-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Sociph6NNHSfuHLUFth7B1Cegwx96gMVNXntN0UaTbEuqcghMjHAI68lsVTBa6Av WeVN6ASwtT6ik0TP673PrA== 0001073339-00-000041.txt : 20000331 0001073339-00-000041.hdr.sgml : 20000331 ACCESSION NUMBER: 0001073339-00-000041 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUTTON GSH COMMERCIAL PROPERTIES 3 CENTRAL INDEX KEY: 0000725767 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 112680561 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-13341 FILM NUMBER: 585705 BUSINESS ADDRESS: STREET 1: 388 GREENWICH ST CITY: NEW YORK STATE: NY ZIP: 10013 BUSINESS PHONE: 2125263183 MAIL ADDRESS: STREET 1: 3 WORLD FINANCIAL CENTER STREET 2: 29TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10285 10-K 1 ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF - ----- THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended December 31, 1999 ----------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF - ----- THE SECURITIES EXCHANGE ACT OF 1934. Commission file number: 0-13341 ------- COMMERCIAL PROPERTIES 3, L.P. (formerly Hutton/GSH Commercial Properties 3) --------------------------------------------- Exact name of registrant as specified in its charter Virginia 11-2680561 -------- ---------- State or other jurisdiction of I.R.S. Employer Identification No. incorporation or organization 3 World Financial Center, 29th Floor New York, NY Attn.: Andre Anderson 10285 - -------------------------------------- ----- Address of principal executive offices Zip code Registrant's telephone number, including area code: (212) 526-3183 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: UNITS OF LIMITED PARTNERSHIP INTEREST ------------------------------------- Title of Class 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 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 ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X ----- DOCUMENTS INCORPORATED BY REFERENCE: Portions of Prospectus of Registrant dated December 13, 1983 (included in Amendment No. 1 to Registration Statement No. 2-85936, of Registrant filed December 13, 1983) are incorporated by reference to Part III. Portions of Parts I, II and IV are incorporated by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1999 filed as an exhibit under Item 14. 1 PART I Item 1. Business (a) General Development of Business ------------------------------- Commercial Properties 3, L.P. (the "Registrant" or the "Partnership") (formerly Hutton/GSH Commercial Properties 3), is a Virginia limited partnership formed on April 19, 1984, of which Real Estate Services VII, Inc. ("RE Services"), formerly Hutton Real Estate Services VII, Inc. (See Item 10. "Certain Matters Involving Affiliates"), and HS Advisors III, Ltd. ("HS Advisors"), are the general partners (the "General Partners"). Commencing December 13, 1983, the Registrant began offering through E.F. Hutton & Company Inc., a former affiliate of the Registrant, up to a maximum of 120,000 units of limited partnership interest (the "Units") at $500 per Unit. The Units were registered under the Securities Act of 1933, as amended (the "Act"), under Registration Statement No. 2-85936, which Registration Statement was declared effective on December 13, 1983. The offering of Units was terminated on August 9, 1984. Upon termination of the offering, the Registrant had accepted subscriptions for 109,378 Units for an aggregate of $54,689,000. After deducting offering costs and initial working capital reserves, approximately $46,000,000 was available for investment in real estate. Of such proceeds, $44,995,452 was invested in an office and light industrial complex, one limited partnership and two joint ventures, each of which owned a specific office building (the "Properties"), and $1,093,780 of uncommitted funds were distributed to the Limited Partners as a return of capital on May 15, 1986. The Registrant also distributed $437,512 in 1986 and $218,756 in 1985 to the Limited Partners as returns of capital, which sums represented the excess of the initial working capital reserves set aside for present and future operating requirements. To the extent that funds committed for investment or held as a working capital reserve have not been expended (and have not otherwise been distributed to the Limited Partners as a return of capital), the Registrant has invested such funds in bank certificates of deposit, unaffiliated money market funds or other highly liquid short-term investments where there is appropriate safety of principal, in accordance with the Registrant's investment objectives and policies. (b) Financial Information About Industry Segment -------------------------------------------- The Registrant's sole business is the ownership and operation of the Properties. All of the Registrant's revenues, operating profit or losses and assets relate solely to such industry segment. (c) Narrative Description of Business --------------------------------- Incorporated by reference to Note 1 "Organization" of the Notes to the Consolidated Financial Statements in the Partnership's Annual Report to Unitholders for the year ended December 31, 1999 filed as an exhibit under Item 14. The Registrant's principal investment objectives with respect to the Properties (in no particular order of priority) are: 1) Capital appreciation. 2) Distributions of net cash from operations attributable to rental income. 3) Preservation and protection of capital. 4) Equity build-up through principal reduction of mortgage loans, if any, on the Properties. Distribution of net cash from operations is the Registrant's objective during its operational phase, while the preservation and appreciation of capital is the Registrant's long-term objective. The attainment of the Registrant's investment objectives will depend on many factors, including future economic conditions in the United States as a whole and, in particular, in the localities in which the Registrant's Properties are located, especially with regard to achievement of capital appreciation. The Registrant sold three of its Properties as of December 31, 1999, and the fourth Property was sold on January 31, 2000 (see Item 7). 2 (d) Employees --------- The Registrant has no employees. Item 2. Properties As of the filing date of this report, all of the Partnership's Properties had been sold. On January 12, 1999, the Partnership closed on the sale of Quorum II Office Building. On February 9, 1999, the Partnership closed on the sale of Metro Park Executive Center. On April 14, 1999, the Partnership closed on the sale of Ft. Lauderdale Commerce Center, and on January 31, 2000, the Partnership sold its remaining Property, Three Financial Centre. See Item 7 for a discussion of the sales. Item 3. Legal Proceedings The Registrant recently settled a legal dispute with a former tenant at the Quorum II Office Building in Dallas for $70,000. The Registrant will be paying such an amount in the first half of 2000. This settlement has been accepted by the former tenant in full compromise and settlement of all causes of action. Accordingly, the Registrant will have no additional liability. Item 4. Submission of Matters to a Vote of Security Holders No matter was submitted to a vote of Unitholders during the fourth quarter of 1999. PART II Item 5. Market for Registrant's Limited Partnership Units and Related Unitholder Matters (a) Market Information ------------------ No established public trading market has developed for the Units, and it is not anticipated that such a market will develop in the future. (b) Holders ------- As of December 31, 1999, the number of holders of Units was 4,761. (c) Distributions ------------- 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, cash distributions were suspended commencing with the 1998 third quarter distribution which would have been paid in November 1998. The General Partners distributed the net proceeds from the sales of Quorum II Office Building, Metro Park Business Center and Ft. Lauderdale Commerce Center in September 1999. The General Partners plan to distribute the net proceeds from the sale of Three Financial Centre, which was completed on January 31, 2000, together with the Partnership's remaining cash reserves (after payment of or provision for the Partnership's liabilities and expenses), and terminate the Partnership during the second quarter of 2000. The following distributions were paid to the Limited Partners for the two years ended December 31, 1999 and December 31, 1998. 3
Cash Distributions Per Limited Partnership Unit First Second Third Fourth Quarter Quarter Quarter Quarter Total ------- ------- ------- ------- ------- 1998 $ 5.00 $ 5.00 $ -- $ -- $ 10.00 1999 $ -- $ -- $200.56 $ -- $200.56
Item 6. Selected Financial Data
For The Years Ended December 31, (dollars in thousands except per Unit data) 1999 1998 1997 1996 1995 - ---------------------------------------------------------------------------------------------- Total income $ 3,313 $ 5,788 $ 5,109 $ 5,279 $ 5,158 Operating income (loss) 1,572 1,747 43 568 (3,631) Gain on sale of real estate assets 6,831 -- -- -- -- Net income (loss) 8,403 1,747 43 568 (3,631) Total assets at year end 10,924 25,007 24,464 25,364 27,842 Net cash from operations 1,515 2,951 2,194 2,560 2,168 Net income (loss) per Unit 76.06 14.89 (.23) 4.09 (32.87) Cash distributions per Limited Partnership Unit 200.56(2) 10.00 12.00 25.30(1) 13.25 - ---------------------------------------------------------------------------------------------- (1) Includes a special cash distribution of $13.30 per Unit paid on March 29, 1996. (2) Represents a special cash distribution of the net sale proceeds from Quorum II Office Building, Metro Park Business Center and Ft. Lauderdale Commerce Center paid on September 22, 1999.
