- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-14466
CONNECTICUT GENERAL REALTY INVESTORS III LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Connecticut 06-1115374
(State of Organization) (I.R.S. Employer Identification No.)
900 Cottage Grove Road, South Building
Bloomfield, Connecticut 06002
(Address of principal executive offices)
Telephone Number: (860) 726-6000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
1
PART I - FINANCIAL INFORMATION
CONNECTICUT GENERAL REALTY INVESTORS III LIMITED PARTNERSHIP
(A CONNECTICUT LIMITED PARTNERSHIP)
BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1996 1995
ASSETS (UNAUDITED) (AUDITED)
Property and improvements, at cost:
Land and land improvements $ 4,162,351 $ 6,119,148
Buildings 25,430,458 30,577,342
Furniture and fixtures 2,036,740 2,206,128
--------------- ---------------
31,629,549 38,902,618
Less accumulated depreciation 11,200,757 12,770,211
--------------- ---------------
Net property and improvements 20,428,792 26,132,407
Cash and cash equivalents 2,252,954 2,481,123
Accounts receivable (net of allowance of $8,333
in 1996 and $8,671 in 1995) 9,429 7,694
Escrow deposits 211,888 281,236
Other asset 1,000 1,000
Deferred charges, net 1,181,281 1,329,140
Escrowed debt service funds 506,660 506,660
--------------- ---------------
Total $ 24,592,004 $ 30,739,260
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Liabilities:
Notes and mortgages payable $ 20,878,052 $ 29,347,622
Accounts payable and accrued expenses (including $43,199
in 1996 and $10,001 in 1995 due to affiliates) 258,584 361,508
Accrued interest payable (including
$17,000 in 1995 due to affiliates) -- 72,946
Tenant security deposits 146,272 169,396
Unearned income 20,178 25,973
--------------- ---------------
Total liabilities 21,303,086 29,977,445
--------------- ---------------
Partners' capital (deficit):
General Partner:
Capital contributions 1,000 1,000
Cumulative net loss 12,546 (102,765)
Cumulative cash distributions (13,355) (13,355)
--------------- ---------------
191 (115,120)
--------------- ---------------
Limited partners (24,856 Units)
Capital contributions, net of offering costs 22,408,052 22,408,052
Cumulative net loss (17,786,175) (20,197,967)
Cumulative cash distributions (1,333,150) (1,333,150)
--------------- ---------------
3,288,727 876,935
--------------- ---------------
Total partners' capital 3,288,918 761,815
--------------- ---------------
Total $ 24,592,004 $ 30,739,260
=============== ===============
The Notes to Financial Statements are an integral part of these statements.
2
CONNECTICUT GENERAL REALTY INVESTORS III LIMITED PARTNERSHIP
(A CONNECTICUT LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
Income:
Rental income $ 1,164,852 $ 1,385,732 $ 3,773,620 $ 4,062,608
Other income 27,372 51,593 100,738 159,553
Interest income 32,627 40,562 114,651 109,635
------------- -------------- -------------- -------------
1,224,851 1,477,887 3,989,009 4,331,796
------------- -------------- -------------- -------------
Expenses:
Property operating expenses 350,034 416,303 1,101,336 1,175,428
General and administrative 161,804 193,389 529,038 585,873
Fees and reimbursements to affiliates 22,345 30,880 73,063 75,459
Interest expense (includes $-0- and
$25,500 for 1996 and $17,000 and
$51,000 for 1995 to affiliates) 372,609 554,513 1,366,070 1,664,108
Depreciation and amortization 278,435 334,981 832,657 996,285
------------- -------------- -------------- -------------
1,185,227 1,530,066 3,902,164 4,497,153
------------- -------------- -------------- -------------
Income (loss) from operations 39,624 (52,179) 86,845 (165,357)
Gain on sale of property -- -- 2,440,258 --
------------- -------------- -------------- -------------
Net income (loss) $ 39,624 $ (52,179) $ 2,527,103 $ (165,357)
============= ============== ============== =============
Net income (loss):
General Partner $ 396 $ (522) $ 115,311 $ (1,654)
Limited partners 39,228 (51,657) 2,411,792 (163,703)
------------- -------------- -------------- -------------
$ 39,624 $ (52,179) $ 2,527,103 $ (165,357)
============= ============== ============== =============
Net income (loss) per Unit $ 1.58 $ (2.08) $ 97.03 $ (6.59)
============= ============== ============== =============
The Notes to Financial Statements are an integral part of these statements.
