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 May 31, 1997
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: 0-11769
HUTTON/CONAM REALTY INVESTORS 3
Exact Name of Registrant as Specified in its Charter
California 13-3176625
State or Other Jurisdiction I.R.S. Employer
of Incorporation or Organization Identification No.
3 World Financial Center, 29th Floor,
New York, NY Attn: Andre Anderson 10285
Address of Principal Executive Offices Zip Code
(212) 526-3237
Registrant's Telephone Number, Including Area Code
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 _____
CONSOLIDATED BALANCE SHEETS
At May 31, At November 30,
1997 1996
Assets
Investments in real estate:
Land $ 5,817,668 $ 5,817,668
Buildings and improvements 22,559,804 22,326,780
28,377,472 28,144,448
Less accumulated depreciation (10,947,642) (10,510,777)
17,429,830 17,633,671
Cash and cash equivalents 921,381 1,084,483
Restricted cash 82,982 84,934
Other assets, net of accumulated
amortization of $184,700 in 1997
and $163,192 in 1996 145,787 173,569
Total Assets $18,579,980 $18,976,657
Liabilities and Partners' Capital
Liabilities:
Mortgages payable $ 8,365,456 $ 8,434,843
Distribution payable 133,333 222,222
Accounts payable and accrued expenses 173,333 156,786
Due to general partners and affiliates 15,402 15,808
Security deposits 110,169 118,601
Total Liabilities 8,797,693 8,948,260
Partners' Capital (Deficit):
General Partners (924,387) (899,777)
Limited Partners 10,706,674 10,928,174
Total Partners' Capital 9,782,287 10,028,397
Total Liabilities and Partners' Capital $18,579,980 $18,976,657
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
For the six months ended May 31, 1997
General Limited
Partners Partners Total
Balance at November 30, 1996 $ (899,777) $ 10,928,174 $ 10,028,397
Net income 2,056 18,500 20,556
Cash distributions (26,666) (240,000) (266,666)
Balance at May 31, 1997 $ (924,387) $ 10,706,674 $ 9,782,287
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months Six months
ended May 31, ended May 31,
1997 1996 1997 1996
Income
Rental $ 908,287 $ 912,837 $1,796,748 $1,836,783
Interest and other 9,549 22,686 21,101 35,359
Total Income 917,836 935,523 1,817,849 1,872,142
Expenses
Property operating 460,377 347,525 880,554 713,507
Depreciation and
amortization 229,769 228,245 458,373 453,384
Interest 184,489 187,420 369,735 375,532
General and administrative 41,168 34,474 88,631 79,136
Total Expenses 915,803 797,664 1,797,293 1,621,559
Net Income $ 2,033 $ 137,859 $ 20,556 $ 250,583
Net Income Allocated:
To the General Partners $ 204 $ 13,786 $ 2,056 $ 25,058
To the Limited Partners 1,829 124,073 18,500 225,525
$ 2,033 $ 137,859 $ 20,556 $ 250,583
Per limited partnership unit:
(80,000 outstanding) $.02 $1.55 $.23 $2.82
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended May 31, 1997 1996
Cash Flows From Operating Activities:
Net income $ 20,556 $ 250,583
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 458,373 453,384
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Fundings to restricted cash (79,974) (77,025)
Release of restricted cash to property operations 81,926 66,301
Other assets 6,274 (19,198)
Accounts payable and accrued expenses 16,547 (3,493)
Due to general partners and affiliates (406) 38
Security deposits (8,432) 4,617
Net cash provided by operating activities 494,864 675,207
Cash Flows From Investing Activities:
Additions to real estate (233,024) (60,000)
Net cash used for investing activities (233,024) (60,000)
Cash Flows From Financing Activities:
Mortgage principal payments (69,387) (63,591)
Distributions (355,555) (444,444)
Net cash used for financing activities (424,942) (508,035)
Net increase (decrease) in cash and cash equivalents (163,102) 107,172
Cash and cash equivalents, beginning of period 1,084,483 1,060,348
Cash and cash equivalents, end of period $ 921,381 $1,167,520
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 369,735 $ 375,532
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The unaudited interim consolidated financial statements should be read in
conjunction with the Partnership's annual 1996 audited consolidated financial
statements within Form 10-K.
The unaudited interim consolidated financial statements include all normal and
reoccurring adjustments which are, in the opinion of management, necessary to
present a fair statement of financial position as of May 31, 1997 and the
results of operations for the three and six months ended May 31, 1997 and 1996,
cash flows for the six months ended May 31, 1997 and 1996, and the statement of
partners' capital (deficit) for the six months ended May 31, 1997. Results of
operations for the periods are not necessarily indicative of the results to be
expected for the full year.
