primarily due to the timing of cash
distributions from Shasta Way.
Portfolio Expenses
General and administrative expenses primarily consist of real estate
appraisal, legal, printing, accounting and servicing agent fees. These expenses
increased approximately $9,000, or 34% between the first three months of 1996
and 1997, primarily due to an increase in accounting fees.
The Partnership management fee is 9% of distributable cash flow from
operations after any increase or decrease in working capital reserves as
determined by the managing general partner. Management fees increased between
the two three-month periods due to the increase in distributable cash flow.
<PAGE>
COPLEY REALTY INCOME PARTNERS 3;
A LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1997
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: None.
b. Reports on Form 8-K: No Current Reports on Form 8-K were filed
during the quarter ended March 31, 1997.
<PAGE>
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.
COPLEY REALTY INCOME PARTNERS 3; A LIMITED
PARTNERSHIP
(Registrant)
May 13, 1997
/s/ James J. Finnegan
-------------------------------
James J. Finnegan
Managing Director and General Counsel
of Managing General Partner,
Third Income Corp.
May 13, 1997
/s/ Daniel C. Mackowiak
--------------------------------
Daniel C. Mackowiak
Principal Financial and Accounting
Officer of Managing General Partner,
Third Income Corp.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,033,465
<SECURITIES> 372,478
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,405,943
<PP&E> 17,030,179
<DEPRECIATION> 1,848,699
<TOTAL-ASSETS> 19,436,122
<CURRENT-LIABILITIES> 86,832
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 19,349,290
<TOTAL-LIABILITY-AND-EQUITY> 19,436,122
<SALES> 446,618
<TOTAL-REVENUES> 474,402
<CGS> 53,749
<TOTAL-COSTS> 53,749
<OTHER-EXPENSES> 188,223
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 232,430
<INCOME-TAX> 0
<INCOME-CONTINUING> 232,430
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 232,430
<EPS-PRIMARY> 8.32
<EPS-DILUTED> 8.32
</TABLE>