Item 7. 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 for a selling price of $7,612,065, net of closing adjustments and selling costs, resulting in a gain of $2,894,064, which is reflected in the Partnership's consolidated statement of operations for the year ended December 31, 1999. On February 9, 1999, the Partnership completed the sale of Metro Park to an unaffiliated partnership for a selling price of $3,797,438, net of closing adjustments and selling costs, resulting in a gain of $565,698, which is reflected in the Partnership's consolidated statement of operations for the year ended December 31, 1999. On April 14, 1999, the Partnership sold Ft. Lauderdale to an unaffiliated partnership for a selling price of $12,465,291, net of closing adjustments and selling costs, resulting in a gain of $3,371,728 which is reflected in the Partnership's consolidated operations for the year ended December 31, 1999. The selling prices were determined by arm's length negotiations between the Partnership and the buyers. As a result of these sales, on September 22, 1999 the Partnership paid a special cash distribution to the Limited Partners in the amount of $21,936,419, or $200.56 per Unit and $221,580 to the General Partners. 4 On January 31, 2000, the Partnership sold its remaining Property, Three Financial Centre, to an affiliate of the Joint Venture Partner, Three Financial Centre LLC ("3FCLLC"), for a selling price of approximately $10,130,000, net of closing adjustments and selling costs. The sale is expected to result in a gain of approximately $4,100,000 which will be reflected in the Partnership's consolidated operations for the three months ended March 31, 2000. The selection of the buyer was a result of a competitive bidding process organized by the real estate broker engaged to assist in selling the Property. The General Partners plan to distribute the net proceeds from the sale, together with the Partnership's remaining cash reserves (after payment of or provision for the Partnership's liabilities and expenses), and terminate the Partnership during the second quarter 2000. In anticipation of the Partnership being dissolved, the minority interest allocation has been conformed to the tax basis. The Partnership's real estate has been recorded on the Partnership's December 31, 1999 balance sheet as "Real estate assets held for disposition." Real estate assets held for disposition at December 31, 1999 totaled $5,974,046. The Partnership had cash and cash equivalents totaling $4,785,516 at December 31, 1999, compared to $2,246,926 at December 31, 1998. The increase is primarily due to the proceeds from the sale of three properties during 1999. The Partnership also had restricted cash, which consists of security deposits of $78,031 at December 31, 1999, compared to $143,536 at December 31, 1998. This decrease resulted from the sale of Quorum, Metro Park and Ft. Lauderdale. Accounts and rent receivable, net of allowance for doubtful accounts, totaled $65,401 at December 31, 1999, compared to $136,156 at December 31, 1998. The decrease is mainly due to the sale of three properties in 1999. Prepaid expenses and other assets totaled $21,282 at December 31, 1999, compared to $51,093 at December 31, 1998. The decrease is due to the sale of three properties during 1999. Accounts payable and accrued expenses totaled $233,207 at December 31, 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 and the timing of invoices and payments. Security deposits totaled $78,031 at December 31, 1999, compared to $240,423 at December 31, 1998. The decrease is due to the sale of Quorum, Metro Park and Ft. Lauderdale. Market Risk - ----------- The Partnership's principal market risk exposure is interest rate risk. The Partnership has no long-term debt and its remaining Property has no mortgage debt. Accordingly, the Partnership's interest risk exposure is primarily limited to interest earned on the Partnership's cash and cash equivalents which are invested at short-term rates. Such risk is not considered material to the Partnership's operations. Results of Operations - --------------------- 1999 vs 1998 - ------------ The Partnership's operations resulted in net income of $8,403,060 for the year ended December 31, 1999, compared to a net income of $1,747,214 in fiscal 1998. The increase is primarily attributable to the gain recognized on the sale of Quorum, Metro Park and Ft. Lauderdale. Rental income totaled $2,530,185 for the year ended December 31, 1999, compared to $5,719,841 for the year ended December 31, 1998. The decrease is largely attributable to the sale of Quorum, Metro Park and Ft. Lauderdale. Interest income totaled $783,312 for the year ended December 31, 1999, compared to $68,146 in fiscal 1998. The increase is primarily attributable to the proceeds received from the sale of Quorum, Metro Park and Ft. Lauderdale. Property operating expenses totaled $1,142,270 for the year ended December 31, 1999, compared to $2,323,191 in fiscal 1998. The decrease is primarily due to the sale of Quorum, Metro Park and Ft. Lauderdale. 5 Depreciation and amortization expense totaled $28,522 for the year ended December 31, 1999, compared with $1,077,837 for the year ended December 31, 1998. For the year ended December 31, 1999, depreciation and amortization represent the write-off of tenant improvements and leasing commissions related to tenants who have vacated the Property. 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 totaled $454,088 for the year ended December 31, compared to $404,990 in fiscal 1998. The increase is primarily due to higher administrative and marketing fees on the sale of Quorum, Metro Park and Ft. Lauderdale. As of December 31, 1999, Three Financial Centre was 85% leased. 1998 vs 1997 - ------------ Partnership operations resulted in net income of $1,747,214 for the year ended December 31, 1998, compared to $42,860 in 1997. The increase in net income is primarily attributable to higher rental income and a decrease in depreciation expense due to the reclassification of the properties as "Real estate assets held for disposition." Rental income totaled $5,719,841 for the year ended December 31, 1998, compared to $5,031,723 for the year ended December 31, 1997. The increase is attributable to higher rental income at all four properties, particularly at Metro Park Business Center and Quorum II Office Building, and an increase in average occupancy at Three Financial Centre. Interest income totaled $68,146 for the year ended December 31, 1998, compared to $77,701 in 1997. The slight decrease is primarily attributable to the Partnership's lower average cash balances in 1998. Property operating expenses totaled $2,323,191 for the year ended December 31, 1998, largely unchanged from $2,392,473 in 1997, as reductions in operating expenses at three of the properties were largely offset by an increase in property tax expense at the Quorum property. Depreciation and amortization expense totaled $1,077,837 for the year ended December 31, 1998, compared with $2,089,050 in 1997. 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 year ended December 31, 1998 totaled $404,990, compared to $477,582 in 1997. The decrease is primarily due to lower management and appraisal expenses. As of December 31, 1998, lease levels at each of the Properties were as follows: Metro Park Executive Center - 86%; Fort Lauderdale Commerce Center - 85%; Three Financial Centre - 96%; and Quorum II Office Building - 83%. Item 8. Financial Statements and Supplementary Data Incorporated by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1999, which is filed as an exhibit under Item 14. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 6 PART III Item 10. Directors and Executive Officers of the Registrant The Registrant has no officers and directors. RE Services and HS Advisors, the General Partners of the Registrant, jointly manage and control the affairs of the Registrant and have general responsibility and authority in all matters affecting its business. Real Estate Services VII, Inc. - ------------------------------ Real Estate Services VII, Inc., is a Delaware corporation formed on August 2, 1982 and is an affiliate of Lehman Brothers Inc. ("Lehman"). See the section captioned "Certain Matters Involving Hutton Affiliates" below for a description of the Hutton Group's acquisition by Shearson Lehman Brothers, Inc. ("Shearson") and the subsequent sale of certain of Shearson's domestic retail brokerage and asset management businesses to Smith Barney, Harris Upham & Co. Incorporated, which resulted in a change in the general partner's name. The names and ages of, as well as the positions held by, the directors and executive officers of RE Services are set forth below. There are no family relationships between any officer or director and any other officer or director. Certain officers and directors of RE Services are now serving (or in the past have served) as officers and directors of entities which act as general partners of a number of real estate limited partnerships which have sought protection under the provisions of the Federal Bankruptcy Code. The partnerships which have filed bankruptcy petitions own real estate which has been adversely affected by the economic conditions in the markets in which that real estate is located and, consequently, the partnerships sought the protection of the bankruptcy laws to protect the Partnership's assets from loss through foreclosure. Name Office ---- ------ Michael T. Marron Director, President and Chief Financial Officer Rocco F. Andriola Director, Vice President Michael T. Marron, 36, is a Vice President of Lehman Brothers and has been a member of the Diversified Asset Group since 1990 where he has actively managed and restructured a diverse portfolio of syndicated limited partnerships. Prior to joining Lehman Brothers, Mr. Marron was associated with Peat Marwick Mitchell & Co. serving in both its audit and tax divisions from 1985 to 1989. Mr. Marron received a B.S. degree from the State University of New York at Albany and an M.B.A. degree from Columbia University and is a Certified Public Accountant. Rocco F. Andriola, 41, is a Managing Director of Lehman Brothers in its Diversified Asset Group and has held such position since October 1996. Mr. Andriola also serves as the Director of Global Corporate Services for Lehman. Since joining Lehman in 1986, Mr. Andriola has been involved in a wide range of restructuring and asset management activities involving real estate and other direct investment transactions. From June 1991 through September 1996, Mr. Andriola held the position of Senior Vice President in Lehman's Diversified Asset Group. From June 1989 through May 1991, Mr. Andriola held the position of First Vice President in Lehman's Capital Preservation and Restructuring Group. From 1986 to 1989, Mr. Andriola served as a Vice President in the Corporate Transactions Group of Shearson Lehman Brothers' office of the general counsel. Prior to joining Lehman, Mr. Andriola practiced corporate and securities law at Donovan Leisure Newton & Irvine in New York. Mr. Andriola received a B.A. from Fordham University, a J.D. from New York University School of Law, and an LL.M in Corporate Law from New York University's Graduate School of Law. HS Advisors III, Ltd. - --------------------- HS Advisors III, Ltd., a California limited partnership, was formed on August 11, 1982, the sole general partner of which is Hogan Stanton Investment, Inc. ("HS Inc."), a wholly-owned subsidiary of Goodman Segar Hogan, Inc. The names and ages of, as well as the positions held by, the directors and executive officers of HS Inc. are as set forth below. There are no family relationships between or among any officer and any other officer or director. Name Office ---- ------ Mark P. Mikuta President Julie R. Adie Vice President, Treasurer and Secretary 7 Mark P. Mikuta, 46, is Senior Vice President of Goodman Segar Hogan, Inc. and is Vice President and Controller of Dominion Capital, Inc., a wholly-owned subsidiary of Dominion Resources. Mr. Mikuta joined Dominion Resources in 1987. Prior to joining Dominion Resources, he was an internal auditor with Virginia Commonwealth University in Richmond, Virginia from 1980 - 1987 and an accountant with Coopers & Lybrand from 1977 - 1980. Mr. Mikuta earned a Bachelor of Science degree in accounting from the University of Richmond in 1977. He is a Certified Public Accountant (CPA) and Certified Financial Planner (CFP) in the state of Virginia and a member of the American Institute of Certified Public Accountants. Julie R. Adie, 45, is a Vice President of Goodman Segar Hogan, Inc. and Senior Vice President of Goodman Segar Hogan Hoffler, L.P. ("GSHH"). She is responsible for investment management of a commercial real estate portfolio for the company's Asset Management Division. Prior to GSHH, Ms. Adie was an asset manager with Aetna Real Estate Investors from 1986 to 1988. Ms. Adie practiced as an attorney from 1978 through 1984 and is currently a member of the Virginia Bar Association. She holds a B.A. degree from Duke University, a Juris Doctor from University of Virginia and an M.B.A. from Dartmouth College. Certain Matters Involving Affiliates - ------------------------------------ On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic retail brokerage and asset management businesses to Smith Barney, Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to the sale, Shearson Lehman Brothers Inc. changed its name to Lehman Brothers Inc. The transaction did not affect the ownership of the General Partners. However, the assets acquired by Smith Barney included the name "Hutton." Consequently, Hutton Real Estate Services VII, Inc., a General Partner, changed its name to Real Estate Services VII, Inc. Additionally, effective August 3, 1995, the Partnership changed its name to Commercial Properties 3, L.P., to delete any reference to "Hutton." On August 1, 1993, Goodman Segar Hogan ("GSH") transferred all of its leasing, management and sales operations to Goodman Segar Hogan Hoffler, L.P., a Virginia limited partnership ("GSHH"). On that date, the leasing, management and sales operations of a portfolio of properties owned by the principals of Armada/Hoffler ("HK") were also obtained by GSHH. The General Partner of GSHH is Goodman Segar Hogan Hoffler, Inc., a Virginia corporation ("GSHH Inc."), which has a one percent interest in GSHH. The stockholders of GSHH Inc. are GSH with a sixty-two percent stock interest and H.K. Associates, L.P., an affiliate of HK, with a thirty-eight percent stock interest. The remaining interests in GSHH are limited partnership interests owned by GSH, HK and 23 employees of GSHH. On September 28, 1998, GSH sold its general partner and limited partner interests in GSHH to The St. Joe Company, an unaffiliated company. The transactions did not affect the ownership of the General Partners. Item 11. Executive Compensation Neither of the General Partners nor any of their directors and officers received any compensation from the Registrant. See Item 13 below with respect to a description of certain transactions of the General Partners and their affiliates with the Registrant. Item 12. Security Ownership of Certain Beneficial Owners and Management (a) Security Ownership of Certain Beneficial Owners ----------------------------------------------- No person (including any "group" as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) is known to the Registrant to be the beneficial owner of more than five percent of the outstanding Units as of December 31, 1999. (b) Security Ownership of Management -------------------------------- No officer or director of the General Partners beneficially owned or owned of record directly or indirectly any Units of the Registrant as of December 31, 1999. 