<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, 1998 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, 1998
PART I
FINANCIAL INFORMATION
<PAGE>
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
----------------- ------------------
<S> <C> <C>
Assets
Real estate investments:
Joint venture $ 4,998,439 $ 5,071,717
Property, net 7,277,833 7,314,926
------------ ------------
12,276,272 12,386,643
Cash and cash equivalents 2,191,534 2,101,633
Short-term investments - 198,992
------------ ------------
$ 14,467,806 $ 14,687,268
============ ============
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Partners' Capital
<S> <C> <C>
Accounts payable $ 29,740 $ 50,345
Accrued management fee 35,897 38,659
Deferred disposition fee 29,250 29,250
----------- ------------
Total liabilities 94,887 118,254
----------- ------------
Partners' capital (deficit):
Limited partners ($800 per
unit; 100,000 units
authorized, 27,641 units issued
and outstanding) 14,416,242 14,610,376
General partners (43,323) (41,362)
----------- ------------
Total partners' capital 14,372,919 14,569,014
----------- ------------
$14,467,806 $ 14,687,268
=========== ============
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Investment Activity
Property rentals $ 246,785 $ 365,383
Property operating expenses (25,041) (53,749)
Depreciation and amortization (78,953) (108,661)
--------- ----------
142,791 202,973
Joint venture earnings 85,096 81,235
--------- ----------
Total real estate operations 227,887 284,208
Interest on cash equivalents
and short-term investments 28,110 27,784
--------- ----------
Total investment activity 255,997 311,992
--------- ----------
Portfolio Expenses
Management fee 35,897 44,872
General and administrative 25,312 34,690
--------- ----------
61,209 79,562
--------- ----------
Net Income $ 194,788 $ 232,430
========= ==========
Net income per limited partnership
unit $ 6.98 $ 8.32
========= ==========
Cash distributions per limited
partnership unit $ 14.00 $ 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 PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31,
1998 1997
------------------------ -----------------------
General Limited General Limited
Partners Partners Partners Partners
--------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Balance at beginning
of period $(41,362) $14,610,376 $(46,978) $19,582,641
Cash distributions (3,909) (386,974) (4,188) (414,615)
Net income 1,948 192,840 2,324 230,106
-------- ----------- -------- -----------
Balance at end of
period $(43,323) $14,416,242 $(48,842) $19,398,132
======== =========== ======== ===========
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
SUMMARIZED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net cash provided by operating activities $ 284,420 $ 525,767
----------- -----------
Cash flows from investing activities:
Decrease in short-term
investments, net 196,364 127,716
----------- -----------
Cash flows from financing activity:
Distributions to partners (390,883) (418,803)
----------- -----------
Net increase in cash
and cash equivalents 89,901 234,680
Cash and cash equivalents:
Beginning of period 2,101,633 1,798,785
----------- -----------
End of period $ 2,191,534 $ 2,033,465
=========== ===========
</TABLE>
(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, 1998 and December 31, 1997 and the results of its
operations, its cash flows and partners' capital (deficit) for the interim
periods ended March 31, 1998 and 1997. These adjustments are of a normal
recurring nature.
See notes to financial statements included in the Partnership's 1997 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.
The Partnership commenced operations in October 1988, and acquired the two real
estate investments it currently owns prior to the end of 1989. The Partnership
intends to dispose of its investments within six to nine years of their
acquisition, and then liquidate. The Partnership has engaged AEW Real Estate
Advisors, Inc. ("AEW") to provide asset management advisory services.
NOTE 2 - PROPERTY
- -----------------
On July 22, 1997, the South Bay property was sold to the sole tenant which
exercised the purchase option under its lease for gross consideration of
$5,850,000. The Partnership received net proceeds of $5,715,415, after closing
costs, and recognized a gain of $1,490,313 ($53.38 per limited partnership unit)
on the sale. A disposition fee of $29,250 was accrued but not paid to AEW. On
July 24, 1997, the Partnership made a capital distribution of $5,528,200 ($200
per limited partnership unit) from the proceeds of the sale.
