SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the registrant |X|
Filed by a party other than the registrant |_|
Check the appropriate box:
|X| Preliminary proxy statement
|_| Definitive proxy statement
|_| Definitive additional materials
|_| Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
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(Name of Registrant as Specified in Its Charter)
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
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(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
|_| No fee required.
|X| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
The filing fee is based on the aggregate cash to be received by the
Registrant from the proposed sale of assets, which the Registrant
believes will be $29,650,000
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(4) Proposed maximum aggregate value of transaction:
$29,650,000
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(5) Total Fee paid:
$5,930
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|X|Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid: $5,930
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(2) Form, schedule or registration statement no.:
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(3) Filing party: CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
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(4) Date filed: January 15, 1997
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Set forth the amount on which the filing fee is calculated and state how it
was determined.
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PRELIMINARY COPY
[LETTERHEAD OF CIGNA INCOME REALTY-I
LIMITED PARTNERSHIP]
March __, 1997
Dear Limited Partners:
Enclosed for your consideration are a Consent Solicitation Statement
dated March __, 1997 (the "Solicitation Statement"), and a form for indicating
whether or not you wish to grant your consent (the "Consent Form") with respect
to the solicitation (the "Solicitation") by CIGNA Realty Resources, Inc.-Tenth,
the general partner (the "General Partner") of CIGNA Income Realty-I Limited
Partnership (the "Partnership"), on behalf of the Partnership of consents from
registered holders ("Unitholders") of units of limited partnership interests in
the Partnership (the "Units") with respect to (i) the proposed sale (the "Sale")
of all of the real estate assets of the Partnership to Glenborough Properties,
L.P. pursuant to an Agreement of Purchase and Sale dated as of January 10, 1997
(the "Purchase Agreement"), and (ii) the dissolution and liquidation of the
Partnership thereafter (the "Liquidation").
Upon consummation of the Sale, the Partnership will receive $29,650,000
in cash consideration. After the consummation of the Sale, the Partnership
intends to liquidate and distribute to Unitholders (A) the net proceeds of the
Sale after deducting expenses of the Sale (estimated at a maximum amount of
$70,000), together with (B) the net cash value of the remaining Partnership
assets. Based on the sum of items (A) and (B) above and by dividing this amount
by the number of Units issued and outstanding as of the Record Date (as defined
in the Solicitation Statement), the General Partner currently estimates that
such distribution will equal an average amount of approximately $150 per $250
Unit. There can, however, be no assurances that this will be the actual amount
distributed to Unitholders. Furthermore, as more fully described in the enclosed
Solicitation Statement, the actual amount distributed per Unit may vary from one
Unitholder to another depending on the date of the Unitholder's admission to the
Partnership, and on whether the Unitholder is a taxable or nontaxable
Unitholder. See the discussion under the caption entitled "LIQUIDATION OF
PARTNERSHIP; DISTRIBUTION OF PROCEEDS" in the enclosed Solicitation Statement.
To date, based on the first admission date, the Partnership has
distributed $128 per $250 Unit from operations and cash reserves.
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The General Partner of the Partnership recommends that Unitholders
consent to the Sale, the Purchase Agreement and the Liquidation.
The Solicitation will expire at 5:00 p.m., Eastern Standard Time, on
April __, 1997 (the "Expiration Date"), unless the General Partner, in its sole
discretion, extends the period during which the Solicitation is open. Consent
Forms may be revoked at any time until the Expiration Date, but may not be
revoked thereafter.
If you desire to consent to the Sale, the Purchase Agreement and the
Liquidation, you should so indicate by marking the appropriate box on the
Consent Form included herewith, and completing, signing, dating and delivering
the Consent Form to the Partnership by mail in the self-addressed, postage-paid
envelope enclosed for that purpose, by overnight courier or by facsimile at the
address or facsimile number set forth below and on the Consent Form prior to
5:00 p.m., Eastern Standard Time, on the Expiration Date, all in accordance with
instructions contained in the Solicitation Statement and the Consent Form.
This letter merely summarizes certain of the terms of the Solicitation
as set forth in the Solicitation Statement and is qualified by the information
set forth therein; accordingly, you are urged to read the enclosed Solicitation
Statement in its entirety.
YOUR PROMPT ACTION IS REQUESTED. PLEASE NOTE THAT THE SOLICITATION WILL
EXPIRE AT 5:00 P.M., EASTERN STANDARD TIME, ON THE EXPIRATION DATE, UNLESS
EXTENDED BY THE GENERAL PARTNER IN ITS SOLE DISCRETION. ACCORDINGLY, IN ORDER TO
COUNT, THE ENCLOSED CONSENT FORM MUST BE RECEIVED BY THE PARTNERSHIP PRIOR TO
5:00 P.M., EASTERN STANDARD TIME, ON THE EXPIRATION DATE.
Any inquiries you may have with respect to the Solicitation or any
request for additional copies of the Solicitation documents should be addressed
to the Partnership at CIR, 900 Cottage Grove Road, S-313, Hartford, Connecticut
06152-2313; Telephone Number:
(800) 255-5876; Facsimile Number: (860) 726-4166.
Sincerely,
CIGNA INCOME REALTY-I
LIMITED PARTNERSHIP
By: CIGNA Realty Resources,
Inc.-Tenth, General Partner
By: ___________________________________
John D. Carey, President
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PRELIMINARY COPY
CIGNA INCOME REALTY-I
LIMITED PARTNERSHIP
CONSENT SOLICITATION STATEMENT
INTRODUCTION
This Consent Solicitation Statement (this "Statement") is being
furnished to holders ("Unitholders") of record of units ("Units") of limited
partnership interests in CIGNA Income Realty-I Limited Partnership (the
"Partnership"), as of the close of business on March 3, 1997 (the "Record
Date"), in connection with the solicitation (this "Solicitation") of consents,
upon the terms and subject to the conditions of this Statement and the
accompanying form of consent (the "Consent Form"), by CIGNA Realty Resources,
Inc.-Tenth, the general partner of the Partnership (the "General Partner"), on
behalf of the Partnership, to (i) the proposed sale of all of the real estate
assets of the Partnership to Glenborough Properties, L.P. (the "Purchaser")
pursuant to an Agreement of Purchase and Sale dated as of January 10, 1997,
between the Partnership and the Purchaser (the "Purchase Agreement"), the text
(excluding the schedules and exhibits thereto) of which is attached as Annex 1
hereto and incorporated herein by reference (the sale of all of the
Partnership's real estate assets and the other transactions contemplated by the
Purchase Agreement are hereinafter referred to collectively as the "Sale"), and
(ii) the dissolution and liquidation of the Partnership thereafter (the
"Liquidation").
Upon consummation of the Sale, the Partnership will receive $29,650,000
in cash consideration. After the consummation of the Sale, the Partnership
intends to liquidate and distribute to Unitholders (A) the net proceeds of the
Sale after deducting expenses of the Sale (estimated at a maximum amount of
$70,000), together with (B) the net cash value of the remaining Partnership
assets. Based on the sum of items (A) and (B) above and by dividing this amount
by the number of Units issued and outstanding as of the Record Date, the General
Partner currently estimates that such distribution will equal an average amount
of approximately $150 per $250 Unit. There can, however, be no assurances that
this will be the actual amount distributed to Unitholders. Furthermore, as more
fully described under the caption entitled "LIQUIDATION OF PARTNERSHIP;
DISTRIBUTION OF PROCEEDS", the actual amount distributed per Unit may vary from
one Unitholder to another depending on the date of the Unitholder's admission to
the Partnership, and on whether the Unitholder is a taxable or nontaxable
Unitholder.
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To date, based on the first admission date, the Partnership has
distributed $128 per $250 Unit from operations and cash reserves. See
"LIQUIDATION OF PARTNERSHIP; DISTRIBUTION OF PROCEEDS."
This Statement, and the enclosed Consent Form are being first mailed to
Unitholders of the Partnership on or about March __, 1997.
This Statement, including the Purchase Agreement attached hereto,
contain important information which should be read before any decision is made
with respect to the Solicitation. All statements in this Statement are qualified
in their entirety by reference to the Purchase Agreement attached hereto as
Annex 1 (excluding schedules and exhibits). Unitholders are urged also to read
the text of the Purchase Agreement.
The General Partner of the Partnership recommends that Unitholders
consent to the Sale, the Purchase Agreement and the Liquidation.
THIS SOLICITATION FOR CONSENT FORMS WILL EXPIRE AT 5:00 P.M. EASTERN
STANDARD TIME, ON APRIL __, 1997 (THE "EXPIRATION DATE"), UNLESS EXTENDED BY THE
GENERAL PARTNER IN ITS SOLE DISCRETION. CONSENT FORMS MAY BE REVOKED AT ANY TIME
UNTIL THE EXPIRATION DATE, BUT MAY NOT BE REVOKED THEREAFTER.
Questions and requests for assistance or additional copies of the
Solicitation documents may be directed to the General Partner at the
Partnership's principal executive office at 900 Cottage Grove Road, S-313,
Hartford, Connecticut 06152-2313; Telephone Number: (800) 255-5876; Facsimile
Number: (860) 726-4166.
DESCRIPTION OF THE TERMS OF THE SOLICITATION
Purpose of Solicitation
Upon the terms and subject to the conditions set forth in this
Statement and in the accompanying Consent Form, the General Partner on behalf of
the Partnership is soliciting consents from Unitholders for the purpose of
approving the proposed Sale, the Purchase Agreement and the Liquidation. See
"DESCRIPTION OF THE TERMS OF THE PURCHASE AGREEMENT", "DESCRIPTION OF THE SALE",
and "LIQUIDATION OF PARTNERSHIP; USE OF PROCEEDS."
The cost of preparing, assembling, printing and mailing this Statement
and the enclosed Consent Form, and the cost of soliciting Consent Forms, will be
borne by the Partnership. Solicitation of the Consent Forms will be made
initially by mail. In addition to solicitation by mail, Consent Forms may also
be solicited personally, by telephone, by facsimile or by telegraph by
directors, officers or other regular employees of the General Partner. No
additional compensation will be paid to directors, officers or other regular
employees of the General Partner for such services.
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Expiration Date; Extension; Amendment
This Statement is furnished in connection with the solicitation of
Consent Forms by the General Partner to the Sale as contemplated by the Purchase
Agreement and the Liquidation. This Solicitation for Consent Forms will expire
at 5:00 p.m., Eastern Standard Time, on the Expiration Date, unless extended by
the General Partner in its sole discretion. The Partnership expressly reserves
the right, in the sole discretion of the General Partner, (i) to extend the
Expiration Date, from time to time, until the Requisite Consents (as defined
below) have been obtained, and (ii) to amend, at any time or from time to time
before the Requisite Consents are obtained, the terms of this Solicitation. As
promptly as practicable following any such extension or amendment, notice
thereof shall be given by the Partnership to each Unitholder in writing.
Record Date; Requisite Consents
The Partnership has fixed the close of business on March 3, 1997 (the
"Record Date"), as the Record Date for determining the Unitholders entitled to
notice of and to consent to the Sale, the Purchase Agreement and the
Liquidation. Only Unitholders on the Record Date or their duly designated
proxies may execute and deliver a Consent Form. As of the Record Date, there
were 199,992 whole Units outstanding held by approximately 3,771 holders of
record, and 8 fractional Units outstanding held by approximately 16 holders of
record. Holders of whole units are entitled to one vote per whole Unit, and
holders of fractional Units are entitled to a proportional vote equal to their
fractional interest.
The Sale and the Liquidation must be approved by at least a majority of
the issued and outstanding Units. Unitholder consent is required in connection
with the Sale and the Liquidation because the Limited Partnership Agreement
dated as of October 15, 1985, pursuant to which the Partnership was formed (as
amended, supplemented or otherwise modified from time to time, the "Partnership
Agreement") requires the consent (the "Requisite Consents") of the holders of a
majority of the issued and outstanding Units, for both (i) the disposition of
"substantially all of" the Partnership's assets, and (ii) the dissolution and
liquidation of the Partnership.
Units represented by "broker non-votes" (i.e., units held in record
name by brokers or nominees as to which (i) an executed Consent Form has not
been received from the beneficial owners or persons entitled to Consent, (ii)
the broker or nominee does not have discretionary voting authority under
applicable rules or the instrument under which it serves in such capacity, or
(iii) the recordholder has indicated on the Consent Form or has otherwise
notified the Partnership that it does not have authority to vote the Units with
respect to the Sale, the Purchase Agreement and the Liquidation) will not be
included in the vote totals, and therefore will have no effect on this
Solicitation.
If the Partnership fails to receive the Requisite Consents on or before
the Expiration Date, or any extension thereof, then the Partnership will
continue with its
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present objective of maximizing the return to Unitholders by actively managing
and operating its properties over a short holding period. In that event, the
Partnership's properties will be sold individually as previously planned. See
"DESCRIPTION OF THE SALE."
Consent Procedures
UNITHOLDERS WHO DESIRE TO CONSENT TO THE SALE, THE PURCHASE AGREEMENT
AND THE LIQUIDATION SHOULD SO INDICATE BY MARKING THE APPROPRIATE BOX ON THE
CONSENT FORM INCLUDED HEREWITH, AND COMPLETING, SIGNING, DATING AND DELIVERING
THE CONSENT FORM TO THE PARTNERSHIP BY MAIL IN THE SELF-ADDRESSED, POSTAGE-PAID
ENVELOPE ENCLOSED FOR THAT PURPOSE, BY OVERNIGHT COURIER OR BY FACSIMILE AT THE
ADDRESS OR FACSIMILE NUMBER SET FORTH ABOVE AND ON THE CONSENT FORM, ALL IN
ACCORDANCE WITH THE INSTRUCTIONS CONTAINED HEREIN AND THEREIN. A UNITHOLDER MUST
CONSENT TO EACH OF THE SALE, THE PURCHASE AGREEMENT AND THE LIQUIDATION IF IT
WISHES TO GRANT ITS CONSENT.