Certain prior year amounts have been reclassified in order to conform to the
current year's presentation.
No significant events have occurred subsequent to fiscal year 1996, and no
material contingencies exist, which would require disclosure in this interim
report per Regulation S-X, Rule 10-01, Paragraph (a)(5).
Part I, Item 2 . Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
At May 31, 1997, the Partnership had cash and cash equivalents of $921,381,
which were invested in unaffiliated money market funds, compared with
$1,084,483 at November 30, 1996. The decrease reflects cash distributions to
Partners, mortgage principal payments, and additions to real estate exceeding
cash provided by operating activities for the first six months of fiscal 1997.
The Partnership also maintains a restricted cash balance, which totaled $82,982
at May 31, 1997, representing real estate tax escrows required under the terms
of the Autumn Heights and Skyline Village loans. The Partnership expects
sufficient cash to be generated from operations to meet its current operating
expenses.
During the quarter, the General Partners continued to perform various
improvements at the properties, including roof repairs at Ponte Vedra Beach
Village II. These roof repairs are expected to be completed during the third
quarter of fiscal 1997 and are anticipated to cost approximately $200,000.
Roof repairs are also required on five of the buildings at Autumn Heights.
These repairs commenced in July and are anticipated to cost approximately
$100,000.
Other assets decreased from $173,569 at November 30, 1996 to $145,787 at May
31, 1997. The decrease is primarily attributable to the continued amortization
of mortgage fees and the timing of payment of real estate taxes.
The General Partners declared a cash distribution of $1.50 per Unit for the
quarter ended May 31, 1997 which will be paid to investors on or about July 15,
1997. The distribution level was reduced beginning in the first quarter of
fiscal 1997 from $2.50 per Unit in the fourth quarter of fiscal 1996 due to the
need to maintain adequate cash reserves to fund required roof repairs at two of
the Partnership's properties (see above). The level of future distributions
will be evaluated on a quarterly basis and will depend on the Partnership's
operating results and future cash needs.
Results of Operations
Partnership operations for the three and six months ended May 31, 1997 resulted
in net income of $2,033 and $20,556, respectively, compared with $137,859 and
$250,583, respectively, for the corresponding periods in 1996. The decrease in
net income for both periods is primarily attributable to an increase in
property operating expenses and, to a lesser extent, a decrease in rental
income. Net cash provided by operating activities was $494,864 for the six
months ended May 31, 1997, down from $675,207 for the corresponding period in
fiscal 1996, reflecting the decrease in net income.
Rental income for the three and six months ended May 31, 1997 was $908,287 and
$1,796,748, respectively, compared with $912,837 and $1,836,783, respectively,
for the corresponding periods in 1996. The decreases are due to lower average
occupancy at the Autumn Heights and Ponte Vedra Beach Village II properties,
and a reduction in rental rates at Skyline Village, reflecting competitive
market conditions in all three markets where the properties are located.
Interest and other income totaled $9,549 and $21,101, respectively, for the
three and six months ended May 31, 1997, compared to $22,686 and $35,359,
respectively, for the corresponding periods in 1996. The decrease for both
periods is primarily attributable to a decrease in the cash balances maintained
by the Partnership.
Property operating expenses for the three and six months ended May 31, 1997
totaled $460,377 and $880,554, respectively, compared to $347,525 and $713,507,
respectively, for the corresponding periods in 1996. The increases in both
periods reflect higher repairs and maintenance expense at all three of the
Partnership's properties.
General and administrative expenses for the three and six months ended May 31,
1997 were $41,168 and $88,631, respectively, compared to $34,474 and $79,136,
respectively, for the same periods in 1996. During the 1997 periods, certain
expenses incurred by an unaffiliated third party service provider in servicing
the Partnership, which were voluntarily absorbed by affiliates of RI 3-4 Real
Estate Services, Inc. in prior periods, were reimbursed to RI 3-4 Real Estate
Services, Inc. and its affiliates.
During the first six months of fiscal 1997 and 1996, average occupancy levels
at each of the properties were as follows:
Property 1997 1996
Autumn Heights 91% 97%
Ponte Vedra Beach Village II 93% 96%
Skyline Village 95% 94%
Part II Other Information
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the
quarter ended May 31, 1997.
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.
HUTTON/CONAM REALTY INVESTORS 3
BY: RI 3-4 Real Estate Services, Inc.
General Partner
Date: July 15, 1997 BY: /s/ Paul L. Abbott
Paul L. Abbott
Director, President,
Chief Executive Officer
and Chief Financial Officer