8 (c) Changes In Control ------------------ None. Item 13. Certain Relationships and Related Transactions Pursuant to the Certificate and Agreement of Limited Partnership of the Registrant, for the year ended December 31, 1999, $84,030 of the Registrant's income was allocated to the General Partners ($42,015 to RE Services and $42,015 to HS Advisors). For a description of the allocation of net cash from operations and the allocation of income and loss to which the General Partners are entitled, reference is made to the material contained on pages 45 through 48 of the Prospectus of Registrant dated December 13, 1983 (the "Prospectus"), contained in Amendment No. 1 to Registrant's Registration Statement No. 2-85936, under the section captioned "Distributions and Allocations," which section is incorporated herein by reference thereto. On January 31, 2000, the Partnership sold its remaining Property, Three Financial Centre, to an affiliate of the Joint Venture Partner, 3FCLLC, for a selling price of approximately $10,130,000, net of closing adjustments and selling costs. The selection of 3FCLLC was a result of a competitive bidding process organized by the real estate broker engaged to assist in selling the Property. Pursuant to Section 12(g) of the Registrant's Certificate and Agreement of Limited Partnership, the General Partners and certain affiliates may be reimbursed by the Registrant for certain costs as described on page 16 of the Prospectus, which description is incorporated herein by reference thereto. Commencing January 1, 1997, the Partnership began reimbursing certain expenses incurred by RE Services and its affiliates in servicing the Partnership to the extent permitted by the Partnership Agreement. In prior years, affiliates of RE Services had voluntarily absorbed these expenses. Disclosure relating to amounts paid to the General Partners or their affiliates during the past three years is incorporated by reference to Note 6 "Transactions With the General Partners and Affiliates" of Notes to the Consolidated Financial Statements contained in the Partnership's Annual Report to Unitholders for the year ended December 31, 1999 filed as an exhibit under Item 14. 9 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) The following documents are filed as part of this report:
Page Number ------ (1) Financial Statements: Consolidated Balance Sheets - At December 31, 1999 and 1998..... (4) Consolidated Statements of Partners' Capital (Deficit) - For the years ended December 31, 1999, 1998 and 1997.......... (4) Consolidated Statements of Operations - For the years ended December 31, 1999, 1998 and 1997.......... (5) Consolidated Statements of Cash Flows - For the years ended December 31, 1999, 1998 and 1997.......... (6) Notes to the Consolidated Financial Statements.................. (7) (2) Financial Statement Schedule: Schedule III - Real Estate and Accumulated Depreciation ........ F-1
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (1) Incorporated by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1999, which is filed as Exhibit 13. (b) Reports on Form 8-K: No Reports on Form 8-K were filed during the three months ended December 31, 1999. On February 14, 2000, the Partnership filed a Report on Form 8-K reporting the sale of Three Financial Centre on January 31, 2000. (c) See Exhibit Index contained herein. 10 EXHIBIT INDEX Exhibit No. - ---------- (4) (A) Certificate and Agreement of Limited Partnership (included as, and incorporated herein by reference to, Exhibit A to the Prospectus of Registrant dated December 13, 1983 (the "Prospectus"), contained in Amendment No. 1 to Registration Statement, No. 2-85936, of the Registrant filed December 13, 1983 (the "Registration Statement")). (B) First Amendment to Certificate and Agreement of Limited Partnership (included as, and incorporated herein by reference to, Exhibit 4(B) of the Registrant's Annual Report on Form 10-K for the fiscal year ended November 30, 1984 (the "1984 Annual Report")). (C) Subscription Agreement and Signature Page (included as, and incorporated herein by reference to, Exhibit 3.1 to the 1983 Registration Statement). (10) (A) Agreements relating to Quorum II Office Building (included as, and incorporated herein by reference to, Exhibit (10)(A) to the 1984 Annual Report). (B) Agreements relating to Three Financial Centre Office Building (included as, and incorporated herein by reference to, Exhibit (10)(B) to the 1984 Annual Report). (C) Agreements relating to Fort Lauderdale Commerce Center (included as, and incorporated herein by reference to, Exhibit (10)(C) to the 1984 Annual Report). (D) Agreements relating to Metro Park Executive Center (included as, and incorporated herein by reference to, Exhibit (10)(D) to the 1984 Annual Report). (13) Annual report to the Unitholders for the year ended December 31, 1999. (23) Consent of Independent Auditors. (27) Financial Data Schedule. (28) Portions of Prospectus of Registrant dated December 13, 1983. 11 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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: HS Advisors III, Ltd. General Partner Hogan Stanton Investment, Inc. General Partner Date: March 30, 2000 BY: /s/Mark P. Mikuta ----------------- Name: Mark P. Mikuta Title: President BY: Real Estate Services VII, Inc. General Partner Date: March 30, 2000 BY: /s/Michael T. Marron -------------------- Name: Michael T. Marron Title: Director, President and Chief Financial Officer 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capabilities and on the dates indicated. REAL ESTATE SERVICES VII, INC. A General Partner Date: March 30, 2000 BY: /s/Michael T. Marron -------------------- Name: Michael T. Marron Title: Director, President and Chief Financial Officer Date: March 30, 2000 BY: /s/Rocco F. Andriola -------------------- Name: Rocco F. Andriola Title: Director, Vice President 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capabilities and on the dates indicated. HS ADVISORS III, LTD. A General Partner Date: March 30, 2000 BY: /s/Mark P. Mikuta ----------------- Name: Mark P. Mikuta Title: President of Hogan Stanton Investment, Inc., as general partner of HS Advisors III, Ltd. Date: March 30, 2000 BY: /s/Julie R. Adie ---------------- Name: Julie R. Adie Title: Vice President, Secretary and Treasurer of Hogan Stanton Investment, Inc. as general partner of HS Advisors III, Ltd. 14 EX-13 2 ANNUAL REPORT EXHIBIT 13 Commercial Properties 3, L.P. 1999 Annual Report to Unitholders - -------------------------------------------------------------------------------- MESSAGE TO INVESTORS - -------------------------------------------------------------------------------- Presented for your review is the 1999 Annual Report for Commercial Properties 3, L.P. (the "Partnership"). As discussed in previous reports, the Partnership sold three properties during 1999, Quorum II Office Building, Metro Park Executive Center and Ft. Lauderdale Commerce Center. In addition, the Partnership's final property, Three Financial Centre, was sold in January of this year. This report includes an overview on the sale of this property and the Partnership's audited financial statements for the year ended December 31, 1999. Sale Update We are pleased to report that Three Financial Centre was sold on January 31, 2000 for net sales proceeds of approximately $10,130,000. The buyer, an affiliate of the joint venture partner, was selected following a competitive bidding process organized by the real estate brokerage firm engaged to assist in the sale of the property. A special cash distribution representing a majority of the sales proceeds is expected to be paid to the Limited Partners in April. In addition, the Partnership is expected to terminate during the second quarter of this year following the expiration of the representations and warranties associated with the sale. The Partnership's remaining cash reserves (after payment of, or provision for, the Partnership's liabilities and expenses) will be distributed to the Limited Partners following termination. Cash Distributions The Partnership paid a special cash distribution in the amount of $200.56 per Unit in September 1999, resulting from the sale of three properties during the first half of 1999. As discussed above, Limited Partners will receive a special cash distribution resulting from the sale of the Partnership's final property in the near future. General Information Additional information regarding the payment of your final cash distributions and the termination of the Partnership will be included in future correspondence. In the interim, questions regarding the Partnership should be directed to your Financial Consultant or Partnership Investor Services. All requests for a change of address or transfer should be submitted in writing to the Partnership's administrative agent at P.O. Box 7090, Troy, MI 48007-7090. Partnership Investor Services can be reached at (617) 342-4225, and the Partnership's administrative agent can be reached at (248) 637-7900. Very truly yours, Real Estate Services VII, Inc. Hogan Stanton Investment, Inc. General Partner General Partner of HS Advisors III, Ltd. Michael T. Marron Mark P. Mikuta President President March 30, 2000 COMMERCIAL PROPERTIES 3, L.P. AND CONSOLIDATED VENTURES