All Consent Forms that are properly completed, signed and delivered to
the Partnership and not properly revoked (See "Revocation of Instructions"
below) prior to the Expiration Date, will be given effect in accordance with the
specifications thereof. If a Consent Form is delivered and none of the "CONSENT"
nor the "DOES NOT CONSENT" nor the "ABSTAIN" box is marked with respect to the
Sale, the Purchase Agreement and the Liquidation, but the Consent Form is
otherwise properly completed and signed, the Unitholder will be deemed to have
consented to each of the Sale, the Purchase Agreement and the Liquidation.
Consent Forms should be executed in exactly the same manner as the
name(s) in which ownership of the Units is registered. If the Units to which a
Consent Form relates are held by two or more joint holders, all such holders
should sign the Consent Form. If a Consent Form is signed by a trustee, partner,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary, agency or representative capacity, such
person must so indicate when signing and must submit with the Consent Form
evidence satisfactory to the Partnership of authority to execute the Consent
Form.
The execution and delivery of a Consent Form will not affect a
Unitholder's right to sell or transfer the Units. All Consent Forms received by
the Partnership (and not properly revoked) prior to the Expiration Date will be
effective notwithstanding a record transfer of such Units subsequent to the
Record Date, unless the Unitholder revokes such Consent Form prior to 5:00 p.m.,
Eastern Standard Time, on the Expiration Date by following the procedures set
forth under "Revocation of Instructions" below.
All questions as to the validity, form and eligibility (including time
of receipt) regarding the consent procedures will be determined by the General
Partner in its sole
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discretion, which determination will be conclusive and binding. The Partnership
reserves the right to reject any or all Consent Forms that are not in proper
form. The Partnership also reserves the right to waive any defects,
irregularities or conditions of delivery as to particular Consent Forms. Unless
waived, all such defects or irregularities in connection with deliveries of
Consent Forms must be cured within such time as the General Partner determines.
Neither the General Partner nor any of its affiliates or any other persons shall
be under any duty to give any notification of any such defects or irregularities
or waivers, nor shall any of them incur any liability for failure to give such
notification. Deliveries of Consent Forms will not be deemed to have been made
until any irregularities or defects therein have been cured or waived. The
interpretations of the terms and conditions of this Solicitation by the General
Partner shall be conclusive and binding.
Revocation of Instructions
Any Unitholder who has delivered a Consent Form to the Partnership may
revoke the instructions set forth in such Consent Form by delivering to the
General Partner a written notice of revocation prior to 5:00 p.m., Eastern
Standard Time, on the Expiration Date. In order to be effective, a notice of
revocation of the instructions set forth in a Consent Form must (i) contain the
name of the person who delivered the Consent Form, (ii) be in the form of a
subsequent Consent Form marked either as "CONSENT" or "DOES NOT CONSENT" or
"ABSTAIN", as the case may be, (iii) be signed by the Unitholder thereof in the
same manner as the original signature on the Consent Form, and (iv) be received
by the General Partner prior to 5:00 p.m., Eastern Standard Time, on the
Expiration Date at its address set forth on the Consent Form. A purported notice
of revocation that lacks any of the required information, is dispatched to an
improper address or is not received in a timely manner will not be effective to
revoke the instructions set forth in a Consent Form previously given. A
revocation of the instructions set forth in a Consent Form can only be
accomplished in accordance with the foregoing procedures. No Unitholder may
revoke the instructions set forth in a Consent Form after 5:00 p.m., Eastern
Standard Time, on the Expiration Date.
No Dissenting Unitholders' Rights
Under the Delaware Revised Uniform Limited Partnership Act and under
the Partnership Agreement, Unitholders do not have dissenter's appraisal rights
in connection with the Sale and the Purchase Agreement.
DESCRIPTION OF THE TERMS OF THE PURCHASE AGREEMENT
Parties to the Purchase Agreement
The Purchase Agreement has been entered into between the Partnership,
Westford Office Venture, and Connecticut General Equity Properties-I Limited
Partnership, a Connecticut limited partnership ("CGEP"), as sellers, and the
Purchaser, as purchaser. Pursuant to the Purchase Agreement, the Partnership,
Westford Office Venture and CGEP have each agreed to sell all of their
respective real estate assets to the Purchaser.
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The Partnership is a Delaware limited partnership with its principal
executive office at 900 Cottage Grove Road, S-313, Hartford, Connecticut
06152-2313; Telephone Number (860) 726-6000. For a description of the
Partnership and its properties see the Partnership's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995 (the "Partnership's 10-K"), a copy
of which is being mailed to Unitholders together with this Statement and is
incorporated herein by reference.
Westford Office Venture is a Connecticut general partnership between
the Partnership and CGEP which owns the Westford Corporate Center in Westford,
Massachusetts. The Partnership owns a 73.92% interest in the Westford Office
Venture. CGEP owns the remaining 26.08% interest in the Westford Office Venture.
The Purchaser is a California limited partnership with an address at
400 South El Camino Real, San Mateo, California 94402-1708; Telephone Number:
(415) 343-9300. To the Partnership's knowledge, Glenborough Realty Trust Inc.
("Glenborough") is the 1% general partner and 90.6% limited partner of the
Purchaser. Glenborough is a self-administered and self-managed real estate
investment trust with a diversified portfolio of properties including
industrial, office, multi-family, retail and hotel properties. In addition,
three associated companies of Glenborough control similarly diversified
portfolios. Combined, the portfolios encompass approximately 11 million square
feet and are spread among 22 states throughout the country.
Assets Transferred
The Purchase Agreement provides that at the closing of the Sale (the
"Closing") the Partnership will transfer and convey to the Purchaser all of the
real estate assets of the Partnership, which consist primarily of the Woodlands
Tech Center in St. Louis, Missouri, the Piedmont Plaza Shopping Center in
Apopka, Florida, the Overlook Apartments in Scottsdale, Arizona, and the
Partnership's joint venture interest in the Westford Corporate Center in
Westford, Massachusetts, and certain other related assets (the "Purchased
Assets"). The Purchase Agreement also provides that the Purchaser is acquiring
all of the real estate assets of CGEP, including CGEP's joint venture interest
in the Westford Corporate Center (the "CGEP Assets"). The Purchaser's obligation
to purchase the Purchased Assets is conditioned upon the simultaneous purchase
of the CGEP Assets because the Purchaser would not agree to purchase the
Partnership's properties without simultaneously purchasing CGEP's properties.
The Purchaser's acquisition strategy is to purchase all of the Purchased Assets
and the CGEP Assets, thereby providing it with ownership of a mix of property
types, locations, leasing risk, rates of return, etc.; a purchase of either the
Purchased Assets or the CGEP Assets, without the other, would not have provided
an acceptable mix from the Purchaser's standpoint, nor would it afford the
necessary critical mass of asset value to justify the transaction. The General
Partner has recommended approval of the Sale, including this condition, because
it believes that the terms of the Sale are beneficial to the Partnership and its
Unitholders. The general partner of CGEP is an affiliate of the General Partner
of the Partnership. The General Partner believes that the total purchase price
for all of the Purchased Assets and the CGEP Assets is apportioned fairly among
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the separate properties based upon such properties' market values, that there is
no disproportionate advantage either to the Partnership or to CGEP, and any
possible conflict between the interests of the Partnership and CGEP have been
avoided.
The Purchaser is not acquiring any of the accounts receivable relating
to the Purchased Assets existing as of the Closing Date or cash reserves or
other similar assets of the Partnership such as prepaid expenses, if any, in an
approximate aggregate net amount of $405,000 (based on the Partnership's
financial statements set forth in the Partnership's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996, excluding CGEP's interest in the
Westford Office Venture; there has been no material change in the financial
condition of the Partnership since September 30, 1996). Any remaining accounts
receivable and accounts payable of the Partnership relating to the Purchased
Assets after the Sale will be transferred as of the Closing Date to the General
Partner for an amount equal to the face value of such accounts receivable less
the amount of such accounts payable being assumed by the General Partner. The
net cash from the sale of these assets to the General Partner will be
distributed to Unitholders along with the net proceeds of the Sale (after
deducting expenses of the Sale in the maximum estimated amount of $70,000). See
"LIQUIDATION OF PARTNERSHIP; DISTRIBUTION OF PROCEEDS."
Purchase Price
The purchase price for the Purchased Assets is $29,650,000, $296,500 of
which has been deposited by the Purchaser in escrow with Chicago Title Company,
and the remainder of which will be paid in cash at the Closing. In addition, the
Purchaser has agreed to pay all closing costs relating to the Sale, including a
brokerage fee payable to Koll General Partner Services ("Koll") in an
approximate amount of $495,263, except for the Partnership's legal fees and
similar expenses, which the General Partner estimates to be no more than
approximately $70,000.
The purchase price represents an apportionment, based upon the
respective market values of the Purchased Assets and the CGEP Assets (determined
in the manner described below), of the aggregate purchase price for all of the
Purchased Assets and the CGEP Assets of $44,204,000. This method of
apportionment was used to avoid any conflict between the respective interests of
the Partnership and CGEP.
The purchase price for the Purchased Assets is based upon a percentage
of the aggregate market values of the Purchased Assets as determined by
valuations conducted by CIGNA Investments Inc. ("CII"), an affiliate of the
General Partner and the general partner of CGEP, and the management company that
operates the Purchased Assets and the CGEP Assets. CII has had 50 years'
experience in the evaluation and management of commercial real estate and
currently manages properties with an aggregate value estimated at more than $5.2
billion throughout the United States. As part of its
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management services, CII performs valuations of the Partnership's properties on
an annual basis. For a description of the relevant negotiations between the
Partnership and the Purchaser regarding the purchase price, see "DESCRIPTION OF
THE SALE."
Assumption of Liabilities
From and after the Closing Date, the Purchaser will assume all
obligations of the Partnership relating to the Purchased Assets, including
obligations under leases.
Closing and Conditions to Closing
The Purchase Agreement provides that the Closing will occur on or
before February 17, 1997; provided, however, that if the Partnership and CGEP
have not by that date received the approval of the Partnership's Unitholders and
CGEP's unitholders, respectively, to the transactions contemplated by the
Purchase Agreement, the date of the Closing will be extended until the 5th
calendar day after such approvals have been obtained (the "Closing Date").
Under the Purchase Agreement, the consummation of the Sale is subject
to the satisfaction of the following conditions: (i) the approval of the Sale
and the Liquidation by the Board of Directors of the General Partner and the
Board of Directors of the general partner of CGEP (which approvals were given
unanimously by both boards on January 24, 1997), (ii) the requisite approval by
the Partnership's Unitholders and the unitholders of CGEP, (iii) the
simultaneous consummation of the purchase by the Purchaser of the CGEP Assets,
(iv) the Purchaser's satisfactory review of real estate surveys and title
reports with respect to the Purchased Assets and the CGEP Assets, (v) the
issuance to the Purchaser by a title company of an Owner's Title Insurance
Policy for each of the properties contained in the Purchased Assets and the CGEP
Assets, and (vi) the delivery by the Partnership, Westford Office Venture and
CGEP to the Purchaser of appropriate instruments of conveyance and certain
documents relating to the Purchased Assets and the CGEP Assets. The Purchaser is
obligated to procure the real estate surveys and title reports referred to in
clause (iv) above by February 10, 1997, and to review such documents and state
any objections it may have within 10 days after receipt thereof. It is not a
condition of the Closing that the Purchaser obtain financing.
Representations and Warranties; Covenants; Engineering and Environmental Audit
The Purchase Agreement contains representations and warranties with
respect to the Partnership and the Purchased Assets which are generally
customary in a transaction of this type. The Partnership has also covenanted,
among other things, to grant to the Purchaser access to the Purchased Assets
during the period prior to the Closing, and to allow the Purchaser to conduct an
engineering audit and a Phase I environmental audit of the Purchased
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Assets. Such audits are not, however, conditions to the Closing. The Purchaser
has agreed to indemnify the Partnership for all liabilities, damages and
expenses imposed upon the Partnership in connection with such audits and the
entry upon the Partnership's properties by the Purchaser's employees, agents and
independent contractors.
Indemnification
The Partnership has agreed to indemnify the Purchaser from and against
all costs, charges and expenses related to (i) the ownership, management and
operation of the Purchased Assets prior to the Closing Date, and (ii) the breach
of any of the representations and warranties of the Partnership contained in the
Purchase Agreement. In order for the Purchaser to receive indemnification for
breach of certain of the representations and warranties of the Partnership, the
Purchaser must make a written claim for such indemnification within one year of
the Closing. The General Partner shall be solely responsible for any indemnity
obligation arising under the Purchase Agreement relating to the breach of any of
the representations and warranties of the Partnership contained in the Purchase
Agreement.
The Purchaser has agreed to indemnify the Partnership from and against
all costs, charges and expenses related to the ownership, management and
operation of the Purchased Assets after the Closing Date.
Termination
The Purchase Agreement will terminate if (i) prior to the Closing, all
or a substantial portion of the Purchased Assets or the CGEP Assets are
condemned and the Purchaser elects to cancel the Agreement; (ii) prior to the
Closing, all or a substantial portion of the Purchased Assets or the CGEP Assets
are damaged, and any party elects to cancel the Agreement; (iii) the Purchaser
does not receive written notice within 90 days after the date of the Purchase
Agreement that the Sale and the other transactions contemplated by the Purchase
Agreement have been approved by the Unitholders and the holders of units in
CGEP, and the Purchaser elects to cancel the Purchase Agreement; or (iv) the
Sale and the other transactions contemplated by the Purchase Agreement are not
consummated on or before the Closing Date (unless such failure to Close is due
to some act or omission of the Partnership, in which case, the Purchaser may
extend the Closing Date, or the Closing Date is extended by the mutual agreement
of the parties).