3
CONNECTICUT GENERAL REALTY INVESTORS III LIMITED PARTNERSHIP
(A CONNECTICUT LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
1996 1995
---- ----
Cash flows from operating activities:
Net income (loss) $ 2,527,103 $ (165,357)
Adjustment to reconcile net income (loss) to net cash
provided by operating activities:
Gain on sale of property (2,440,258) --
Depreciation and amortization 832,657 996,285
Accounts receivable (1,735) 78,034
Accounts payable and accrued expenses (49,993) 92,141
Accrued interest payable (72,946) 615
Escrow deposits 69,348 (133,839)
Other, net (28,919) 142,438
--------------- ---------------
Net cash provided by operating activities 835,257 1,010,317
--------------- ---------------
Cash flows from investing activities:
Purchase of property and improvements (338,460) (165,048)
Proceeds from sale of property 7,853,900 --
Payment of closing costs related to sale of property (102,306) --
--------------- ---------------
Net cash provided by (used in) investing activities 7,413,134 (165,048)
--------------- ---------------
Cash flows from financing activities:
Proceeds from mortgage loan -- 5,300,000
Repayment of notes and mortgage loans (8,469,570) (5,390,937)
Payment of financing costs -- (105,010)
Cash distribution for limited partners (6,990) (3,672)
--------------- ---------------
Net cash used in financing activities (8,476,560) (199,619)
--------------- ---------------
Net increase (decrease) in cash and cash equivalents (228,169) 645,650
Cash and cash equivalents, beginning of year 2,481,123 1,662,708
--------------- ---------------
Cash and cash equivalents, end of period $ 2,252,954 $ 2,308,358
=============== ===============
Supplemental disclosure of cash information:
Interest paid during period $ 1,439,016 $ 1,663,493
=============== ===============
Supplemental disclosure of non-cash information:
Accrued purchases of property and improvements $ -- $ 2,620
=============== ===============
The Notes to Financial Statements are an integral part of these statements.
4
CONNECTICUT GENERAL REALTY INVESTORS III LIMITED PARTNERSHIP
(A CONNECTICUT LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Readers of this quarterly report should refer to CONNECTICUT GENERAL REALTY
INVESTORS III LIMITED PARTNERSHIP'S (the "Partnership") audited financial
statements for the year ended December 31, 1995 which are included in the
Partnership's 1995 Annual Report, as certain footnote disclosures which would
substantially duplicate those contained in such audited financial statements
have been omitted from this report.
1. BASIS OF ACCOUNTING
A) BASIS OF PRESENTATION: The accompanying financial statements were prepared
in accordance with generally accepted accounting principles, and reflect
management's estimates and assumptions that affect the reported amounts. It
is the opinion of management that the financial statements presented
reflect all the adjustments necessary for a fair presentation of the
financial condition and results of operations.
B) RECENT ACCOUNTING PRONOUNCEMENT: In 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" (the "Statement"). The Statement requires a
writedown to fair value when long-lived assets to be held and used are
impaired. Long-lived assets to be disposed of, including real estate held
for sale, must be carried at the lower of cost or fair value less costs to
sell. In addition, the Statement prohibits depreciation of long-lived
assets to be disposed. The Partnership adopted the Statement in the first
quarter of 1996. No depreciation was recorded in 1996 for Stewart's Glen
III which was sold on April 30, 1996.
C) CASH AND CASH EQUIVALENTS: Short term investments with a maturity of three
months or less at the time of purchase are reported as cash equivalents.
2. NOTES AND MORTGAGES PAYABLE
In March 1996, the mortgage note for Stewart's Glen III was extended from
April 1, 1996 to May 1, 1996 with an option for an additional extension to July
1, 1996 subject to certain conditions including the execution of a purchase and
sale agreement, in order for the Partnership to complete a sale of the property.
On April 30, 1996, the Partnership completed the sale of Stewart's Glen III and
retired the related mortgage note. The Partnership's $3,400,000 promissory note
was paid in full on May 15, 1996.
3. SALE OF INVESTMENT PROPERTY
On April 30, 1996, the Partnership completed the sale of Stewart's Glen III
to AMLI Residential Properties, L.P. for a gross sales price of $7,853,900.
After closing costs and payment of the first mortgage loan obligation, the
Partnership netted approximately $2,890,000. For book purposes, the property had
a carrying value of approximately $5,311,000 and the Partnership recorded a gain
of $2,440,258. The Partnership utilized the net proceeds from the sale and the
Partnership's cash and cash equivalents to retire the Partnership's $3,400,000
promissory note on May 15, 1996.