- ------------------------------------------------------------------------------------------ CONSOLIDATED BALANCE SHEETS At December 31, At December 31, 1999 1998 - ------------------------------------------------------------------------------------------ Assets Real estate assets held for disposition $ 5,974,046 $ 22,429,538 Cash and cash equivalents 4,785,516 2,246,926 Restricted cash 78,031 143,536 Accounts and rent receivable, net of allowance for doubtful accounts of $96,362 in 1999 and $5,444 in 1998 65,401 136,156 Prepaid expenses and other assets 21,282 51,093 - ------------------------------------------------------------------------------------------ Total Assets $ 10,924,276 $ 25,007,249 ========================================================================================== Liabilities and Partners' Capital (Deficit) Liabilities: Accounts payable and accrued expenses $ 233,207 $ 512,546 Due to affiliates 48,376 47,930 Prepaid rent 17,581 -- Security deposits payable 78,031 240,423 ------------------------------ Total Liabilities 377,195 800,899 ------------------------------ Minority Interest 701,361 605,691 ------------------------------ Partners' Capital (Deficit): General Partners (393,353) (255,803) Limited Partners (109,378 units outstanding) 10,239,073 23,856,462 ------------------------------ Total Partners' Capital 9,845,720 23,600,659 - ------------------------------------------------------------------------------------------ Total Liabilities and Partners' Capital $ 10,924,276 $ 25,007,249 ==========================================================================================
- ------------------------------------------------------------------------------------------ CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT) For the years ended December 31, 1999, 1998 and 1997 General Limited Partners Partners Total - ------------------------------------------------------------------------------------------ Balance at December 31, 1996 $ (368,069) $ 24,659,390 $ 24,291,321 Net Income (Loss) 67,729 (24,869) 42,860 Distributions (40,592) (1,312,536) (1,353,128) - ------------------------------------------------------------------------------------------ Balance at December 31, 1997 (340,932) 23,321,985 22,981,053 Net Income 118,957 1,628,257 1,747,214 Distributions (33,828) (1,093,780) (1,127,608) - ------------------------------------------------------------------------------------------ Balance at December 31, 1998 (255,803) 23,856,462 23,600,659 Net Income 84,030 8,319,030 8,403,060 Distributions (221,580) (21,936,419) (22,157,999) - ------------------------------------------------------------------------------------------ Balance at December 31, 1999 $ (393,353) $ 10,239,073 $ 9,845,720 ==========================================================================================
See accompanying notes to the consolidated financial statements. 2 COMMERCIAL PROPERTIES 3, L.P. AND CONSOLIDATED VENTURES
- -------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended December 31, 1999 1998 1997 - -------------------------------------------------------------------------------------- Income Rental $ 2,530,185 $ 5,719,841 $ 5,031,723 Interest 783,312 68,146 77,701 ----------------------------------------- Total Income 3,313,497 5,787,987 5,109,424 - -------------------------------------------------------------------------------------- Expenses Property operating 1,142,270 2,323,191 2,392,473 Depreciation and amortization 28,522 1,077,837 2,089,050 General and administrative 454,088 404,990 477,582 ----------------------------------------- Total Expenses 1,624,880 3,806,018 4,959,105 ----------------------------------------- Net income before minority interest 1,688,617 1,981,969 150,319 Minority interest (117,047) (234,755) (107,459) ----------------------------------------- Income before gain on sale of real estate 1,571,570 1,747,214 42,860 Gain on sale of real estate 6,831,490 -- -- ----------------------------------------- Net Income $ 8,403,060 $ 1,747,214 $ 42,860 ====================================================================================== Net Income (Loss) Allocated: To the General Partners $ 84,030 $ 118,957 $ 67,729 To the Limited Partners 8,319,030 1,628,257 (24,869) - -------------------------------------------------------------------------------------- $ 8,403,060 $1,747,214 $ 42,860 ====================================================================================== Per limited partnership unit (109,378 outstanding) $ 76.06 $ 14.89 $ (.23) - --------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements. 3 COMMERCIAL PROPERTIES 3, L.P. AND CONSOLIDATED VENTURES
- --------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 1999 1998 1997 - --------------------------------------------------------------------------------------------------- Cash Flows From Operating Activities Net Income $ 8,403,060 $ 1,747,214 $ 42,860 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest 117,047 234,755 107,459 Depreciation 15,460 954,030 1,858,297 Amortization 13,062 123,807 230,753 Bad debt 90,918 -- -- Gain on sale of real estate (6,831,490) -- -- Increase (decrease) in cash arising from changes in operating assets and liabilities: Restricted cash 65,505 79,347 9,447 Accounts and rent receivable (20,163) (55,555) (40,511) Deferred rent receivable 55,576 50,521 53,688 Prepaid expenses and other assets 29,811 (209,810) (371,185) Accounts payable and accrued expenses (279,339) 75,519 187,510 Due to affiliates 446 (7,340) 49,329 Prepaid rent 17,581 (58,937) 58,937 Security deposits payable (162,392) 17,540 7,857 ------------------------------------------ Net cash provided by operating activities 1,515,082 2,951,091 2,194,441 - --------------------------------------------------------------------------------------------------- Cash Flows From Investing Activities Proceeds from sale of real estate 23,874,794 -- -- Additions to real estate -- (511,289) (796,801) Additions to real estate held for disposition (671,910) -- -- ------------------------------------------ Net cash provided by (used for) investing activities 23,202,884 (511,289) (796,801) - --------------------------------------------------------------------------------------------------- Cash Flows From Financing Activities Cash distributions (22,157,999) (1,465,890) (1,353,128) Cash distributions to minority interest joint venture (21,377) -- -- ------------------------------------------ Net cash used for financing activities (22,179,376) (1,465,890) (1,353,128) - --------------------------------------------------------------------------------------------------- Net increase in cash and cash equivalents 2,538,590 973,912 44,512 Cash and cash equivalents, beginning of period 2,246,926 1,273,014 1,228,502 ------------------------------------------ Cash and cash equivalents, end of period $ 4,785,516 $ 2,246,926 $ 1,273,014 =================================================================================================== 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 amount of $21,403,550, $101,362, and $628,865, respectively, were reclassified to "Real estate assets held for disposition" in June of 1998. - --------------------------------------------------------------------------------------------------- Supplemental Disclosure of Non-Cash Investing Activities: Write-off of leasing commissions on vacated tenants $ 209,345 $ -- $ -- Write-off of tenant improvements on vacated tenants 56,014 -- -- - ---------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements. 4 COMMERCIAL PROPERTIES 3, L.P. AND CONSOLIDATED VENTURES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 1. Organization Commercial Properties 3, L.P. (the "Partnership") was organized as a limited partnership under the laws of the Commonwealth of Virginia pursuant to a Certificate and Agreement of Limited Partnership dated and filed April 19, 1984 (the "Partnership Agreement"). The Partnership was formed for the purpose of acquiring and operating certain types of commercial real estate. The General Partners of the Partnership are Real Estate Services VII, Inc. ("Real Estate Services"), formerly Hutton Real Estate Services VII, Inc., which is an affiliate of Lehman Brothers Inc. ("Lehman Brothers") and HS Advisors III, Ltd. ("HS Advisors"), which is an affiliate of Goodman Segar Hogan, Inc. The General Partners expect to liquidate the Partnership in 2000. On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic retail brokerage and asset management businesses to Smith Barney, Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to the sale, Shearson Lehman Brothers Inc. changed its name to Lehman Brothers Inc. The transaction did not affect the ownership of the General Partners. However, the assets acquired by Smith Barney included the name "Hutton." Consequently, effective October 22, 1993, the Hutton Real Estate Services VII, Inc. General Partner changed its name to delete any reference to Hutton. Additionally, effective August 3, 1995, the Partnership changed its name to Commercial Properties 3, L.P., to delete any reference to "Hutton." 