The Purchase Agreement provides that, if the Partnership complies with
all covenants and conditions contained in the Purchase Agreement and is ready,
wiling and able to convey the Purchased Assets to the Purchaser, and the
Purchaser fails to
-9-
consummate the Sale (i.e., is in default), then the Partnership shall be
entitled to retain the escrow deposit of $296,500 plus interest thereon, and
also to receive from the Purchaser the additional sum of $296,500, as liquidated
damages. If that occurs, the Partnership will distribute the $593,000 (after
deducting expenses incurred by the Partnership in respect of the Sale) to
Unitholders, and will continue with its present objective of maximizing the
return to Unitholders by actively managing and operating its properties over a
short holding period. In that event, the Partnership's properties will be sold
individually as previously planned. See "DESCRIPTION OF THE SALE."
Regulatory Requirements
There are no federal or state regulatory requirements which must be
complied with, nor are there any such governmental consents or approvals that
must be obtained, in connection with the Sale and the other transactions
contemplated by the Purchase Agreement. There are certain regulatory
requirements under the laws of the State of Delaware which must be complied with
in connection with the Liquidation, principally the winding up of the affairs of
the Partnership and the filing of a Certificate of Cancellation (canceling the
Partnership's Certificate of Limited Partnership) with the Secretary of State of
Delaware in accordance with the Delaware Revised Uniform Limited Partnership
Act. These regulatory requirements will be complied with at the time of the
Liquidation.
-10-
DESCRIPTION OF THE SALE
Background and Reasons for the Transaction
On November 8, 1996, the Partnership received an unsolicited offer from
Koll, on behalf of the Purchaser, to purchase all of the assets and liabilities
of the Partnership as reflected in the Partnership's June 30, 1996 balance sheet
for a purchase price of $28,000,000. The proposed purchase price in the
Purchaser's original offer to purchase all of the assets and liabilities of the
Partnership was equal to ninety percent (90%) of the Partnership's net asset
value as of December 31, 1995 (before deducting expenses relating to the Sale),
as determined by the Partnership, based, in part, on valuations provided by CII
and on an outside appraisal of the Westford Corporate Center. The Purchaser's
offer to purchase the assets of the Partnership was conditioned upon the
simultaneous purchase of the assets of CIR.
The following discussion of two offers to purchase Units made by two
related entities is included because the second of these offers was made at the
time that the
-11-
Partnership was involved in negotiations with Koll. On or about May 28, 1996,
Everest Investors 3, LLC ("Everest 3"), solicited Unitholders to purchase up to
9,800 of the Units at a purchase price of $80 per Unit, less the amount of any
distributions per Unit, if any, made by the Partnership to Unitholders after
April 30, 1996. This offer expired by its terms on June 28, 1996 and, to the
Partnership's knowledge, Unitholders sold 1,822.9 Units to Everest 3 pursuant to
this offer.
On or about November 18, 1996, Everest Realty Investors, LLC, a California
limited liability company and affiliate of Everest 3 ("Everest"), initiated a
tender offer to Unitholders to purchase up to 80,000 of the Units at a purchase
price of $115 per Unit, less the amount of any distributions per Unit, if any,
made by the Partnership to Unitholders after any distribution from operations
for the third quarter of 1996 and less any Partnership transfer fees (the
"Everest Offer"). The Partnership recommended that Unitholders reject the
Everest Offer primarily for two reasons: (1) the Partnership believed that the
price of $115 per Unit, less certain amounts, was inadequate, and (2) the
Everest Offer was limited to 80,000 Units, representing only approximately forty
percent (40%) of outstanding Units. In reaching its determination, the
Partnership considered a number of factors, including that the Partnership was
negotiating with the Purchaser for the possible sale of all of the real estate
assets of the Partnership for a purchase price which would result in Unitholders
receiving an amount significantly greater than the Everest Offer price of $115
per Unit.
Throughout this period, the General Partner, on behalf of the
Partnership, engaged in negotiations with the Purchaser regarding the proposed
sale of the Partnership's assets. During these negotiations, the Purchaser
agreed (1) to limit the purchase to the Partnership's real estate assets rather
than all assets and liabilities, (2) to increase its purchase price from its
original offer of $28,000,000 for all of the Partnership's assets and
liabilities to $29,650,000 for the Partnership's real estate assets only (the
increase in the purchase price was based on market valuations conducted by CII
as of December, 1996), and (3) to assume certain transaction costs, including a
brokerage fee payable to Koll in an approximate amount of $495,263.
On December 10, 1996, the Partnership and the Purchaser executed a
letter of intent setting forth an agreement in principle on the terms and
conditions of the Sale. On or about December 12, 1996, the Partnership sent a
second letter to Unitholders informing them that a letter of intent had been
executed with the Purchaser (and enclosing a copy of such letter of intent) and
once again recommending the rejection of the Everest Offer. The Everest Offer
expired by its terms on December 17, 1996, and, to the Partnership's knowledge,
Unitholders sold 489 Units to Everest pursuant to the Everest Offer.
-12-
On January 10, 1997, the Partnership and the Purchaser entered into the
Purchase Agreement. Under the terms of the Purchase Agreement, the Purchaser
will purchase all of the real estate assets of the Partnership for an aggregate
purchase price of $29,650,000.
At its inception in 1985, the Partnership estimated that its properties
would be sold after a period of ownership of nine to twelve years. The
Partnership has previously attempted to sell the Piedmont Plaza Shopping Center
in Apopka, Florida, which has been held by the Partnership for 9 1/2 years, and
the General Partner had intended to actively pursue a sale of this property in
1997. Of the Partnership's remaining properties, the Woodlands Tech Center in
St. Louis, Missouri, has been held by the Partnership for 10 1/2 years and has
been previously identified by the General Partner as a candidate for a possible
sale in 1997, and the Overlook Apartments in Scottsdale, Arizona, has been held
by the Partnership for 8 years and has also been previously identified by the
General Partner as a candidate for a possible sale in 1997. Given the present
state of the Scottsdale, Arizona, real estate market which is weakening as more
properties are being built, the General Partner intended to sell the Overlook
Apartments as soon as possible. The General Partner has estimated that a failure
to sell the Overlook Apartments in the near term would result in the Partnership
having to hold this property for an additional period of 4 or 5 years in order
to allow for the absorption of newly-built units and for rents to move upward
again. The General Partner has previously identified the Westford Corporate
Center in Westford, Massachusetts, which has been held by the Westford Office
Venture for 10 years, for sale in 1999 or 2000.
After acquisition, the Partnership's properties experienced a decrease
in market value due to a substantial weakening of the markets for commercial
real estate where these properties are located and United States real estate
markets in general. Although the markets in which these properties operate and
real estate markets in general have improved from the bottom of the cycle which
occurred after their acquisition by the Partnership, these markets have proven
to be volatile over time. Furthermore, it is an optimal time-frame for the sale
of the Partnership's properties because (1) the operations of all the properties
are relatively stable; (2) the real estate capital markets are active; (3)
Woodlands Tech Center has relatively low leasing risk in the near term; (4)
because there are currently several high-end properties in Overlook's submarket
which are in lease-up and whose effective rents are comparable to Overlook's and
additional construction around Overlook is planned, the market is which Overlook
operates is becoming saturated and therefore, offers little opportunity for
value gain and the potential for a decline in value; (5) Piedmont Shopping
Center has been previously identified as a sale candidate due to its location
and the potential weakness of its anchor tenant (K-Mart
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credit); and (6) because the Westford Corporate Center has two tenants, each
accounting for fifty percent of the space, and the leases of both tenants expire
at the same time in 1999, the property would have to be held until the current
tenants renew or new leases are signed to realize the maximum value of this
property. While the Partnership anticipates that it would be able to find
tenants to lease the space in the Westford Corporate Center given the present
state of the market, there is a risk that it would take time and/or an
investment in improvements in order to do so. As previously discussed in the
Partnership's 10-K, if the Westford Corporate Center is not sold at this time,
it will mostly likely have to be held by the Westford Office Venture until after
1999 or 2000 at which time new leases for this property are expected to be
obtained. In addition, the owner of an adjacent parcel, formerly occupied by a
gas station, has requested permission from the Partnership to permit to access
the property to install up to three shallow monitoring wells to collect
groudwater samples to determine whether contamination has occurred from the
migration of gasoline spilled on the adjacent parcel.
LIQUIDATION OF PARTNERSHIP; DISTRIBUTION OF PROCEEDS
The General Partner estimates that the net proceeds from the Sale
(after deduction of estimated expenses of the Sale in a maximum amount of
$70,000) when added to the net cash from the sale of the remaining assets of the
Partnership to the General Partner in an estimated minimum amount of
approximately $405,000 (based on the Partnership's financial statements set
forth in the Partnership's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996, excluding CGEP's interest in the Westford Office Venture;
there has been no material change in the financial condition of the Partnership
since September 30, 1996), will be approximately $29,980,000 or an average
amount of $150 per Unit. This amount was determined by adding the net proceeds
of the Sale together with the net cash of the sale of the remaining assets of
the Partnership and dividing this amount by the number of issued and outstanding
Units.
The actual amount distributed per Unit may vary from one Unitholder to
another depending on the date of the Unitholder's admission to the Partnership.
The date of admission to the Partnership may cause the actual amounts
distributed per Unit to vary among Unitholders because there are two types of
Unitholders, taxable and non-taxable, and because taxable and non-taxable
Unitholders with different admission dates will have different capital account
balances. During the Partnership's offering period limited partners were
admitted to the Partnership from time to time on a monthly basis. During this
period, cash distributions were made and income and loss were allocated to
limited partner's capital accounts beginning as of their respective admission
dates. In general, taxable Unitholders were allocated all
-14-
depreciation deductions, reducing their respective capital account balances at a
faster rate than nontaxable Unitholders. In addition, the earlier a limited
partner was admitted to the Partnership, the lower the amount of the liquidation
distribution will be because such limited partner's capital account balance will
have been reduced by more cash distributions and loss allocations for taxable
Unitholders (different distribution amounts were not fully offset by
corresponding income allocations for nontaxable Unitholders) and therefore will
be lower than the capital accounts of limited partners admitted at later dates.
For example, for a taxable limited partner admitted on April 1, 1986, the
earliest possible admission date, the minimum amount of the distribution will be
approximately $150, whereas for a taxable limited partner admitted on December
1, 1987, the latest possible admission date, the maximum amount of the
distribution will be approximately $171. For a nontaxable limited partner
admitted on April 1, 1986, the minimum amount of the distribution will be $149,
whereas for a nontaxable limited partner admitted on December 1, 1987, the
maximum amount of the distribution will be approximately $155.
Any remaining accounts receivable and accounts payable of the
Partnership relating to the Purchased Assets after the Sale will be transferred
as of the Closing Date to the General Partner for an amount equal to the face
value of such accounts receivable less the amount of such accounts payable being
assumed by the General Partner.
The Partnership intends to liquidate within sixty (60) days after the
consummation of the Sale and distribute the net proceeds of the Sale , along
with the net cash value of the remaining assets of the Partnership to the
Unitholders. There can be no assurances, however, that the liquidation of the
Partnership will take place within the estimated time frame. It is possible that
it will take more time than was initially estimated to wind up the affairs of
the Partnership and dissolve, but it is the Partnership's intention to do so
within the sixty-day period or soon thereafter.
After the Closing and pending the distribution to Unitholders, the
proceeds of the Sale will be held by the Partnership in short-term,
interest-bearing liquid investments. The Partnership has an investment account
with Fleet Bank, pursuant to which Fleet Bank in its discretion invests the
Partnership's funds on a daily basis in repurchase agreements.
General Partner Recommendation
On January 24, 1997, the Board of Directors of the General Partner
unanimously approved the Sale to the Purchaser pursuant to the Purchase
Agreement and the Liquidation, and directed that the Sale and the Liquidation be
submitted to the Partnership's Unitholders for consent with the recommendation
that Unitholders consent. The principal factors taken into consideration by the
Board in approving the Sale and the Liquidation and in recommending that
Unitholders consent thereto was that the Board concluded that the purchase price
-15-
was a fair price to the Partnership and that it was an optimal time frame to
sell all of the Purchased Assets .
The Board concluded it was a fair price based on a number of factors.
First, the purchase price was arrived at by arm's length negotiations, during
the course of which the Purchaser agreed to increase the price from $28,000,000
for all of the Partnership's assets and liabilities to $29,650,000 for only the
Partnership's real estate assets (the Partnership's non-real estate assets,
including accounts receivable and cash and cash equivalents on hand, will be
liquidated and the proceeds distributed to Unitholders). Second, in addition to
paying the increased purchase price, the Purchaser agreed to pay Koll's
brokerage fee of approximately $495,263 and to assume all closing costs, except
for the Partnership's legal fees and expenses which are estimated at a maximum
amount of $70,000. Third, because the Purchaser's obligation to purchase under
the Purchase Agreement is subject to fewer conditions than is often the case,
the General Partner believes that it is far less likely that the Sale would not
be consummated than is often the case. For example, the Sale is not subject to
conditions such as an environmental review of the properties, or the ability of
the Purchaser to obtain satisfactory financing. Fourth, the purchase price
represents a high percentage of market value (as determined by CII). Finally,
the sale of all of the Partnership's properties at one time reduces transaction
costs and administrative expenses, as well as future market risks. Although the
sale of all of the Partnership's properties at one time reduces transaction
costs, it is possible that if the properties were sold on an individual basis,
the Partnership could realize a higher or lower return.
