<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 June 30, 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 JUNE 30, 1998
PART I
FINANCIAL INFORMATION
<PAGE>
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Assets
Real estate investments:
Joint venture $ 4,944,584 $ 5,071,717
Property, net 7,164,904 7,314,926
----------------- -----------------
12,109,488 12,386,643
Cash and cash equivalents 2,209,335 2,101,633
Short-term investments - 198,992
----------------- -----------------
$ 14,318,823 $ 14,687,268
================= =================
Liabilities and Partners' Capital
Accounts payable $ 35,025 $ 50,345
Accrued management fee 35,897 38,659
Deferred disposition fee 29,250 29,250
----------------- -----------------
Total liabilities 100,172 118,254
----------------- -----------------
Partners' capital (deficit):
Limited partners ($800 per
unit; 100,000 units
authorized, 27,641 units issued
and outstanding) 14,263,516 14,610,376
General partners (44,865) (41,362)
----------------- -----------------
Total partners' capital 14,218,651 14,569,014
----------------- -----------------
$ 14,318,823 $ 14,687,268
================= =================
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended Quarter Ended Six Months Ended
June 30, 1998 June 30, 1998 June 30, 1997 June 30, 1997
-------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY
Property rentals $246,764 $ 493,549 $ 407,529 $ 772,912
Property operating expenses (27,432) (52,473) (65,576) (119,325)
Depreciation and amortization (78,952) (157,905) (108,660) (217,321)
-------- --------- --------- ---------
140,380 283,171 233,293 436,266
Joint venture earnings 98,124 183,220 71,936 153,171
-------- --------- --------- ---------
Total real estate operations 238,504 466,391 305,229 589,437
Interest on cash equivalents
and short term investments 27,705 55,815 29,548 57,332
-------- --------- --------- ---------
Total investment activity 266,209 522,206 334,777 646,769
-------- --------- --------- ---------
PORTFOLIO EXPENSES
Management fee 35,898 71,795 44,871 89,743
General and administrative 21,617 46,929 27,122 61,812
-------- --------- --------- ---------
57,515 118,724 71,993 151,555
-------- --------- --------- ---------
Net income $208,694 $ 403,482 $ 262,784 $ 495,214
======== ========= ========= =========
Net income per
limited partnership unit $ 7.47 $ 14.45 $ 9.41 $ 17.74
======== ========= ========= =========
Cash distributions per
limited partnership unit $ 13.00 $ 27.00 $ 16.25 $ 31.25
======== ========= ========= =========
Number of limited partnership
units outstanding during the period 27,641 27,641 27,641 27,641
======== ========= ========= =========
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended Quarter Ended Six Months Ended
June 30, 1998 June 30, 1998 June 30, 1997 June 30, 1997
-------------------- --------------------- --------------------- ---------------------
General Limited General Limited General Limited General Limited
Partners Partners Partners Partners Partners Partners Partners Partners
-------- ----------- -------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
beginning of
period $(43,323) $14,416,242 $(41,362) $14,610,376 $(48,842) $19,398,132 $(46,978) $19,582,641
Cash
distributions (3,629) (359,333) (7,538) (746,307) (4,537) (449,166) (8,725) (863,781)
Net income 2,087 206,607 4,035 399,447 2,628 260,156 4,952 490,262
-------- ----------- -------- ----------- -------- ----------- -------- -----------
Balance at
end of period $(44,865) $14,263,516 $(44,865) $14,263,516 $(50,751) $19,209,122 $(50,751) $19,209,122
-------- ----------- -------- ----------- -------- ----------- -------- -----------
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
SUMMARIZED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
1998 1997
------------- ------------
<S> <C> <C>
Net cash provided by operating activities $ 665,183 $ 991,633
---------- ----------
Cash flows from investing activity:
Decrease in short-term
investments, net 196,364 104,532
---------- ----------
Cash flows from financing activity:
Distributions to partners (753,845) (872,506)
---------- ----------
Net increase in cash
and cash equivalents 107,702 223,659
Cash and cash equivalents:
Beginning of period 2,101,633 1,798,785
---------- ----------
End of period $2,209,335 $2,022,444
========== ==========
</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 June 30, 1998 and December 31, 1997 and the results of
its operations, its cash flows and partners' capital (deficit) for the interim
periods ended June 30, 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
- -----------------
The following is a summary of the Partnership's investment in the Brea West
property:
<TABLE>
<CAPTION>
June 30, 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 (2,099,907) (1,960,425)