2. Significant Accounting Policies Basis of Accounting - The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. Revenues are recognized as earned and expenses are recorded as obligations are incurred. Consolidation - The consolidated financial statements include the accounts of the Partnership and its ventures, Metro Park Associates Joint Venture ("Metro Park"), Three Financial Centre Joint Venture ("Three Financial Centre"), and 14850 Quorum Associates, Ltd. ("Quorum"). Intercompany accounts and transactions between the Partnership and the ventures are eliminated in consolidation. Real Estate Investments - Real estate investments, which consist of commercial buildings and capital improvements (the "Properties"), are recorded at cost, which includes the initial purchase price of the property plus closing costs, acquisition and legal fees and other miscellaneous acquisition costs. Depreciation was computed using the straight-line method based upon the estimated useful lives of 3 to 25 years except for tenant improvements which are depreciated over the terms of the respective leases. Real Estate Held for Disposition - During 1998, the Partnership engaged brokers to market the Partnership's remaining Property for sale. In view of the anticipated sale of the Property, the Partnership's real estate assets, deferred rent receivable and prepaid leasing costs, which had a carrying value of $22,429,538 at December 31, 1998, were reclassified as Real Estate Assets Held for Disposition and were no longer depreciated or amortized. Cash Equivalents - Cash equivalents consist of short-term highly liquid investments which have maturities of three months or less from the date of purchase. The carrying amount approximates fair value because of the short maturity of these instruments. Restricted Cash - Restricted cash consists of amounts held for tenant security deposits. 5 COMMERCIAL PROPERTIES 3, L.P. AND CONSOLIDATED VENTURES Concentration of Credit Risk - Financial instruments which potentially subject the Partnership to a concentration of credit risk principally consist of cash in excess of the financial institution's insurance limits. The Partnership invests available cash with high credit quality financial institutions. Deferred Rent Receivable - Deferred rent receivable consists of rental income which is recognized on a straight-line basis over the terms of the respective leases even though rent is not received until later periods as a result of rental escalations. During 1998 deferred rent receivable was reclassified as real estate assets held for disposition and was no longer amortized. Prepaid Leasing Costs - Leases are accounted for as operating leases. Leasing commissions are amortized over the terms of the respective leases. During 1998 leasing commissions were reclassified as real estate assets held for disposition and were no longer amortized. Income Taxes - No provision for income taxes has been made in the financial statements of the Partnership since such taxes are the responsibility of the individual partners rather than of the Partnership. Fair Value of Financial Instruments - Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments" ("FAS 107"), requires that the Partnership disclose the estimated fair values of its financial instruments. Fair values generally represent estimates of amounts at which a financial instrument could be exchanged between willing parties in a current transaction other than in forced liquidation. Fair value estimates are subjective and are dependent on a number of significant assumptions based on management's judgment regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. In addition, FAS 107 allows a wide range of valuation techniques, therefore, comparisons between entities, however similar, may be difficult. Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications - Certain prior year amounts have been reclassified in order to conform to the current year's presentation. 3. Partnership Agreement The Partnership agreement provides that net cash from operations, as defined, will be distributed on a quarterly basis as follows: 97% to the Limited Partners and 3% to the General Partners until each Limited Partner has received a 9% annual noncumulative return on his adjusted capital investment, as defined. The net cash from operations will then be distributed to the General Partners until the General Partners have received 10% of the aggregate net cash from operations distributed to all partners. The balance of net cash from operations, if any, will then be distributed 90% to the Limited Partners and 10% to the General Partners. Net proceeds from sales or refinancings shall be distributed as follows: 99% to the Limited Partners and 1% to the General Partners until each Limited Partner has received an amount equal to his adjusted capital investment, as defined, and a 10% cumulative annual return thereon, reduced by any net cash from operations actually distributed to such Limited Partner. The balance of net proceeds, if any, will then be distributed 85% to the Limited Partners and 15% to the General Partners. 6 COMMERCIAL PROPERTIES 3, L.P. AND CONSOLIDATED VENTURES Losses and all depreciation for any fiscal year shall be allocated 99% to the Limited Partners and 1% to the General Partners, provided, however, that the deficit balance of the General Partners' capital account does not exceed the amount they are required to contribute upon dissolution of the Partnership, as discussed below. If income exceeds the amount of net cash from operations distributable to the Partners for any fiscal year, the excess will be allocated (1) 100% to the General Partners in an amount equal to the excess, if any, of General Partners' deficit in their capital accounts, over an amount equal to 1% of the total capital contributions to the Partnership as reduced by the amount of the General Partners' capital contributions and (2) 99% to the Limited Partners and 1% to the General Partners. If income does not exceed the amount of net cash from operations distributable to the Partners for any fiscal year, income will be allocated 90% to the Limited Partners and 10% to the General Partners. In 1999, income was allocated to the General Partners such that their deficit did not increase beyond their obligations required by the Partnership Agreement, as discussed below. Upon the dissolution of the Partnership, the General Partners shall contribute to the capital of the Partnership, an amount not to exceed 1% of the total capital contributions made by all the Partners, less any prior capital contributions made by the General Partners. In no event shall the General Partners be obligated to contribute an amount in excess of any negative balance in their respective capital accounts. If as a result of the dissolution of the Partnership, the sum of the Limited Partners' capital contribution plus an amount equal to a 6% cumulative annual return on each Limited Partner's adjusted capital value less any distributions made to each Limited Partner from net cash flow from operations, exceeds total distributions to the Limited Partners of net proceeds from a sale or refinancing, the General Partners will contribute to the Partnership for distribution to the Limited Partners an amount equal to the lesser of such excess or the aggregate distribution of net proceeds from a sale or refinancing distributed to the General Partners. 4. Real Estate Investments Since inception, the Partnership acquired, directly or indirectly, the following three commercial office buildings and an office and light industrial complex. The purchase price amounts exclude acquisition fees and other closing costs.