The timing of the Sale is advantageous, the Board concluded, because
(1) the markets in which the Partnership's properties operate have recovered
substantially from the bottom of the cycle which occurred after their
acquisition by the Partnership; (2) all of the Partnership's properties have
relatively stable operations; (3) real estate capital markets are active; (4)
Woodlands Tech Center has relatively low leasing risk in the near term, and the
Partnership had previously identified this property for a possible sale in 1997;
(5) because there are currently several high-end properties in Overlook's
submarket which are in lease-up and whose effective rents are comparable to
Overlook's and additional construction around Overlook is planned, the market in
which Overlook operates is becoming saturated and therefore, offers little
opportunity for value gain and the potential for a decline in value; (6)
Piedmont Shopping Center has been previously identified as a sale candidate due
to its location and the potential weakness of its anchor tenant (K-Mart credit);
(7) as previously noted in the Partnership's 10-K, if the Westford Corporate
Center is not sold at this time, such property would most likely have to be held
by the Westford Office Venture until after 1999 or 2000 at which time new leases
for this property are expected to be obtained; and (8) the sale of all of the
Partnership's properties is within the original projected ownership time-frame
of the Partnership.
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For the foregoing reasons, the General Partner of the Partnership has
approved the Sale and the Liquidation and recommends that Unitholders consent to
the Sale, the Purchase Agreement and the subsequent Liquidation.
ACCOUNTING TREATMENT
The transactions contemplated by the Purchase Agreement will be
accounted for as a sale of assets. The Partnership estimates that the Sale of
the Purchased Assets will result in a tax loss of approximately $4,000,000 to
the Partnership or approximately $82 of loss per $250 Unit for nontaxable
Unitholders and $65 of income per $250 Unit for taxable Unitholders.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax
consequences arising from the consummation of the Sale and Liquidation. This
summary is based on the Internal Revenue Code of 1986, as amended (the "Code"),
applicable Treasury regulations thereunder, administrative rulings, and judicial
authority, all as of the date of this Statement. All of the foregoing are
subject to change, and any such change could affect the continuing accuracy of
this summary. Due to the complexity of the tax issues involved, this summary
does not discuss all aspects of federal income taxation that may be relevant to
a particular Unitholder in light of such Unitholder's specific circumstances or
to certain types of Unitholders subject to special treatment under the federal
income tax laws, such as foreign persons, dealers in securities, banks,
insurance companies and tax-exempt entities, nor does it describe any aspects of
state, local, foreign or other tax laws. UNITHOLDERS SHOULD CONSULT THEIR
RESPECTIVE TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO EACH SUCH
UNITHOLDER OF THE SALE AND LIQUIDATION.
Under current federal income tax law, a partnership is not a taxable
entity and incurs no federal income tax liability. Instead, each partner is
required to take into account his, her or its allocable share of the
partnership's items of income, gain, loss, deduction and credit in computing
his, her or its own income tax liability. The distribution of cash by a
partnership generally is not a separate taxable event. The foregoing tax
treatment, however, depends entirely upon the Partnership's classification as a
partnership (rather than an association taxable as a corporation) for federal
income tax purposes. Although no independent investigation has been made for
this purpose, the summary herein assumes, and the General Partner believes, that
the Partnership has been and will continue to be properly classified as a
partnership for federal income tax purposes. Since its formation, the
Partnership has taken the federal income tax reporting position that it is a
partnership for federal income tax purposes.
-17-
Sale of Assets
The General Partner expects that the Sale will result in a net gain for
taxable Unitholders and a net loss for nontaxable Unitholders for federal income
tax purposes. The gain or loss from the Sale will be allocated among the
Unitholders in accordance with the Partnership Agreement and will increase or
decrease, respectively, each Unitholder's adjusted basis in its respective
Units. Because the Partnership uses an accrual-method of accounting, the
transfer of the Partnership's accounts receivable and accounts payable to the
General Partner in exchange for their "net cash value" (i.e., the excess of the
face amount of the accounts receivable over the face amount of the accounts
payable) should not have federal income tax consequences to the Unitholders
since the accounts receivable and accounts payable should already have been
taken into account for federal income tax purposes when they accrued.
The Purchased Assets are real property used in a trade or business. The
character of gain or loss from the sale or exchange of such property is governed
by Section 1231 of the Code ("Section 1231"). Gain or loss from the sale of
Section 1231 assets is generally treated as capital gain or ordinary loss. A
Unitholder's allocable share of the Section 1231 gain or loss will be combined
with any other Section 1231 gains or losses of such Unitholder, regardless of
whether such gains or losses relate to the Unitholder's investment in the
Partnership, for the taxable year of the Sale. If, after combining all of a
Unitholder's Section 1231 gains and losses from all activities and investments
in a taxable year, such Unitholder has a net Section 1231 gain, such gain
generally will be treated as a capital gain and can be reduced by capital losses
(if any) realized by a Unitholder from the sale of exchange of capital assets.
On the other hand, a net Section 1231 loss generally is treated as an ordinary
loss. In addition, a net Section 1231 gain (that would otherwise be treated as
capital gain) may be converted into ordinary income if, in any of the five
previous taxable years, a Unitholder had a net Section 1231 loss which was not
offset by a succeeding year's net Section 1231 gain. Thus, the tax treatment to
each Unitholder from the Sale will depend on the overall tax situation of each
such Unitholder.
Under Section 1250 of the Code (which deals with depreciation recapture
with respect to certain real property), a portion of the gain on the sale of
certain real property may also be characterized as ordinary income rather than
capital gain to the extent that depreciation deductions with respect to the real
property are required to be "recaptured," as discussed below in this paragraph.
In general, if real property is depreciated on an accelerated basis rather than
on a straight-line basis, the excess of accelerated depreciation over
straight-line depreciation as of the date of sale ("depreciation recapture
amount") will be treated as ordinary income in the year the property is sold.
However, if the real property is sold at a loss, such depreciation recapture is
not required. Except for the Overlook Apartments, the General Partner expects
the sale of each of the Purchased Assets to result in a loss. As a result, it
expects there will be no depreciation recapture with respect to those
properties. Furthermore, although the Overlook Apartments will be sold at a
gain, it was depreciated on a straight-line basis. Therefore, there will be no
depreciation recapture with respect to that property.
-18-
Section 469 of the Code provides special rules for the treatment of
income and loss realized by individuals, trusts, estates and certain
corporations from "passive activities." A passive activity, for these purposes,
generally includes any rental activity. Therefore, a Unitholder's distributive
share of Partnership income or loss is generally treated as income or loss from
a passive activity. Losses from passive activities, to the extent they exceed
income from all such activities (exclusive of interest, dividends, royalties and
similar items, which are referred to as "portfolio income"), generally may not
be deducted against other income of the taxpayer, including wages, active
business income and portfolio income. Such losses, referred to as "suspended
losses," are carried forward and treated as deductions from passive activities
in later taxable years. However, if a taxpayer disposes of its entire interest
in a passive activity in a fully taxable transaction (i.e., in which all
realized gains and losses are recognized) during the taxable year, any suspended
losses may be used to offset both passive and nonpassive income. The
Partnership's sale of all its assets and subsequent liquidation and distribution
of available cash to the Unitholders generally will constitute a complete
disposition by a Unitholder of its interest in the Partnership. As a result, the
excess of (x) the sum of any loss from the Partnership for the taxable year in
which the Sale occurs, suspended losses carried over from prior years and any
loss realized on the Sale, over (y) net income or gain for such taxable year
from any other passive activities of the Unitholder will not be treated as a
loss from a passive activity. Thus, any loss reportable by a Unitholder as a
result of the transactions contemplated herein and any suspended losses, if any,
from prior taxable years attributable to the Partnership can be used by a
Unitholder to offset passive and nonpassive income.
Distributions of Cash in Liquidation
Except as discussed below, a distribution of cash by the Partnership to
the Unitholders would not be a separate taxable event.
Upon the distribution of cash by the Partnership pursuant to the
Liquidation, a Unitholder will recognize additional gain to the extent that the
sum of the cash received is greater than the adjusted tax basis in its Units. To
the extent that the sum of the cash so received is less than a Unitholder's
adjusted tax basis in its Units, a Unitholder will recognize additional loss.
The Partnership has no Partnership nonrecourse liabilities, a reduction in which
would otherwise be treated as the payment of additional cash. In general, a
Unitholder's basis in its Units is equal to the amount of cash contributed by
the Unitholder to the Partnership or the amount paid by the Unitholder for Units
if purchased other than from the Partnership, (a) increased by income and gain
allocated to such Units and by the Unitholder's proportionate share of
Partnership liabilities and (b) decreased by losses allocated and distributions
made with respect to such Units. For this purpose, a Unitholder's adjusted basis
in Units would be increased by its share of any gain, and reduced by its share
of any loss, recognized upon the disposition of the Partnership's assets. Gain
or loss recognized by a Unitholder from distributions in liquidation of the
Partnership generally will be characterized as capital gain or loss. Such
capital gain or loss will be long-term if the Unitholder's holding period for
its Units is more than one year. In addition, capital losses can be used by a
Unitholder to reduce net Section 1231 gains that have not otherwise been
recharacterized as
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ordinary income and net capital gains from all other sources that are realized
in the taxable year.
Characterization of Transaction as a Sale by Unitholders of their Units
It is possible that the Internal Revenue Service (the "IRS") will
challenge the federal income tax treatment of the transaction as discussed above
under "Sale of Assets" and "Distributions of Cash in Liquidation." In some
cases, the courts have held that a partnership's sale of its assets as a "going
concern" or an "ongoing business" should be treated as a sale of the partners'
interest in the partnership. However, it is not clear for this purpose what
constitutes a "going concern" or an "ongoing business," particularly in
situations in which the partnership does not sell all of its assets. A sale of a
partner's interest in a partnership is generally treated as a sale of a capital
asset with gain or loss thereon characterized as capital gain or capital loss.
If the IRS were to assert that the Sale and Liquidation constituted a sale by
the Unitholders of their Units, and a court were to uphold such determination,
any loss realized by a Unitholder on such sale would be a capital loss, and
would only be available to offset capital gain and, in the case of non-corporate
Unitholders, $3,000 of ordinary income. Subject to certain limitations, excess
capital losses can be used to offset capital gain and ordinary income in other
taxable years. For federal income tax purposes, the General Partner intends to
report the Sale and Liquidation as a sale of the Partnership's assets followed
by a distribution of the cash proceeds in liquidation of the Partnership. There
can be, however, no assurance that this treatment will not be challenged by the
IRS, and if so challenged, that this treatment would prevail before a court.
SELECTED FINANCIAL DATA
The following selected historical financial data for the Partnership
for each of the years in the five year period ended December 31, 1995, have been
derived from the Partnership's financial statements, which have been audited by
Price Waterhouse LLP, independent accountants. The data for the quarters ended
September 30, 1995, and September 30, 1996 have been derived from unaudited
financial statements appearing in the Partnership's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996, and which, in the opinion of the
General Partner, includes all adjustments, consisting only of normal
adjustments, necessary for the fair statement of the results for the unaudited
periods. The selected financial data are qualified in their entirety by and
should be read in conjunction with the Partnership's financial statements and
related notes appearing in the Partnership's 10-K, and in the Partnership's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.
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Quarter Ended Fiscal Year Ended December 31 (a)
------------- ---------------------------------
September September
30, 1996 30, 1995 1995 1994 1993 1992 1991
Total assets (b) $33,126,607 $34,401,342 $31,201,168 $32,525,759 $35,176,295 $44,162,951
$33,782,661
Total income(b) 4,100,505 4,289,815 5,174,279 5,019,967 4,289,754 3,462,774 3,102,718
Net income (loss)
(c) 1,112,466 1,296,857 1,702,991 1,244,897 954,378 (6,219,956) (99,127)
Net income (loss)
per Unit (c) 5.51 6.42 8.43 6.16 4.72 (30.79) (0.49)
Cash distributions to
limited partners (d)
624,000 750,000 3,090,000 2,472,000 2,400,000 2,562,000 1,248,000
Cash distributions
per Unit (d) 3.12 3.75 15.45 12.36 12.00 12.81 6.24
(a) Reference is made to Notes to Financial Statements in the Partnership's
10-K for a description of payments to the State of Connecticut on behalf
of limited partners. These payments are charged to limited partners
capital accounts and have not been included as part of the above
presentation.
(b) Total assets excludes the Partnership's equity investment in the joint
venture and total income excludes the Partnership's share of income from
the joint venture. See the Notes to Financial Statements in the
Partnership's 10-K for a description of the joint venture.
(c) Includes losses due to impairment of assets of $280,000 ($1.39 per Unit)
in 1994 and $6,408,960 ($31.72 per Unit) in 1992, net of the venture
partner's share.
(d) Quarterly distributions are paid 45 days following the end of the calendar
quarter.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Outstanding Voting Securities; Record Date
As of the Record Date, there 199,992 whole Units and 8 fractional Units
outstanding, which represent all of the voting securities of the Partnership.
Each whole Unit is entitled to one vote, and each fractional Unit is entitled to
a proportional vote equal to the fractional interest. Only Unitholders of record
as of the Record Date, will be entitled to notice of and to execute and deliver
a Consent Form.
Security Ownership of Certain
Beneficial Owners and Management
The following table sets forth, as of the Record Date, the beneficial
ownership of Units of the Partnership and the shares of common stock of CIGNA
Corporation, the indirect parent
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corporation of the General Partner, of the individual directors and officers of
the General Partner, and all of the directors and officers as a group.