<PAGE>
The following is a summary of the Partnership's investment in the Brea West
property:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
--------------- ------------------
<S> <C> <C>
Land $ 2,991,854 $ 2,991,854
Building and improvements 5,978,755 5,978,755
Accumulated depreciation (2,030,166) (1,960,425)
Deferred costs, net 367,891 375,329
Other net liabilities (30,501) (70,587)
------------ ------------
Net carrying value $ 7,277,833 $ 7,314,926
============ ============
</TABLE>
NOTE 3 - REAL ESTATE JOINT VENTURES
- -----------------------------------
The following summarized financial information is presented in the aggregate
for the Shasta Way joint venture:
<TABLE>
<CAPTION>
ASSETS AND LIABILITIES
----------------------
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Assets
Real property, at cost less
accumulated depreciation of
$2,238,041 and $2,132,388 $ 7,460,342 $ 7,565,996
Other 152,490 165,813
----------- -----------
7,612,832 7,731,809
Liabilities 84,926 81,052
----------- -----------
Net assets $ 7,527,906 $ 7,650,757
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
---------------------
QUARTER ENDED MARCH 31,
1998 1997
--------- ---------
<S> <C> <C>
Revenue
Rental income $ 301,755 $ 297,232
Other income - 2,086
--------- ---------
301,755 299,318
--------- ---------
Expenses
Operating expenses 39,410 43,630
Depreciation and amortization 115,196 115,196
--------- ---------
154,606 158,826
--------- ---------
Net income $ 147,149 $ 140,492
========= =========
</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.
NOTE 4 - SUBSEQUENT EVENT
- -------------------------
Distributions of cash from operations relating to the quarter ended March
31, 1998 were made on April 29, 1998 in the aggregate amount of $362,963 ($13.00
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.
In connection with the sale of the South Bay property, the Partnership made a
capital distribution of $5,528,200 ($200 per limited partnership unit) in July
1997. This distribution reduced the adjusted capital contribution to $800 per
unit.
At March 31, 1998, the Partnership had $2,191,534 in cash and cash
equivalents, of which $362,963 was used for cash distributions to partners on
April 29, 1998; 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 invested cash and cash
equivalents. Distributions of cash from operations relating to the first
quarter of 1997 and 1998 were made at the annualized rate of 6.5%. The first
quarter 1997 distribution was based on a capital contribution of $1,000 per
unit. The first quarter 1998 distribution was based on the adjusted capital
contribution of $800 per unit.
The carrying value of real estate investments in the financial statements at
March 31, 1998 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, 1998, the aggregate appraised value of
the Partnership's investments was approximately $2,900,000 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 AEW 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.
<PAGE>
Results of Operations
Form of Real Estate Investments
The Brea West investment is 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 Shasta Way joint venture 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%.
Operating Factors
The Brea West and the Shasta Way properties are both 100% leased to single
tenants. A new 11-year lease was signed with the tenant at Brea West which
commenced on September 1, 1997 at a slightly lower rental rate. The lease at
Shasta Way expires on December 31, 1998.
Investment Results
Exclusive of $71,834 of operating income from South Bay in 1997, real estate
operations increased $15,513 for the first three months of 1998 as compared to
the comparable period of 1997. The improvement is primarily due to the timing
of tenant reimbursement income at Brea West. Amortization expense also
decreased between the two periods as certain tenant concessions and lease
commissions were written off in 1997, concurrent with the signing of the new
lease discussed above.
Cash provided by operations decreased by approximately $241,000 between the
three-month periods ended March 31, 1997 and 1998. The decline is attributable
to the decrease in operating results as a result of the sale of South Bay, as
well as the timing of distributions from Shasta Way.
Interest earned on cash equivalents and short-term investments for the first
quarter of 1997 and 1998 were relatively unchanged as lower average invested
balances were offset by higher short-term yields.
Portfolio Expenses
General and administrative expenses primarily consist of real estate
appraisal, legal, printing, accounting and servicing agent fees. These expenses
decreased approximately $9,000, or 27% between the first three months of 1997
and 1998, primarily due to decreases in accounting and appraisal 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 decreased between
the two three-month periods due to the decrease in distributable cash
flow.
<PAGE>
COPLEY REALTY INCOME PARTNERS 3;
A LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1998
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 16, 1998, the Partnership filed
one current report on Form 8-K/A reporting on Item No. 2
(Acquisition or Disposition of Assets) and Item No. 7 (Financial
Statements and Exhibits), disclosing the sale of the South Bay
property on July 22, 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 15, 1998
/s/ Wesley M. Gardiner, Jr.
-------------------------------
Wesley M. Gardiner, Jr.
President, Chief Executive Officer and Director
of Managing General Partner,
Third Income Corp.
May 15, 1998
/s/ Karin J. Lagerlund
--------------------------------
Karin J. Lagerlund
Treasurer and 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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,191,534
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,191,534
<PP&E> 12,276,272
<DEPRECIATION> 2,030,166
<TOTAL-ASSETS> 14,467,806
<CURRENT-LIABILITIES> 94,887
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 14,372,919
<TOTAL-LIABILITY-AND-EQUITY> 14,467,806
<SALES> 331,881
<TOTAL-REVENUES> 359,991
<CGS> 25,041
<TOTAL-COSTS> 25,041
<OTHER-EXPENSES> 140,162
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 194,788
<INCOME-TAX> 0
<INCOME-CONTINUING> 194,788
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 194,788
<EPS-PRIMARY> 6.98
<EPS-DILUTED> 6.98
</TABLE>