5
CONNECTICUT GENERAL REALTY INVESTORS III LIMITED PARTNERSHIP
(A CONNECTICUT LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. DEFERRED CHARGES
Deferred charges consist of the following:
September 30, December 31,
1996 1995
Surety fee - Waterford Apartments mortgage note $ 963,910 $ 963,910
Costs of obtaining financing 765,532 845,127
--------------- ---------------
1,729,442 1,809,037
Accumulated amortization (548,161) (479,897)
--------------- ----------------
$ 1,181,281 $ 1,329,140
=============== ===============
5. TRANSACTIONS WITH AFFILIATES
The Partnership's promissory note payable was guaranteed by an affiliate of
the General Partner for an annual fee of 2% on the outstanding balance until the
note was retired on May 15, 1996.
Other fees and expenses related to the General Partner or its affiliates
are as follows:
Three Months Ended Nine Months Ended Unpaid at
September 30, September 30, September 30,
------------- ------------ -------------
1996 1995 1996 1995 1996
---- ---- ---- ---- ----
Property management fee (a) $ 8,930 $ 11,401 $ 29,915 $ 32,976 $ 5,921
Reimbursement (at cost) for
out-of-pocket expenses 13,415 19,479 43,148 42,483 37,278
------------ ------------- ----------- ------------ ------------
$ 22,345 $ 30,880 $ 73,063 $ 75,459 $ 43,199
============ ============= =========== ============ ============
(a) Does not include on-site property management fees earned by independent
property management companies of $50,510 and $60,287 for the three months
ended September 30, 1996 and 1995, respectively, and $163,645 and $175,344
for the nine months ended September 30, 1996 and 1995, respectively.
On-site property management services have been contracted by an affiliate
of the General Partner on behalf of the Partnership and are paid directly
by the Partnership to the third party companies.
6. SUBSEQUENT EVENT
The Partnership has declared a distribution of $1,565,928 or $63 per Unit
to the limited partners of record as of November 30, 1996 and $10,071 to the
General Partner. The distribution will be paid on December 15, 1996.
6
CONNECTICUT GENERAL REALTY INVESTORS III LIMITED PARTNERSHIP
(A CONNECTICUT LIMITED PARTNERSHIP)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Partnership had $2,252,954 in cash and cash
equivalents which was available for working capital requirements, cash
distributions, and the Partnership's cash reserves.
During the first quarter, the Partnership executed a letter of intent for
the sale of the Stewart's Glen Apartments to AMLI Residential, L.P. To complete
the sale, the Partnership arranged a short-term extension of the Stewart's Glen
mortgage maturity date. The Partnership completed the sale on April 30, 1996 for
a gross sales price of $7,853,900. After closing costs and payment of the first
mortgage, the Partnership netted approximately $2,890,000. The property sale
generated a book gain of $2,440,258.
On May 15, 1996, the Partnership utilized the net proceeds from the
Stewart's Glen sale together with approximately $510,000 from the Partnership's
cash reserves to retire the Partnership's $3,400,000 Mellon Bank promissory
note.
The portfolio generated positive adjusted cash from operations after debt
service, capital improvements and partnership expenses for the three months
ended September 30, 1996 of approximately $172,000 and year-to-date of
approximately $407,000. The Partnership's properties have generated sufficient
net operating income to cover debt service, partnership expenses, and the
substantial increase in capital expenditures year-to-date. The Partnership
expects that cash from operations for the remainder of the year will also be
sufficient to cover all necessary expenditures for partnership expenses, capital
expenditures, debt service, and a distribution to partners.
As a result of the sale of the Stewart's Glen property and the payment of
the Partnership's promissory note, the Partnership is now in a position to
reduce cash reserves to a level deemed sufficient in connection with the
Partnership's operations. The Partnership will make a cash distribution of
$1,565,928 or $63 per Unit to limited partners of record as of November 30,
1996. The distribution will be paid on December 15, 1996. The distribution will
comprise a reduction to cash reserves and cumulative adjusted cash from
operations. To the extent cash is available from operations each quarter, the
Partnership will resume regular quarterly distributions in 1997.
RESULTS OF OPERATIONS
Generally, decreases in operating income and expenses are the result of the
sale of Stewart's Glen III on April 30, 1996. The following analytical comments
have been limited to the Partnership's three remaining properties.
Overall, higher average occupancy and an increase in rental rates led to an
increase in rental income of approximately $29,000 for the three months and
$124,000 for the nine months ended September 30, 1996, as compared with the same
periods of 1995.
Other income decreased $13,000 and $43,000 for the three and nine months
ended September 30, 1996, respectively, as compared with the same periods of
1995. In 1995, the Partnership received its share of percentage rent and tenant
expense recapture receivables relating to Promenades Plaza. At the time of the
property sale in 1994, the Partnership set up a receivable for amounts to be
received outside the closing. The Partnership received a total of $39,344 in
excess of the amount recorded as a receivable.