CIGNA
Units Shares
Beneficially Beneficially Percent
Name and Address Owned (a) Owned (b) of Class
R. Bruce Albro (c) 0 9,192 *
900 Cottage Grove Road
Hartford, Connecticut 06152
Philip J. Ward (d) 0 12,683 *
900 Cottage Grove Road
Hartford, Connecticut 06152
David C. Scheinerman (e) 0 2,152.846 *
900 Cottage Grove Road
Hartford, Connecticut 06152
John D. Carey (f) 0 154 *
900 Cottage Grove Road
Hartford, Connecticut 06152
Verne E. Blodgett (f) 0 1,015 *
900 Cottage Grove Road
Hartford, Connecticut 06152
Joseph W. Springman (g) 0 3,484 *
900 Cottage Grove Road
Hartford, Connecticut 06152
David C. Kopp (f) 0 1,115 *
900 Cottage Grove Road
Hartford, Connecticut 06152
Kenneth Garrett (f) 0 100 *
900 Cottage Grove Road
Hartford, Connecticut 06152
Josephine Donofrio 0 0 *
900 Cottage Grove Road
Hartford, Connecticut 06152
-22-
All directors and
officers group (9)(h) 0 29,895.846
*
* Less than 1% of class
(a) No officer or director of the General Partner possesses a right to acquire
beneficial ownership of additional Units of interest of the Partnership.
(b) The directors and officers have sole voting and investment power over all
the shares of CIGNA common stock they own beneficially.
(c) Shares beneficially owned includes options to acquire 6,056 shares and
1,318 shares which are restricted as to disposition.
(d) Shares beneficially owned includes options to acquire 4,630 shares and
1,645 shares which are restricted as to disposition.
(e) Shares beneficially owned includes options to acquire 345 shares and 1,599
shares which are restricted as to disposition.
(f) Shares beneficially owned are restricted as to disposition.
(g) Shares beneficially owned includes options to acquire 1,035 shares and
1,660 shares which are restricted as to disposition.
(h) Shares beneficially owned by directors and officers include 12,066 shares
of CIGNA common stock which may be acquired upon exercise of stock options
and 8,606 shares which are restricted as to disposition.
There are no Unitholders holding five percent (5%) or more of the
Partnership's issued and outstanding Units. None of the Partnership, CGEP, the
General Partner, the general partner of CGEP, nor any of the officers and
directors of the General Partner have any relationship with the Purchaser.
MARKET FOR UNITS; DISTRIBUTIONS
There is no established public trading market for the Units.
The Partnership declared quarterly cash distributions to Unitholders for
1991 through the third quarter of 1996 as set forth in the following table:
-23-
Cash Distribution Per Unit
Qtr. Date Paid(a) 1996 1995 1994 1993 1992 1991
- ---- ------------ ---- ---- ---- ---- ---- ----
1st May 15 $ 3.42 $ 3.45 $ 3.12 $ 2.25 $ 3.75 $ 1.56
2nd August 15 3.42 3.75 3.12 3.00 3.75 1.56
3rd November 15 3.12 3.75 3.12 3.00 3.75 1.56
4th February 15 N/A 3.75 4.50 3.00 3.75 1.56
---- ---- ----- ------ ------ ------
$ 9.96 $14.70 $13.86 $11.25 $15.00 $ 6.24
(a) Quarterly distributions are paid 45 days following the end of the calendar quarter.
OTHER MATTERS
There are no other matters other than as set forth in this
Statement for which Consent Forms are being solicited.
-24-
INCORPORATION BY REFERENCE
The following documents, which have been previously filed by
the Partnership with the Securities and Exchange Commission, are hereby
incorporated herein by reference:
(1) The Partnership's 10-K;
(2) The information set forth in Part 1 of the Partnership's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996; and
(3) All other reports filed pursuant to Sections 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended, since the end of the
fiscal year covered by the Annual Report referred to in (1) above.
Pursuant to the regulations of the Securities and Exchange
Commission, the Partnership will provide to each Unitholder of record on the
Record Date, without charge and upon written or oral request of such person,
copies all reports (excluding exhibits) filed pursuant to Sections 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended, since the end of the
fiscal year covered by the Annual Report in (1) above.
A copy of the Partnership's 10-K, and a copy of the
Partnership's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, are being sent to Unitholders concurrently with this Statement.
CIGNA INCOME REALTY-I LIMITED
PARTNERSHIP
By: CIGNA Realty
Resources, Inc.-Tenth, General Partner
By:
-----------------------------------
John D. Carey, President
March __, 1997
-25-
CIGNA INCOME REALTY-I
LIMITED PARTNERSHIP
CONSENT FORM REGARDING SALE OF ASSETS, PURCHASE AGREEMENT AND
LIQUIDATION
The undersigned, a holder of units ("Units") of limited partnership
interests in CIGNA Income Realty-I Limited Partnership (the "Partnership"),
hereby
o CONSENTS o DOES NOT CONSENT o ABSTAINS
(i) to the sale of all of the real estate assets of the Partnership (the "Sale")
pursuant to an Agreement of Purchase and Sale dated as of January 10, 1997,
between the Partnership, Westford Office Venture, Connecticut General Equity
Properties-I Limited Partnership, and Glenborough Properties, L.P. (the
"Purchase Agreement"), (ii) the Purchase Agreement, and (iii) the dissolution
and liquidation of the Partnership (the "Liquidation") as described in the
Partnership's Consent Solicitation Statement dated March __, 1997 (the
"Solicitation Statement"). The units represented by this Consent will be voted
in accordance with the election specified by the holder named below. If no
election is specified, any otherwise properly completed and signed consent form
will be deemed to be a consent to each of the Sale, the Purchase Agreement and
the Liquidation. By execution hereof, the undersigned acknowledges receipt of
the Solicitation Statement.
This Consent is solicited by the General Partner on behalf of the
Partnership.
The Partnership reserves the right to waive any conditions to, or
modify the terms of, the Solicitation (as defined in the Solicitation
Statement).
A Consent Form given, if effective, will be binding upon the holder of
the Units who gives such Consent Form and upon any subsequent transferees of
such Units, subject only to revocation by the delivery of a written notice of
revocation by the Unitholder, executed and filed in the manner and within the
time period described in the Solicitation Statement.
In order to count, this Consent Form must be received by the
Partnership prior to 5:00 p.m., Eastern Standard Time, on April __, 1997.
This fully completed and executed consent form should be sent by mail
in the self-addressed, postage-paid envelope enclosed for that purpose, or by
overnight courier, or by facsimile, to the Partnership, as follows:
If delivered by mail or by courier, to: If delivered by telecopier, to:
CIR CIR
900 Cottage Grove Road, S-313 Facsimile Number: (860) 726-4166
Hartford, Connecticut 06152-2313 Telephone Number: (800) 255-5876
THIS CONSENT FORM CONTINUES AND
MUST BE SIGNED ON THE SECOND PAGE
-1-
CIGNA INCOME REALTY-I
LIMITED PARTNERSHIP
Please sign your name below exactly in the same manner as the name(s)
in which ownership of the Units is registered. When Units are held by two or
more joint holders, all such holders should sign. When signing as
attorney-in-fact, executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate name by the
President or other authorized officer. If a partnership, please sign in
partnership name by an authorized person.
Date: _____________, 1997
Signature
Name (Please Print)
Signature if held jointly
Name (Please Print)
-2-
Annex 1
AGREEMENT OF PURCHASE AND SALE
BETWEEN
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
AND
CONNECTICUT GENERAL EQUITY PROPERTIES-I
LIMITED PARTNERSHIP
AND
WESTFORD OFFICE VENTURE,
AS SELLERS,
AND
GLENBOROUGH PROPERTIES, L.P.,
AS PURCHASER
==============================================================================
## NY28/MCKEJ/75515.21
TABLE OF CONTENTS
Page
1. Property...................................................................................... 1
2. Purchase Price and Deposits................................................................... 2
3. Failure to Close.............................................................................. 3
4. Closing and Transfer of Title................................................................. 3
4.1 Closing.............................................................................. 3
4.2 Closing Procedure.................................................................... 4
4.3 Purchaser's Performance.............................................................. 6
4.4 Evidence of Authority; Miscellaneous................................................. 6
5. Prorations of Rents, Taxes, etc............................................................... 7
6. Purchaser Inspections, Contingencies, and Elections........................................... 9
6.1 Document Inspection.................................................................. 9
6.2 Physical Inspection.................................................................. 10
6.3 Survey Contingency................................................................... 11
6.4 Title Contingency.................................................................... 11
6.5 Election With Respect to Contracts and Agreements.................................... 13
7. Loss due to Casualty or Condemnation.......................................................... 13
7.1 Loss Due to Condemnation............................................................. 13
7.2 Loss Due to Casualty................................................................. 14
8. Operation of the Property..................................................................... 14
9. Broker........................................................................................ 15
10. Representations and Warranties................................................................ 16
10.1 Limitations on Representations and Warranties........................................ 16
10.2 Representations and Warranties....................................................... 16
10.3 Seller's Knowledge................................................................... 19
10.4 Survival............................................................................. 20
11. Indemnification............................................................................... 20
11.1 The Sellers' Indemnification......................................................... 20
11.2 Purchaser's Indemnification.......................................................... 21
12. Assignment.................................................................................... 22
13. Notices....................................................................................... 22
i
## NY28/MCKEJ/75515.21
14. Expenses...................................................................................... 23
15. Miscellaneous................................................................................. 24
15.1 Successors and Assigns............................................................... 24
15.2 Gender............................................................................... 24
15.3 Captions............................................................................. 24
15.4 Construction......................................................................... 24
15.5 Entire Agreement..................................................................... 24
15.6 Recording............................................................................ 24
15.7 No Continuance....................................................................... 24
15.8 Time of Essence...................................................................... 25
15.9 Original Document.................................................................... 25
15.10 Governing Law........................................................................ 25
15.11 Acceptance of Offer.................................................................. 25
15.12 Confidentiality...................................................................... 25
15.13 Surviving Covenants.................................................................. 25
15.14 Approval............................................................................. 26
ii
## NY28/MCKEJ/75515.21
AGREEMENT OF PURCHASE AND SALE
THIS AGREEMENT OF PURCHASE AND SALE is made by and between CIGNA
INCOME REALTY-I LIMITED PARTNERSHIP, a Delaware limited partnership ("CIR"),
CONNECTICUT GENERAL EQUITY PROPERTIES-I LIMITED PARTNERSHIP, a Connecticut
limited partnership ("CGEP"), and WESTFORD OFFICE VENTURE, a Connecticut general
partnership ("WOV") (each, individually a "Seller," and collectively, the
"Sellers"), and GLENBOROUGH PROPERTIES, L.P., a California limited partnership
("Purchaser"), as of the "Effective Date" (as defined below).
1. PROPERTY
Each Seller hereby agrees to sell, and Purchaser hereby agrees to buy,
all of the following property: (a) the real property described in Schedule 1.1
hereto and indicated on said Schedule 1.1 as being sold by such Seller, together
with all and singular easements, covenants, agreements, rights, privileges,
tenements, hereditaments and appurtenances thereunto now or hereafter belonging
or appertaining thereto (each, a "Land Parcel," and collectively, the "Land");
(b) any and all buildings (collectively, the "Buildings") and other improvements
of every kind located in, on and over each Land Parcel (with respect to a
particular Land Parcel, "Individual Improvements," and collectively, the
"Improvements"); (c) all tenant leases relating to each of the Individual
Improvements, being the leases referred to respectively on the Rent Rolls
attached hereto as Schedule 1.2 and all guarantees thereof, (each Land Parcel,
together with the Individual Improvements and the tenant leases related thereto,
is referred to herein as an "Individual Real Property"; all such Individual Real
Properties are referred to herein, collectively, as the "Real Property"); and
(d) all fixtures, equipment, and other personal property, both tangible and
intangible, including, but not limited to, the contracts listed in Schedule 1.3,
excluding only the leasing brokerage agreements, property management agreements
and other contracts that Purchaser elects to exclude by written notice to the
Sellers pursuant to Section 6.5 hereof, and the following items, to the extent
of the respective Seller's right, title and interest thereto, and to the extent
assignable by such Seller without obtaining the consent thereto by any
third-party: all general intangibles relating to design, development, operation,
management and use of each Individual Real Property, all certificates of
occupancy, zoning variances, building, use or other permits, approvals,
authorizations, licenses and consents obtained from any governmental authority
in connection with the development, use, operation or management of each
Individual Real Property, any telephone numbers and listings used in connection
with the operation of each Individual Real Property and the leasing thereof,
goodwill in connection with each Individual Real Property, any data concerning
tenants of each Individual Real Property to the extent related to the Real
Property, all soils tests, engineering reports, architectural drawings, plans
and specifications relating to all or any portion of each Individual Real
Property, all payment and performance bonds or warranties or guarantees relating
to each Individual Real Property, trade names, fictitious business names, and
other source and business identifiers, including, but not limited to, the names
set forth on Schedule 1.4 hereto, owned by each Seller and contained in or
related to any of the
Individual Improvements being sold by such Seller (with respect to an Individual
Real Property, "Individual Personal Property," and collectively, the "Personal
Property") (collectively, an Individual Real Property and the Individual
Personal Property related thereto are sometimes referred to herein as an
"Individual Property;" collectively, the Real Property and the Personal Property
are sometimes referred to herein as the "Property").
It shall be a condition to Purchaser's obligation hereunder to purchase any
Individual Property that each Seller shall consummate the Closing with respect
to all of its Individual Properties.
2. PURCHASE PRICE AND DEPOSITS
The purchase price which the Purchaser agrees to pay and the Sellers
agree to accept for the Property shall be the sum of Forty-Four Million Two
Hundred Four Thousand Dollars ($44,204,000) (hereinafter referred to as the
'Purchase Price"), subject to adjustment as provided in Section 5 hereof,
payable as follows:
(a) An earnest money deposit (the "Deposit") of Four Hundred Forty-Two
Thousand Forty Dollars ($442,040), in cash, to be deposited by Purchaser with
Chicago Title Company at its office located at 700 South Flower Street, Suite
900, Los Angeles, California 90017 (the "Escrow Holder"), upon delivery of three
(3) executed copies of this Agreement to Escrow Holder, such amount to be held
in escrow by Escrow Holder, and deposited in an interest-bearing account; and
(b) The balance of the Purchase Price shall be paid at time of Closing
by wire transfer of immediately available Federal funds through the Escrow
Holder, with the transfer of funds to the Sellers to be completed on the day of
the Closing.