Deferred costs, net 360,454 375,329
Other net liabilities (66,252) (70,587)
----------- -----------
Net carrying value $ 7,164,904 $ 7,314,926
=========== ===========
</TABLE>
<PAGE>
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
--------------------------------
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Assets
Real property, at cost less
accumulated depreciation of
$2,343,697 AND $2,132,388 $7,354,687 $7,565,996
Other 146,202 165,813
---------- ----------
7,500,889 7,731,809
Liabilities 62,347 81,052
---------- ----------
Net assets $7,438,542 $7,650,757
========== ==========
<CAPTION>
Results of operations
-----------------------------
Six months ended June 30,
1998 1997
---------- ----------
<S> <C> <C>
Revenue
Rental income $ 630,823 $ 592,768
Other income - 2,286
---------- ----------
630,823 595,054
---------- ----------
Expenses
Operating expenses 83,670 99,710
Depreciation and amortization 230,392 230,392
---------- ----------
314,062 330,102
---------- ----------
Net income $ 316,761 $ 264,952
========== ==========
</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 June
30, 1998 were made on July 30, 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 July 1997 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 June 30, 1998, the Partnership had $2,209,335 in cash and cash
equivalents, of which $362,963 was used for cash distributions to partners on
July 30, 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 two
quarters of 1997 and 1998 were made at the annualized rate of 6.5%.
Distributions of cash related to the first two quarters of 1997 were based on a
capital contribution of $1,000 per unit. The two 1998 distributions were based
on the adjusted capital contribution of $800 per unit.
The carrying value of real estate investments in the financial statements
at June 30, 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 June 30, 1998, the aggregate appraised value of the
Partnership's investments was approximately $3,500,000 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 rental rate which was slightly lower than
the previous rate. The lease at Shasta Way expires on December 31, 1998. In
February 1998, the tenant exercised its renewal option for a 5-year term which
commences on January 1, 1999.
Investment Results
Exclusive of $152,562 of operating income from South Bay in 1997, real
estate operations increased approximately $30,000, or 7% for the first six
months of 1998 as compared to the comparable period of 1997. At Brea West,
operating income was virtually unchanged between the two periods. Rental income
declined by approximately $23,000 as a result of the lower rental rate discussed
above. Concurrent with the signing of the new lease, amortization expense also
decreased between the two periods as certain tenant concessions and lease
commissions were written off in 1997. At Shasta Way, real estate operations
increased by $28,000 as a result of a rental increase as of April 1, 1998, in
addition to a favorable 1997 expense reimbursement adjustment this quarter.
Accounting fees also decreased between the two periods at Shasta Way.
Cash provided by operations decreased by approximately $326,000 between the
six-month periods ended June 30, 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 between the
first six months of 1997 and 1998 did not change significantly.
Portfolio Expenses
General and administrative expenses primarily consist of real estate
appraisal, legal, printing, accounting and servicing agent fees. These expenses
decreased approximately $15,000, or 24% between the first six months of 1997 and
1998, primarily due to a decrease 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 decreased between
the two six-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 JUNE 30, 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: No current reports on Form 8-K were filed
during the quarter ended June 30, 1998.
<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)
August 12, 1998
/s/ Wesley M. Gardiner, Jr.
-------------------------------
Wesley M. Gardiner, Jr.
President, Chief Executive Officer and Director
of Managing General Partner,
Third Income Corp.
August 12, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,209,335
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,209,335
<PP&E> 12,109,488
<DEPRECIATION> 2,099,907
<TOTAL-ASSETS> 14,318,823
<CURRENT-LIABILITIES> 100,172
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 14,218,651
<TOTAL-LIABILITY-AND-EQUITY> 14,318,823
<SALES> 676,769
<TOTAL-REVENUES> 732,584
<CGS> 52,473
<TOTAL-COSTS> 52,473
<OTHER-EXPENSES> 276,629
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 403,482
<INCOME-TAX> 0
<INCOME-CONTINUING> 403,482
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 403,482
<EPS-PRIMARY> 14.45
<EPS-DILUTED> 14.45
</TABLE>