7
CONNECTICUT GENERAL REALTY INVESTORS III LIMITED PARTNERSHIP
(A CONNECTICUT LIMITED PARTNERSHIP)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Interest income decreased for the three months and increased for the nine
months ended September 30, 1996, as compared with the same periods of 1995. A
lower interest rate on short term investments led to a decrease in interest
income for the three months, while a higher average cash balance (essentially
the Stewart's Glen III sales proceeds from April 30, 1996 to May 15, 1996 when
the proceeds were utilized to retire, in part, the Partnership's $3,400,000
promissory note) led to an increase in interest income for the nine months.
Property operating expenses increased $39,000 and $76,000 for the three and
nine months ended September 30, 1996, respectively, as compared with the same
periods of 1995. For the three-month period, maintenance and repair increased at
Versailles Village because of repairs on a number of HVAC units and a main water
line break, and at Stonebridge because of exterior painting completed in
conjunction with the roof repair project and an increase in the number of carpet
replacements. In addition to the three month increases, maintenance and repair
expense increased for the nine-month period at Stonebridge due to a pest control
treatment and at Waterford as a result of an increase in the cost of preparing
apartments for rent upon a tenant move out, including the additional expense of
replacing wallpaper in units. The increase at Waterford was partially offset by
a decrease in landscaping expense. Utilities increased at Versailles for the
three and nine-month periods and at Waterford for the nine-month period due to a
harsh winter as well as rate increases. For the nine-month period at
Stonebridge, fewer corporate apartment rentals led to an increase in utility
expense. Insurance costs were higher for Stonebridge for the nine-month period.
General and administrative expenses were relatively flat for the three
months and decreased $9,000 for the nine months ended September 30, 1996,
respectively, as compared with the same periods of 1995. Advertising costs for
Waterford and Stonebridge dropped as a result of improved occupancy, and
increased at Versailles in an effort to increase occupancy. A net reduction in
the provision for doubtful accounts at Waterford and a decline in Partnership
legal expenses also contributed to the decrease for the nine months ended
September 30, 1996. As a partial offset to the expense decreases, payroll
expenses at Stonebridge went up primarily due to the hiring of new maintenance
employees.
Fees and reimbursements to affiliates decreased for the three months ended
September 30, 1996, as compared with the same period of 1995, due to a decrease
in management fees from the sale of Stewart's Glen III on April 30, 1996 coupled
with timing of reimbursable expenses.
The decrease in interest expense of $78,000 and $122,000 for the three and
nine months ended September 30, 1996, respectively, as compared with 1995, was
primarily the result of the retirement of the $3,400,000 Mellon Bank promissory
note on May 15, 1996.
Depreciation and amortization increased $3,000 and $15,000 for the three
and nine months ended September 30, 1996, respectively, as compared with the
previous year. The increase was primarily the result of amortization costs
related to the April 1, 1995 refinancing of Stonebridge Manor's first mortgage.
8
CONNECTICUT GENERAL REALTY INVESTORS III LIMITED PARTNERSHIP
(A CONNECTICUT LIMITED PARTNERSHIP)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OCCUPANCY
The following is a listing of approximate physical occupancy levels by
quarter for the Partnership's investment properties:
1995 1996
------------------------------------------------- ----------------------------------
At 3/31 At 6/30 At 9/30 At 12/31 At 3/31 At 6/30 At 9/30
1. Versailles Village Apartments
Forest Park, Ohio 97% 99% 96% 94% 97% 98% 96%
2. Waterford Apartments
Tulsa, Oklahoma 90% 96% 98% 92% 94% 94% 93%
3. Stonebridge Manor Apartments
New Orleans, Louisiana 96% 97% 96% 98% 97% 97% 95%
4. Stewart's Glen Apts. Phase III
Willowbrook, Illinois (a) 96% 89% 98% 97% 89% N/A N/A
An N/A indicates that the property was not owned by the partnership at the end
of the quarter.
(a) Stewart's Glen III was sold April 30, 1996.
PART II- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedules.
(b) No Form 8-Ks were filed during the three months ended September 30,
1996.
9
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.
CONNECTICUT GENERAL REALTY INVESTORS III
LIMITED PARTNERSHIP
By: CIGNA Realty Resources, Inc. - Fifth,
General Partner
Date: November 14, 1996 By: /s/ John D. Carey
------------------ -----------------
John D. Carey, President
(Principal Executive Officer)
Date: November 14, 1996 By: /s/ Josephine C. Donofrio
----------------- -------------------------
Josephine C. Donofrio, Controller
(Principal Accounting Officer)
10