Schedule 2.1 hereto indicates the portion of the Purchase Price
allocated to each Individual Property (each, an "Allocated Portion of the
Purchase Price"); provided, however, that such allocation is intended solely for
the purposes of Paragraphs 6.4, 7.1 and 7.2 hereof and Exhibit A-3 hereto, and
shall not be binding on the parties for any other purpose whatsoever.
The Deposit and all interest earned thereon shall be paid to the
Sellers at the Closing as a credit against the Purchase Price. Purchaser shall
provide the Escrow Holder with its tax identification number, and all interest
shall be for Purchaser's account for tax purposes.
In addition to the Deposit, Purchaser shall deposit three (3) fully
executed copies of this Agreement with the Escrow Holder immediately after all
parties have executed it. The date of such deposit shall be acknowledged by the
Escrow Holder on all copies, and such date shall be the "Effective Date" of this
Agreement. The Escrow Holder shall retain one copy of this Agreement and deliver
one copy hereof to each of Purchaser and the Sellers.
3. FAILURE TO CLOSE
IF THE SELLERS HAVE COMPLIED WITH ALL OF THE COVENANTS AND CONDITIONS
CONTAINED HEREIN AND ARE READY, WILLING AND ABLE TO CONVEY THE PROPERTY IN
ACCORDANCE WITH THIS AGREEMENT AND PURCHASER FAILS TO CONSUMMATE THIS AGREEMENT
AND TAKE TITLE BY REASON OF A DEFAULT ON PURCHASER'S PART, THEN THE PARTIES
HERETO RECOGNIZE AND AGREE THAT THE DAMAGES THAT THE SELLERS WILL SUSTAIN AS A
RESULT THEREOF WILL BE SUBSTANTIAL, BUT DIFFICULT IF NOT IMPOSSIBLE TO
ASCERTAIN. THEREFORE, THE PARTIES AGREE THAT, IN THE EVENT OF PURCHASER'S
DEFAULT AS AFORESAID, THE SELLERS SHALL, AS THEIR SOLE REMEDY, (A) RETAIN THE
DEPOSIT PLUS INTEREST EARNED THEREON, AND (B) BE ENTITLED TO RECOVER FROM BUYER
CASH IN THE AMOUNT OF FOUR HUNDRED FORTY-TWO THOUSAND FORTY DOLLARS ($442,040),
AS LIQUIDATED DAMAGES, AND NO PARTY SHALL HAVE ANY FURTHER RIGHTS OR OBLIGATIONS
WITH RESPECT TO ANY OTHER UNDER THIS AGREEMENT, EXCEPT FOR THE SURVIVING
COVENANTS (HEREINAFTER DEFINED). THE SELLERS ACKNOWLEDGE AND AGREE THAT THE SUM
OF (A) THE DEPOSIT PLUS INTEREST EARNED THEREON, AND (B) $442,040, IS A
REASONABLE ESTIMATE OF AND BEARS A REASONABLE RELATIONSHIP TO THE DAMAGES THAT
WOULD BE SUFFERED AND COSTS INCURRED BY THE SELLERS AS A RESULT OF HAVING
WITHDRAWN THE PROPERTY FROM SALE AND THE FAILURE OF CLOSING TO OCCUR DUE TO A
DEFAULT BY PURCHASER UNDER THIS AGREEMENT AND (2) PURCHASER SEEKS TO LIMIT ITS
LIABILITY UNDER THIS AGREEMENT TO THE AMOUNT OF THE SUM OF (A) THE DEPOSIT PLUS
INTEREST EARNED THEREON, AND (B) $442,040, IN THE EVENT THIS AGREEMENT IS
TERMINATED AND THE TRANSACTION CONTEMPLATED BY THIS AGREEMENT DOES NOT CLOSE DUE
TO A DEFAULT BY PURCHASER HEREUNDER.
PURCHASER Sellers
Initials: __________ ___________
-----------
-----------
- -------------- --------------------- ---------------------
4. CLOSING AND TRANSFER OF TITLE
4.1 CLOSING
The parties hereto agree to conduct a closing of this sale (the "Closing")
at 8:00 A.M. P.S.T., on or before February 17, 1997; provided, however, that if
CIR and CGEP have not obtained the Limited Partner Approvals (as defined in
Paragraph 15.14) by February 10, 1997, then, subject to the provisions of
Paragraph 15.14, the date of the Closing shall be extended until the fifth (5th)
calendar day after such Limited Partner Approvals have been obtained (the
"Closing Date"), in the office of the Escrow Holder located at 700 South Flower
Street, Suite 900, Los Angeles 90017, or at such other place as may be agreed
upon by the parties hereto. This Agreement shall terminate if transfer of title
is not completed by the Closing Date (unless such failure to close is due to the
Sellers' default, the date for Closing is extended pursuant to any provision
hereof, including, without limitation, the matters described in Sections 6.3,
6.4, 6.5 and Section 7 hereof, or the date for Closing is extended by agreement
of the parties, which agreement shall be confirmed in writing).
4.2 CLOSING PROCEDURE
With respect to each Individual Property, the Seller that owns such
Individual Property shall execute and deliver or cause to be delivered either to
Escrow Holder or Purchaser on or before the Closing (or such earlier date as
specifically provided below for any particular item), each of the following
items:
(a) a deed, in the appropriate form attached hereto as Exhibit A-1
through A-4, depending on the state where the Individual Property is located,
duly acknowledged and proper for recording, conveying such Individual Property
to Purchaser, subject, however, to (i) (A) such easements, rights of way,
encumbrances, liens, covenants, restrictions, or other matters of record as
shall have been approved by Purchaser pursuant to Section 6.4, and (B) such
matters shown on the Survey (as defined in Section 6.3) of such Individual Real
Property as shall have been approved by Purchaser pursuant to Section 6.3, (ii)
taxes not yet due and payable, (iii) the rights of lessees and licensees of
space in the Individual Improvements included in such Individual Property at the
time of Closing (to the extent shown on the Rent Roll for such Individual
Improvements, which Rent Roll shall have been approved by Purchaser), and (iv)
any encumbrances created or permitted by the terms of this Agreement approved by
such Seller and Purchaser;
(b) a Bill of Sale in the form attached hereto as Exhibit B, dated as
of the date of Closing conveying to Purchaser any and all Individual Personal
Property pertaining to such Individual Real Property;
(c) an Assignment and Assumption of Leases in the form attached hereto
as Exhibit C dated the date of Closing, assigning all of the landlord's right,
title and interest in and to any tenant and other leases covering all or any
portion of such Individual Real Property;
(d) Tenant Notification Agreements (the "Tenant Notices"), dated the
date of the Closing of such Individual Property and complying with applicable
statutes in order to relieve such Seller of liability for tenant security
deposits (provided the security deposits are paid to Purchaser), notifying the
tenants of such Individual Real Property that such Individual Property has been
sold to Purchaser and directing the tenants to pay rentals to Purchaser (or
Purchaser's designated agent);
(e) the originals of all leases and such Seller's complete tenant
files with respect to current tenants of such Individual Real Property,
including all subleases, lease modifications, license agreements, tenant
improvement construction contracts, move-in leases, financial statements on all
tenants, credit reports on all tenants, names and phone numbers of tenant
contacts, and other correspondence with tenants, all to the extent in such
Seller's or its property manager's possession, all agreements for the payments
of any leasing commissions which have not been paid in full, and, to the extent
in such Seller's possession or under such Seller's control, as-built plans and
specifications, maintenance and service and any other contracts that are to be
assumed, and such Seller's complete files with respect to the maintenance of
such Individual Property, including correspondence with service providers to the
extent in such Seller's or its property manager's possession, all licenses,
permits and certificates of occupancy of such Individual Property or such
Individual Improvements to the extent the same are in such Seller's or its
property manager's possession or control;
(f) at least five (5) days prior to Closing, tenant estoppel
certificates on the form attached hereto as Exhibit D and consistent with the
information contained in the respective Rent Rolls, executed by such tenants of
such Individual Real Properties as are set forth on Schedule 4.1 attached
hereto;
(g) such Seller's certification as to those matters which would be
covered in a tenant estoppel certificate for any lease for which an estoppel
certificate is not obtained from a tenant prior to Closing;
(h) an updated Rent Roll for such Individual Real Property, in the
form of the Rent Rolls attached hereto as Schedule 1.2, dated within fifteen
(15) days of the date of the Closing;
(i) Federal and, to the extent applicable, State affidavits that
Seller in not a "foreign person" in the forms attached as Exhibit E-1 and E-2,
respectively;
(j) a master key or duplicate key for all locks in such Individual
Improvements;
(k) to the extent in the possession of such Seller or such Seller's
property management company, all maintenance records, all engineering records
and reports (e.g., soils, compaction, concrete tests, structural, mechanical
systems), and any environmental studies, sprinkler or other life safety system
reports or testing certifications with respect to such Individual Real Property;
(l) a list of the amount of all tenant security deposits;
(m) accounts receivable report as of a date no earlier than December
10, 1996;
(n) any letters of intent (executed or otherwise) with prospective
tenants;
(o) historical financials, including balance sheets and income
statements for prior three (3) years;
(p) year-to-date operating statements;
(q) to the extent in the possession of such Seller or such Seller's
property management company, copies of real estate tax bills (including special
assessments) for prior five (5) years, including evidence of payment;
(r) all site or plot plans for such Individual Real Property in the
possession of such Seller or its property manager;
(s) any unrecorded reciprocal easement agreements with respect to such
Individual Real Property in the possession of such Seller or its property
manager;
(t) to the extent in the possession of such Seller or such Seller's
property management company, any warranties or guaranties in effect with respect
to such Individual Real Property or any component thereof (e.g. roof, HVAC);
(u) to the extent in the possession of such Seller or such Seller's
property management company, copies of utility bills for the Property for the
past three (3) years;
(v) copies of all billings to tenants for the past three (3) years for
utilities, taxes, insurance and other CAM charges, together with the supporting
calculations of the same; and
(w) complete and correct copies of all consents described in Paragraph
10.2(e).
With respect to items (e), (j) and (m) through (w) listed above, each
Seller shall be deemed to have delivered such items to Purchaser with respect to
a particular Individual Property owned by such Seller when such Seller has
caused such items to be packaged and, after two (2) business days' written
notice to Purchaser, made available for Purchaser to pick up at the office of
the property manager for such Individual Property (which property manager shall
be identified by name and address in such written notice of such Seller).
Notwithstanding any of the foregoing, Purchaser agrees that with respect to the
Individual Real Property identified on Schedule 1.1 as Westford Corporate
Center, items (e), (j) and (m) through (w) shall be deemed timely delivered if
delivered to Purchaser within two (2) business days after the Closing.
4.3 PURCHASER'S PERFORMANCE
At the Closing, Purchaser will cause the Purchase Price to be
delivered to the Escrow Holder, will execute and deliver the Tenant Notices, the
Assignment and Assumption of Leases, and the Bill of Sale for each of the
Individual Properties.
4.4 EVIDENCE OF AUTHORITY; MISCELLANEOUS
Both parties will deliver to the Escrow Holder and each other such
evidence or documents as may reasonably be required by the Escrow Holder or any
hereto evidencing the power and authority of the Sellers and Purchaser and the
due authority of, and execution and
delivery by, any person or persons who are executing any of the documents
required hereunder in connection with the sale of the Property. Both parties
will execute and deliver such other documents as are reasonably required to
effect the intent of this Agreement.
5. PRORATIONS OF RENTS, TAXES, ETC.
Real estate taxes for the year of Closing and any bond or assessment
which is a lien against any Individual Real Property (or which is pending and
may become a lien against any Individual Real Property) shall be prorated as of
12:01 A.M. on Closing Date either using actual tax or assessment figures or, if
actual figures are not available, then using as a basis for said proration the
most recent assessed value of such Individual Real Property multiplied by the
current tax or assessment rate, with a subsequent cash adjustment to be made
between Purchaser and the respective Seller when actual tax or assessment
figures are available. Personal property taxes, annual permit, license or
inspection fees, sewer charges, amounts payable under any contract or agreement
that will be continued after the Closing, and other expenses normal to the
operation and maintenance of the Property shall also be prorated as of the date
of Closing. Rents that have been collected for the month of the Closing and for
subsequent months will be prorated at the Closing, effective as of the date of
the Closing. Such rents shall be deemed to include, without limitation,
percentage rents, escalation charges for real estate taxes, parking charges,
common area expenses, marketing fund charges, operating expenses, maintenance
escalation rents or charges, cost-of-living increases or other charges of a
similar nature, if any, and any additional charges and expenses payable under
tenant leases (whether such collection occurs prior to, on or after the date of
the Closing). After the Closing, Purchaser shall have the exclusive right to
enforce claims for rents and all other obligations due and owing under the
Leases and terminate any Leases as Purchaser, in its sole discretion, deems
appropriate. With regard to rents that are delinquent as of the date of the
Closing, (i) no proration will be made at the Closing, (ii) Purchaser will make
a good faith effort after the Closing to collect the rents in the usual course
of Purchaser's operation of the Property, and (iii) Purchaser will apply all
rents collected first to the current rents and the excess amount, if any, shall
be applied to the delinquent rent owed to the Sellers. It is agreed, however,
that Purchaser will not be obligated to institute any lawsuit or other
collection procedures or terminate any lease to collect delinquent rents. Rents
collected by Purchaser after the Closing Date, to which a Seller is entitled,
shall be promptly paid to such Seller. To the extent delinquent rents or other
amounts are collected by Purchaser, Purchaser may deduct from the amount owed to
the Sellers an amount equal to the out-of-pocket third-party collection costs
actually incurred by Purchaser in collecting such rents and other amounts. As of
the Closing Date, Purchaser shall be entitled to a credit for any tenant
deposits under the leases, and the Sellers shall retain the same. Final readings
on all gas, water and electric meters shall be made as of the date of Closing,
if possible. If final readings are not possible, gas, water and electricity
charges will be prorated based on the most recent period for which costs are
available. Any Seller that has made any deposits with utility companies shall be
entitled to seek a refund of such deposits and shall be solely responsible for
recovering the same. Purchaser shall be responsible for making all arrangements
for the continuation of utility services. After the Closing, Purchaser will
assume full responsibility for all security deposits and advance rental deposits
of current tenants of the Real Property currently held by the Sellers, which
items will be itemized by the Sellers and transferred and credited to Purchaser
at the Closing. At the Closing, the Sellers shall deliver to Purchaser all
letters of credit and other collateral given to any Seller or any of such
Seller's affiliates or predecessors-in-interest pursuant to any of the leases,
less any portions thereof applied in accordance with the respective lease
(together with a statement regarding such applications).