Net Leasable Square Date Type of Purchase Property Name Feet Location Acquired Ownership Price - --------------------------------------------------------------------------------------- Metro Park Fort Myers, Joint Executive Center 60,597 Florida 1/17/85 Venture $ 5,136,504 Three Financial Little Rock, Joint Centre 123,833 Arkansas 1/22/85 Venture $10,452,005 Fort Lauderdale Fort Lauderdale, Fee Commerce Center 186,884 Florida 4/18/85 Simple $12,843,569 Quorum II Dallas, Office Building 84,094 Texas 6/12/85 (A) $12,995,384 - --------------------------------------------------------------------------------------- (A) The Partnership is the General Partner in a Limited Partnership.
7 COMMERCIAL PROPERTIES 3, L.P. AND CONSOLIDATED VENTURES The Joint Venture and Limited Partnership agreements substantially provide or provided that: i. Net cash from operations will be distributed 100% to the Partnership until it has received an annual, noncumulative return on its adjusted capital balance, as defined, of 10.5% for Three Financial Centre, 12% for Metro Park, and 10% for Quorum. With regard to Three Financial Centre, net cash from operations will then be distributed 100% to the co-venturer until it has received an annual amount of $115,000. Thereafter, any remaining net cash from operations will be distributed 80% to the Partnership and 20% to the respective co-venturers. ii. Net proceeds from a refinancing or other interim capital transaction of the properties will be distributed 100% to the Partnership until it has received 115% of its capital contribution and a cumulative return of 12% for Metro Park, and 10% for Quorum on its adjusted capital investment, as defined. With regard to Three Financial Centre, net proceeds will be distributed 93% to the Partnership and 7% to the respective co-venturers. iii. Net proceeds from a sale of the properties will generally be distributed to the venturers, pro rata in accordance with each venturer's capital account balance. iv. Income will be allocated in substantially the same manner as net cash from operations. For Three Financial Centre and Metro Park, net income in excess of net cash from operations distributed in such year shall be allocated 80% to the Partnership and 20% to the co-venturers. Losses and all depreciation will generally be allocated 100% to the Partnership. On January 12, 1999, the Partnership completed the sale of Quorum II Office Building to an unaffiliated partnership, for a selling price of $7,612,065, net of closing adjustments and selling costs. The selling price was determined by arm's length negotiations between the Partnership and the buyer. The sale resulted in a gain on sale of real estate in the amount of $2,894,064, which has been reflected in the Partnership's consolidated statement of operations for the year ended December 31, 1999. On February 9, 1999, the Partnership completed the sale of Metro Park Business Center to an unaffiliated partnership, for a selling price of $3,797,438, net of closing adjustments and selling costs. The selling price was determined by arm's length negotiations between the Partnership and the buyer. The sale resulted in a gain on sale of real estate in the amount of $565,698, which has been reflected in the Partnership's consolidated statement of operations for the year ended December 31, 1999. On April 14, 1999, the Partnership completed the sale of Ft. Lauderdale Commerce Center to an unaffiliated partnership, for a selling price of $12,465,291, net of closing adjustments and selling costs. The sale resulted in a gain of $3,371,728, which has been reflected in the Partnership's consolidated statement of operations for the year ended December 31, 1999. On January 31, 2000, the Partnership sold its remaining Property, Three Financial Centre. See Note 8 "Subsequent Event." 5. Rental Income Under Operating Leases Future minimum rental income to be received on noncancelable operating leases as of December 31, 1999 on the remaining property is as follows: 8 COMMERCIAL PROPERTIES 3, L.P. AND CONSOLIDATED VENTURES
-------------------------------------- 2000 $1,560,630 2001 1,002,290 2002 704,109 2003 539,718 2004 372,936 Thereafter 1,426,567 -------------------------------------- $5,606,250 ==========
Generally, leases are for terms of 2 to 10 years and contain renewal options. The leases allow for increases in certain property operating costs to be passed on to the tenants. 6. Transactions with General Partners and Affiliates The following is a summary of amounts earned by, or reimbursed to, the General Partners and their affiliates for property management fees and out-of-pocket expenses during the years ended December 31, 1999, 1998 and 1997:
Unpaid at Earned December 31, ----------------------------------------- 1999 1999 1998 1997 - ------------------------------------------------------------------------------------------ Real Estate Services and affiliates Salary reimbursement $ 40,000 $ 59,876 $ 59,283 $ 111,862 HS Advisors and affiliates Out of pocket expenses -- 524 1,504 3,196 Property management fees (GSH) 8,376 33,192 33,192 37,995 - ------------------------------------------------------------------------------------------ $ 48,376 $ 93,592 $ 93,979 $ 153,053 -----------------------------------------------------
Commencing January 1, 1997, the Partnership began reimbursing certain expenses incurred by Real Estate Services VII, Inc. and its affiliates in servicing the Partnership to the extent permitted by the partnership agreement. In prior years, affiliates of the Real Estate Services VII, Inc., general partner, had voluntarily absorbed these expenses. 7. Reconciliation of Financial Statement Net Income to Federal Income Tax Basis Net Income
Years Ended December 31, ----------------------------------------- 1999 1998 1997 - ------------------------------------------------------------------------------------------ Financial statement net income $ 8,403,060 $ 1,747,214 $ 42,860 Tax basis depreciation and amortization over financial statement depreciation and amortization (796,012) (1,155,094) (203,613) Deferred rent 17,581 50,521 53,688 Minority interest 117,047 234,755 107,459 Gain on sale 1,581,996 -- -- Adjustment for minority interest (302,897) -- -- Bad debt expense 90,918 -- -- - ------------------------------------------------------------------------------------------ Federal income tax basis net income $ 9,111,693 $ 877,396 $ 394 =========================================