If any tenants for any Individual Real Property are required to pay
percentage rents, escalation charges for real estate taxes, parking charges,
marketing fund charges, operating expenses, maintenance escalation rents or
charges, cost-of-living increases or other charges of a similar nature
("Additional Rents") and such Additional Rents are not finally adjusted between
the landlord and tenant under any lease until after the Closing, then Purchaser
shall submit to the applicable Seller within sixty (60) days after such
Additional Rents are finally adjusted with any tenant, a supplemental statement
(the "Supplemental Statement") to the extent such Additional Rents have been
finally adjusted between Purchaser and such tenant, containing a calculation of
the prorations of such Additional Rents, prepared based on the principles set
forth in this Section 5, provided that in making such adjustment, (i) the
parties shall exclude any Additional Rents arising from increased real property
taxes for such Individual Real Property to the extent such increase is the
result of Purchaser's purchase of the Property, and (ii) no amount of Additional
Rent found to be owing to Purchaser from any tenant shall be offset against any
amount of Additional Rent found to be owed by Purchaser to any other tenant
unless such amount owed to Purchaser is actually collected by Purchaser. To the
extent the Supplemental Statement indicates that one party is entitled to any
amounts under this paragraph, the other party shall pay such sum to such party
within thirty (30) days after the delivery of the Supplemental Statement.
Notwithstanding anything to the contrary contained in this Section 5,
(i) if the amount of the real property taxes and assessments payable with
respect to any Individual Real Property for any period prior to Closing is
determined to be more than the amount of such real property taxes and
assessments that is prorated herein (in the case of the current year) or that
was paid by the applicable Seller (in the case of any prior year), due to a
reassessment of the value of such Individual Real Property or otherwise, such
Seller and Purchaser shall promptly adjust the proration of such real property
taxes and assessments after the determination of such amounts, and such Seller
shall pay to Purchaser any increase in the amount of such real property taxes
and assessments applicable to any period prior to Closing; provided, however,
that such Seller shall not be required to pay to Purchaser any portion of such
increase which is payable by tenants of such Individual Real Property under
their respective leases; and (ii) if the amount of the real property taxes and
assessments payable with respect to any Individual Real Property for any period
prior to Closing is determined to be less than the amount of such real property
taxes and assessments that is prorated herein (in the case of the current year)
or that was paid by the applicable Seller (in the case of any prior year), due
to an appeal of the taxes by such Seller, a reassessment of the value of such
Individual Real Property or otherwise, such Seller and Purchaser shall promptly
adjust the proration of such real property taxes and assessments after the
determination of such amounts, and (a) Purchaser shall pay to such Seller any
refund received by Purchaser representing such a decrease in the amount of such
real property taxes and assessments applicable to any period prior to Closing;
provided, however, that Purchaser shall not be required to pay to such Seller
any portion of such refund which is payable to tenants of such Individual Real
Property under their respective leases; and (b) Seller shall be entitled to
retain any refund received by such Seller representing such a decrease in the
amount of such real property taxes and assessments applicable to any period
prior to Closing; provided, however, that such Seller shall pay to Purchaser
that portion of any such refund that is payable to tenants of such Individual
Real Property under their respective leases.
A separate closing statement shall be prepared for each Individual
Property by Escrow Holder, and approved by Buyer and the respective Seller,
showing in detail the prorations for such Individual Property. All prorations
shall be based on a 365-day year.
6. PURCHASER INSPECTIONS, CONTINGENCIES, AND ELECTIONS
6.1 DOCUMENT INSPECTION
With respect to each Individual Real Property, the Seller that owns
such Individual Real Property shall deliver to Purchaser for Purchaser's review
the following items at the following times:
(a) promptly after the Effective Date, current operating and capital
budgets;
(b) promptly after the Effective Date, copies of all service,
maintenance, management or other operations contracts and copies of all
correspondence with such service providers, to the extent in such Seller's or
its property manager's possession;
(c) promptly after the Effective Date, a list of any tenants with rent
pre-paid more than 30 days in advance; and
(d) promptly after the Effective Date, the most recent leasing status
report from leasing broker, and monthly thereafter until the Closing, updated
versions of the same.
Purchaser acknowledges that before execution of this Agreement each
Seller has made available for Purchaser's review the standard lease form used by
such Seller with respect to its respective Individual Real Properties.
Purchaser agrees that if for any reason the Closing is not
consummated, Purchaser will immediately return to the Sellers all materials
furnished to Purchaser pursuant to this Section 6.1.
Purchaser acknowledges and agrees that notwithstanding the Sellers'
obligations under this Section 6.1 to make the items listed in this Section 6.1
available for Purchaser's inspection, such obligations of the Sellers do not
create any condition to Purchaser's obligations hereunder to purchase the
Property.
Purchaser shall have the right to inspect each Seller's files relating
to such Seller's Individual Real Properties before and after the Closing for
such period of time as is necessary for Purchaser to prepare an "8-K" filing and
an "8-K/A" filing relating to this transaction with the United States Securities
and Exchange Commission; provided, however, that such period of time shall not
extend beyond the ninetieth (90th) calendar day following the Closing. Each
Seller shall cooperate generally with Purchaser in preparing such "8-K" and
"8-K/A" filings; provided, however, that such cooperation of the Sellers shall
not be deemed to imply any representation or warranty by any Seller regarding
the adequacy or accuracy of any information included in such filings.
6.2 PHYSICAL INSPECTION
In addition to the items set forth in Section 6.1, the Sellers have
made, and prior to the Closing will continue to make, the Property available for
inspection by Purchaser and Purchaser shall, at Purchaser's risk, be entitled to
conduct an engineering and a Phase I environmental audit of each Individual Real
Property and in connection therewith, to undertake such physical inspection of
such Individual Real Property as Purchaser deems appropriate. Such inspection
shall be conducted at reasonable times upon reasonable oral or written notice to
the applicable Seller's property manager. Such Seller shall have the right to
designate a representative to accompany Purchaser's employees, agents, and
independent contractors on any such inspections. Notwithstanding any of the
foregoing, Purchaser shall not be entitled to conduct a Phase II environmental
audit of any Individual Property without the prior written consent of the
applicable Seller, which consent shall not be unreasonably withheld or delayed.
Consent to any Phase II environmental audit shall be expressly conditioned on
the applicable Seller's approval, not to be unreasonably withheld or delayed, of
(i) the person or persons proposed by Purchaser to perform such audit, and (ii)
the nature and extent of the actions to be taken in the performance of such
audit.
Purchaser hereby agrees to pay, protect, defend, indemnify and save
each Seller harmless against all liabilities, obligations, claims (including
mechanic's lien claims), damages, penalties, causes of action, judgments, costs
and expenses (including, without limitation, attorneys' fees and expenses)
imposed upon, incurred by or asserted against such Seller in connection with or
arising out of the entry upon any Individual Real Property by Purchaser's
employees, agents or independent contractors and the actions of such persons on
such Individual Real Property. In the event any part of any Individual Property
is damaged or excavated by Purchaser, its employees, agents or independent
contractors, Purchaser agrees in the event its purchase hereunder is not
consummated, to make such additional payments to the Seller that owns such
Individual Property as may be reasonably required to return such Individual
Property to its condition immediately prior to such damage or excavation or, at
such Seller's option, to cause such work reasonably required to return such
Individual Property to its condition immediately prior to such damage or
excavation to be done. Notwithstanding any provision to the contrary herein,
Purchaser's obligations under this subparagraph shall survive the expiration or
termination of this Agreement, and shall survive Closing.
Purchaser acknowledges and agrees that notwithstanding the Sellers'
obligations under this Section 6.2 to make the Property available for inspection
by Purchaser, such obligations of the Sellers do not create any condition to
Purchaser's obligations hereunder to purchase the Property.
6.3 SURVEY CONTINGENCY
Purchaser's obligation to purchase the Property is subject to its
review and approval, within the ten (10) day period provided below, of a current
survey of each Individual Real Property by a registered surveyor certified to
Purchaser (each, a "Survey," and collectively, the "Surveys"), which Surveys
Purchaser shall procure within thirty (30) days after the Effective Date, or as
soon thereafter as practicable. Each Survey shall show the location of all
improvements, structures, driveways, parking areas, easements, rights of way,
and any encroachments and shall specify whether the subject Individual Real
Property is within a 100- year flood plain or flood way, and shall contain a
certification of the surveyor satisfactory in form and substance to Purchaser.
Each Survey shall further set forth a legal description of the boundaries of the
subject Individual Real Property in accordance with local practices.
With respect to each Survey, Purchaser shall have until ten (10) days
after its receipt of each Survey and the related Title Report (as defined below)
and copies of all items and documents referred to therein for the applicable
Individual Property to approve or object in writing to such Survey, including
any objection to the boundaries set forth in such Survey and to the legal
description. Any such written notice shall state all of Purchaser's objections
with specificity. Upon receipt of such notice, the Seller that owns the subject
Individual Real Property may, but shall not be obligated to, cure such
objections. If such Seller cures such objections within 15 days, or, if such
objections are such that they cannot be cured within 15 days and such Seller has
commenced curing such objections and thereafter diligently proceeds to perfect
such cure (but in no event beyond 30 days unless agreed to by Purchaser), then
this Agreement shall continue in force and effect, and the Closing Date shall be
adjusted accordingly. If such Seller is unable to, or chooses not to, cure such
objections within the time permitted, this Agreement shall terminate, the
Sellers shall instruct the Escrow Holder to return the Deposit plus all interest
earned thereon to Purchaser, and no party shall have any further obligations
hereunder except for the Surviving Covenants. Notwithstanding the foregoing,
however, Purchaser may waive such objections that such Seller is unable to or
chooses not to cure, and upon receipt by such Seller of such waiver in full from
Purchaser within 10 days of notice from such Seller that it is unable or chooses
not to cure such objections, this Agreement shall remain in full force and
effect with no reduction in the Purchase Price.
If requested by the Sellers, Purchaser will confirm in writing whether
this survey contingency has been satisfied and, if so, the date on which it was
satisfied.
6.4 TITLE CONTINGENCY
Purchaser's obligation to purchase the Property is subject to its
approval, within the time period set forth below, with respect to each
Individual Real Property, of a preliminary title report for an A.L.T.A. Owner's
Title Insurance Policy (Form B, rev. 10/17/70) (each, individually, a "Title
Report," and collectively, the "Title Reports"), dated not earlier than December
1, 1996, issued by the Escrow Holder, and all items and documents referred to in
the Title Report. Purchaser shall procure each such Title Report and the items
and documents referred to therein within thirty (30) days after the Effective
Date, or as soon thereafter as practicable. Each Title Report will commit the
Escrow Holder to issue to Purchaser at the Closing an Owner's Title Policy (as
defined below) relating to the Individual Real Property that is the subject of
such Title Report, in the amount of the applicable Allocated Portion of the
Purchase Price. Upon receipt of each Title Report and accompanying documents by
Purchaser, Purchaser shall have until the date ten (10) days after receipt of
all such items and the related Survey to approve such Title Report or to state
any objections in writing. Such written notice of objection shall state all of
Purchaser's objections with specificity. Upon receipt of such notice, the Seller
that owns the subject Individual Real Property may, but shall not be obligated
to, cure such objection(s); provided that such Seller shall be obligated to
remove any monetary liens of an ascertainable amount other than any lien for
taxes or assessments which are not yet due and payable. If such Seller cures
such objections within 15 days, or, if such objections are such that they cannot
be cured within 15 days and such Seller has commenced curing such objections and
thereafter diligently proceeds to perfect such cure (but in no event beyond 30
days unless otherwise agreed to by Purchaser), then this Agreement shall
continue in full force and effect and the Closing Date shall be adjusted
accordingly. If such Seller is unable or chooses not to cure such objections
within the time permitted, then this Agreement shall terminate, the Sellers
shall instruct the Escrow Holder to return the Deposit plus all interest earned
thereon to Purchaser, and no party shall have any further obligations hereunder
except for the Surviving Covenants. Notwithstanding the foregoing, however,
Purchaser may waive such objections that such Seller is unable or chooses not to
cure within 10 days after receipt of a notice that such Seller is unable or
chooses not to cure such objections, and upon receipt by such Seller of such
waiver in full from Purchaser, this Agreement shall remain in full force and
effect with no reduction in the Purchase Price.
If requested by the Sellers, Purchaser will confirm in writing whether
this title contingency has been satisfied and, if so, the date on which it was
satisfied.