9 COMMERCIAL PROPERTIES 3, L.P. AND CONSOLIDATED VENTURES 8. Subsequent Event On January 31, 2000, the Partnership sold its remaining Property, Three Financial Centre, to an affiliate of the Joint Venture Partner, Three Financial Centre LLC ("3FCLLC"), for a selling price of approximately $10,130,000, net of closing adjustments and selling costs. The sale is expected to result in a gain of approximately $4,100,000 which will be reflected in the Partnership's consolidated operations for the three months ended March 31, 2000. The selection of the buyer was a result of a competitive bidding process organized by the real estate broker engaged to assist in selling the Property. The General Partners plan to distribute the net proceeds from the sale, together with the Partnership's remaining cash reserves (after payment of or provision for the Partnership's liabilities and expenses), and terminate the Partnership during the second quarter 2000. 10 - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- General and Limited Partners Commercial Properties 3, L.P. and Consolidated Ventures We have audited the accompanying consolidated balance sheets of Commercial Properties 3, L.P. and Consolidated Ventures as of December 31, 1999 and 1998, and the related consolidated statements of operations, partners' capital (deficit) and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(2). These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above represent fairly, in all material respects, the consolidated financial position of Commercial Properties 3, L.P. and Consolidated Ventures at December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ERNST & YOUNG LLP New York, New York February 2, 2000 11 - -------------------------------------------------------------------------------- NET ASSET VALUATION - -------------------------------------------------------------------------------- Comparison of Acquisition Costs to Estimated Value and Determination of Net Asset Value Per $283.44 Unit at December 31, 1999 (Unaudited)
Acquisition 1999 Estimated Property Date of Acquisition Cost(1) Value - -------------------------------------------------------------------------------------- Three Financial Centre (2)(3) 01-22-85 $11,378,512 $ 10,130,000 ------------ Cash and cash equivalents 4,785,516 Accounts and rent receivable, net 65,401 Prepaid expense and other assets 21,282 ------------ 15,002,199 Less: Accounts payable and accrued expenses 233,207 Prepaid rent 17,581 Due to affiliates 48,376 Minority Interest 701,361 ------------ Partnership Net Asset Value(4) $ 14,001,674 ============ Net Asset Value Allocated: General Partners $ 140,017 Limited Partners 13,861,657 ------------ $ 14,001,674 ============ Net Asset Value Per Unit (109,378 units outstanding) $ 126.73 - -------------------------------------------------------------------------------------- (1) The acquisition cost of each property is comprised of fundings made through December 31, 1999, the acquisition fee paid to the General Partners and an amount estimated to fund the completion of tenant improvements. (2) This represents the Partnership's share of the December 31, 1999 estimated values which were determined by the General Partners, with the assistance of the broker engaged to market the properties. The Partnership's share of the December 31, 1999 estimated value takes into account the allocation provisions of the joint venture and limited partnership agreements governing the distribution of sales proceeds for each of the above properties. (3) Estimated value is based on the actual net sales price of the property. (4) The Net Asset Value assumes a hypothetical sale on December 31, 1999 of the Partnership's property at its estimated value and the distribution of the net proceeds to Limited Partners in the liquidation of the Partnership. However, the Net Asset Value does not reflect the expenses to be incurred with the wind-down and termination of the Partnership. Therefore, the cash available for distribution to the limited partners may be less than the Net Asset Value.
Limited Partners should note that as a result of the illiquid nature of an investment in Units of the Partnership, the variation between the estimated value of the Partnership's property and the price at which Units of the Partnership could be sold may be significant. Fiduciaries of Limited Partners which are subject to ERISA or other provisions of law requiring valuations of Units should consider all relevant factors, including, but not limited to Net Asset Value per Unit, in determining the fair market value of the investment in the Partnership for such purposes. 12 Schedule III - Real Estate and Accumulated Depreciation December 31, 1999
Three Consolidated Ventures: Financial Centre - ------------------------------------------------------------------------------- Location Little Rock, AR Construction date 1984 Acquisition date 01-22-85 Life on which depreciation in latest income statements is computed 1-25 yrs Encumbrances -- Initial cost to Partnership: Land $ 1,018,332 Buildings and improvements 10,419,160 Costs capitalized subsequent to acquisition: Land, buildings and improvements 12,789 Deferred rent (207,025) Leasing commissions 376,489 Gross amount at which carried at close of period(1): Land $ 1,018,332 Buildings and improvements 10,431,949 Deferred rent (207,025) Leasing commissions 376,489 ------------ 11,619,745 ------------ Accumulated depreciation (2) $ 5,645,699 - ------------------------------------------------------------------------------- (1) For Federal income tax purposes, the basis of land, building and improvements is $11,425,926. (2) For Federal income tax purposes, the amount of accumulated depreciation is $8,540,334.
A reconciliation of the carrying amount of real estate and accumulated depreciation for the years ended December 31, 1999, 1998 and 1997 follows:
1999 1998 1997 - ------------------------------------------------------------------------------- Real estate investments: Beginning of year $ 38,294,245 $ 36,942,494 $ 36,640,226 Additions 671,910 1,351,751 796,801 Deletions (27,221,757) -- (494,533) Write offs (124,653) -- -- -------------------------------------------- End of year $ 11,619,745 $ 38,294,245 $ 36,942,494 -------------------------------------------- Accumulated depreciation: Beginning of year $ 15,864,707 $ 14,910,677 $ 13,546,913 Depreciation expense 15,460 954,030 1,858,297 Deletions (10,234,468) -- (494,533) -------------------------------------------- End of year $ 5,645,699 $ 15,864,707 $ 14,910,677 - -------------------------------------------------------------------------------
F-1 EX-23 3 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23 Consent of Independent Auditors Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of Commercial Properties 3, L.P. of our report dated February 2, 1999, included in the 1999 Annual Report to Shareholders of Commercial Properties 3, L.P. and Consolidated Ventures. Our audit also included the financial statement schedule of Commercial Properties 3, L.P. and Consolidated Ventures listed in Item 14(a)(2). This schedule is the responsibility of the Partnership's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ERNST & YOUNG LLP New York, New York February 2, 2000 EX-27 4 FDS -- FOR 1999 FORM 10-K
5 12-mos Dec-31-1999 Dec-31-1999 4,785,516 000 161,763 96,362 000 4,928,948 5,974,046 000 10,924,276 377,195 000 000 000 000 9,845,720 10,924,276 000 3,313,497 000 000 1,624,880 000 000 1,571,570 000 1,571,570 000 6,831,490 000 8,403,060 76.06 76.06
-----END PRIVACY-ENHANCED MESSAGE-----