As a condition precedent to Closing, the Escrow Holder shall deliver
to the Purchaser, for each Individual Real Property, an Owner's Title Insurance
Policy (each, an "Owner's Title Policy," and collectively, the "Owner's Title
Policies") dated no earlier than the date of the recording of the Deed conveying
the Individual Real Property insured by such Owner's Title Policy, in the full
amount of the applicable Allocated Portion of the Purchase Price, insuring that
good and indefeasible fee simple title to such Individual Real Property is
vested in Purchaser, together with such endorsements as shall be specified by
Purchaser in its
title approval notice given pursuant to this Section 6.4, and containing no
exceptions to such title other than the standard printed exceptions (provided,
however, that (i) the printed survey exception must be deleted, except for
matters shown on the applicable Survey and either approved by Purchaser or as to
which objection has been waived by Purchaser, (ii) the exception as to ad
valorem taxes shall be limited to taxes for the current and subsequent years,
(iii) there shall be no exception for creditors' rights, and (iv) the exception
for tenants and parties in possession shall be limited to the rights as tenants
only (with no options to purchase or rights of first refusal or first offer to
sell such Individual Real Property to such tenants) of those tenants, licensees,
and occupants shown on the applicable Rent Roll delivered at Closing), those
items listed on Schedule "B" of the applicable Title Report that either were
approved by Purchaser or as to which objection has been expressly waived by
Purchaser, and encumbrances created or permitted by the terms of this Agreement.
If the Escrow Holder cannot deliver the Owner's Title Policies to Purchaser as
described herein, this Agreement shall terminate, the Sellers shall instruct the
Escrow Holder to return the Deposit plus all interest earned thereon to
Purchaser, and no party shall have any further obligations hereunder except for
the Surviving Covenants, except to the extent Escrow Holder's inability to
deliver the Owner's Title Policies is due to any of the Sellers' failure to cure
any title objection which it has agreed to cure pursuant to this Section 6.4.
6.5 ELECTION WITH RESPECT TO CONTRACTS AND AGREEMENTS
The Sellers agree to terminate, effective on or before the day of
Closing, any and all leasing brokerage agreements and property management
agreements relating to the Real Property or any Individual Real Property. With
respect to contracts and agreements other than leasing brokerage agreements and
property management agreements, each Seller shall provide to Purchaser, within
ten (10) days after the Effective Date, with respect to each Individual Property
owned by such Seller, a list of such other contracts and agreements pertaining
to such Individual Real Property. Purchaser shall have fifteen (15) days after
receipt of all such lists to deliver written notice to the Sellers as to which,
if any, of the contracts and agreements described on such lists it elects to
assume, and which, if any, of such contracts and agreements it elects to reject.
7. LOSS DUE TO CASUALTY OR CONDEMNATION
7.1 LOSS DUE TO CONDEMNATION
In the event any condemnation is instituted or any Seller receives
written notice that any condemnation is threatened with respect to (i) all or a
Substantial Portion (as hereinafter defined) of any Individual Real Property
which condemnation shall or would render a Substantial Portion of such
Individual Real Property untenantable, or (ii) any portion of the parking area
of any Individual Real Property, such Seller shall give Purchaser prompt notice
of the same, and Purchaser may, upon written notice to such Seller given within
10 days of receipt of notice of such event, cancel this Agreement, in which
event this Agreement shall terminate, the Sellers shall instruct the Escrow
Holder to return the Deposit plus all interest earned thereon to Purchaser, and
no party shall have any rights or obligations hereunder except for the Surviving
Covenants. In the event that Purchaser does not elect to terminate, or if the
condemnation affects less than a Substantial Portion and does not affect any
parking area, then this Agreement shall remain in full force and effect, and
such Seller shall be entitled to all monies received or collected by reason of
such condemnation prior to Closing. In such event, the transaction hereby
contemplated shall close in accordance with the terms and conditions of this
Agreement except that there will be an abatement of the Purchase Price equal to
the amount of the gross proceeds received by such Seller by reason of such
condemnation prior to Closing; provided, however, that if any separate award is
made for costs and attorney's fees, such Seller shall be entitled to keep such
separate award. If such Seller shall not have received all monies owed it by
reason of such condemnation prior to the Closing, then such Seller shall assign
any interest it has in the pending award to Purchaser. For purposes of this
Section 7.1, a Substantial Portion shall mean a condemnation of any portion of
an Individual Real Property, the value of which portion exceeds five percent
(5%) of the Allocated Portion of the Purchase Price applicable to such
Individual Real Property.
7.2 LOSS DUE TO CASUALTY
In the event of Substantial Loss or Damage (as hereinafter defined) to
any Individual Real Property by fire or other casualty (not resulting from acts
of Purchaser), any party may, or, if the fire or other casualty results from
acts of Purchaser, the applicable Seller may, upon written notice to the other
party given within 10 days of receipt of notice of such event, cancel this
Agreement in which event this Agreement shall terminate, the Sellers shall
instruct the Escrow Holder to return the Deposit plus interest earned thereon to
Purchaser, and no party shall have any rights or obligations hereunder except
for the Surviving Covenants. In the event that no party elects to terminate, or
if the casualty results in less than Substantial Loss or Damage, then this
Agreement shall remain in full force and effect and the Seller that owns such
Individual Real Property shall be entitled to all insurance proceeds received or
collected by reason of such damage or loss, whereupon the transaction hereby
contemplated shall close in accordance with the terms and conditions of this
Agreement except that there will be abatement of the Purchase Price equal to the
amount of the gross proceeds, plus such Seller's deductible, or, in the case of
an uninsured loss, by the cost to repair such damage or loss, provided that such
abatement will be reduced by the amount expended by such Seller in accordance
with Section 8 hereof for restoration of such Individual Real Property following
the casualty, and provided, further, that such abatement will be further reduced
by the amount that the gross proceeds include any separate award for costs
(including preservation costs) and attorney's fees. Alternatively, Purchaser
may, in its discretion, have such Seller repair or replace the damaged Property,
and there shall be no abatement of the Purchase Price in such case. However,
Purchaser shall not be entitled to require such Seller to effect repair or
replacement unless the repair or replacement will take no more than three (3)
months to complete. For purposes of this Section 7.2, "Substantial Loss or
Damage` shall mean loss or damage to the parking and/or any portion of any
Building the cost for repair of which exceeds five percent (5%) of the Allocated
Portion of the Purchase Price applicable to such Individual Real Property.
8. OPERATION OF THE PROPERTY
Between the time of execution of this Agreement and the Closing, each
Seller shall maintain its respective Individual Properties in good condition and
repair, reasonable wear and tear excepted, shall perform all work required to be
done under the terms of any lease or agreement relating to any such Individual
Property, shall timely make all repairs, maintenance and replacement of
equipment or improvements, and shall keep such Individual Properties insured
against casualties on commercially reasonable terms and in commercially
reasonable amounts, the same as though such Seller were retaining such
Individual Properties and at such Seller's sole cost and expense; except that in
the event of a fire or other casualty, damage or loss, such Seller shall have no
duty to repair said damage except as otherwise provided in Section 7.2 of this
Agreement. However, such Seller may repair any such damage with Purchaser's
prior, written approval and may, without Purchaser's approval, repair damage
where such repair is necessary in such Seller's reasonable opinion to preserve
and protect the health and safety of tenants of any such Individual Property or
to preserve any such Individual Property from imminent risk of further damage or
if required to do so by such Seller's insurance carrier. Any such emergency
repairs shall be reported to Purchaser within 24 hours of their commencement and
48 hours of their completion.
Except as provided below, from and after the Effective Date until the
Closing Date, no Seller shall lease any portion of any Individual Real Property
or amend or terminate any existing lease or enter into any other agreements
affecting any Individual Property that will survive the Closing, without first
obtaining Purchaser's written approval, which approval shall not be unreasonably
denied or delayed. Purchaser shall have three (3) business days from the date
any Seller provides Purchaser with a copy of any new lease, modification or
termination of any existing lease, or any other new agreement affecting any
Individual Property, together with any information reasonably requested by
Purchaser regarding such tenant or agreement, to approve or reject such lease,
modification, termination or agreement. If Purchaser fails to respond within
said time period, it shall be deemed to have approved said lease, modification,
termination or agreement, as applicable. Purchaser shall bear the cost of all
tenant improvement allowances and leasing commissions for leases entered into
after the Effective Date until the Closing Date entered into by any Seller with
Purchaser's approval or deemed approved by Purchaser as provided for herein,
unless the sale of the Property is not consummated as contemplated herein.
Notwithstanding the foregoing, the Seller that owns the Individual Real Property
identified on Schedule 1.1 as the "Overlook" project (the "Overlook Project")
may, with respect to any portion thereof, and without first obtaining
Purchaser's written approval, enter into any standard form lease at prevailing
market rates for a term not exceeding twelve (12) months, and/or amend (but not
extend for a term exceeding twelve (12) months) or terminate any existing lease,
provided that in each case such Seller shall exercise prudent business judgment
as if it were retaining the Overlook Project for itself and shall not grant any
concession except in accordance with prevailing market conditions.
No Seller shall actively market any Individual Property for sale or
negotiate the possible sale of any Individual Property with any party other than
Purchaser, unless this Agreement is terminated as provided herein.
9. BROKER
Purchaser and the Sellers represent to each other that they have dealt
with no agent or broker who in any way has participated as a procuring cause of
the sale of the Property, except K/B Realty Advisors ("Broker"). Purchaser shall
pay a commission to Broker at the Closing pursuant to a separate brokerage
agreement between Purchaser and Broker. Purchaser and the Sellers each agree to
defend, indemnify and hold harmless the other for any and all judgments, costs
of suit, attorneys' fees, and other reasonable expenses which the other may
incur by reason of any action or claim against the other by any broker, agent,
or finder with whom the indemnifying party has dealt arising out of this
Agreement or any subsequent sale of any Individual Property to Purchaser except
for the above-described commissions, which shall be paid by Purchaser at the
Closing. The provisions of this Section 9 shall survive the Closing and any
termination of this Agreement.
10. REPRESENTATIONS AND WARRANTIES
10.1 LIMITATIONS ON REPRESENTATIONS AND WARRANTIES
Purchaser hereby agrees and acknowledges that, except as set forth in
Section 10.2 below or in any document delivered by any Seller at Closing,
neither the Sellers, nor any of them, nor any agent, attorney, employee or
representative of the Sellers or any of them has made any representation
whatsoever regarding the subject matter of this sale, or any part thereof,
including (without limiting the generality of the foregoing) representations as
to the physical nature or condition of any Individual Property or the
capabilities thereof, and that Purchaser, in executing, delivering and/or
performing this Agreement, does not rely upon any statement and/or information
to whomever made or given, directly or indirectly, orally or in writing, by any
individual, firm or corporation on behalf of any Seller, except as set forth in
Section 10.2 below or in any document delivered by such Seller at closing.
Purchaser agrees to take the Real Property and the Personal Property "as is," as
of the date hereof, reasonable wear and tear, and minor damage caused by the
removal of any personal property or fixtures not included in this sale,
excepted. EXCEPT AS SET FORTH IN SECTION 10.2 BELOW, NO SELLER MAKES ANY
REPRESENTATION OR WARRANTY AS TO THE PHYSICAL CONDITION OF ANY INDIVIDUAL
PROPERTY OR THE SUITABILITY THEREOF FOR ANY PURPOSE FOR WHICH PURCHASER MAY
DESIRE TO USE IT. EACH SELLER HEREBY EXPRESSLY DISCLAIMS ANY WARRANTIES OF
MERCHANTABILITY AND/OR FITNESS FOR A PARTICULAR PURPOSE AND ANY OTHER WARRANTIES
OR REPRESENTATIONS AS TO THE PHYSICAL CONDITION OF ANY INDIVIDUAL PROPERTY.
PURCHASER, BY ACCEPTANCE OF THE DEED FOR EACH INDIVIDUAL PROPERTY, AGREES THAT
IT HAS INSPECTED SUCH INDIVIDUAL PROPERTY AND ACCEPTS SAME "AS IS" AND "WITH ALL
FAULTS".
10.2 REPRESENTATIONS AND WARRANTIES
Each Seller makes the following representations and warranties with
respect to itself and the Individual Properties being sold by it, and agrees
that Purchaser's obligations under this Agreement are conditioned upon the truth
and accuracy of such representations and warranties, both as of this date and as
of the date of the Closing:
(a) Such Seller (in the case of CIR or CGEP) is a limited partnership,
duly organized, validly existing and in good standing under the laws of Delaware
(in the case of CIR) or Connecticut (in the case of CGEP), and qualified to
transact business and in good standing in each state in which any Individual
Property owned by such Seller is located; and such Seller (in the case of WOV)
is a general partnership, duly organized and validly existing under the laws of
Connecticut;
(b) Such Seller has the requisite partnership power and authority to
enter into this Agreement and convey the Individual Properties it owns to
Purchaser;
(c) Subject to Section 15.14 below, this Agreement has been duly
executed and delivered by such Seller;
(d) Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated by this Agreement, nor the
compliance with the terms and conditions hereof will (i) violate or conflict, in
any material respect, with any statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restrictions of any government,
governmental agency or court to which such Seller is subject, or (ii) to the
best of such Seller's knowledge, result in any material breach or the
termination of any lease, agreement or other instrument or obligation to which
such Seller is a party or by which any Individual Property owned by such Seller
may be subject, or cause a lien or other encumbrance to attach to any such
Individual Property;
(e) All material consents required from any governmental authority or
third party in connection with the execution and delivery of this Agreement by
such Seller or the consummation by such Seller of the transactions contemplated
hereby (other than any third-party consents which may be required in order for
such Seller to assign any licenses, certificates of occupancy, permits,
warranties, guarantees (other than tenant guarantees) in connection with the
Individual Properties owned by such Seller) have been made or obtained or shall
have been made or obtained by the Closing Date.
(f) To the best of such Seller's knowledge, such Seller has received
no notice of any existing, pending or threatened litigation, governmental
investigation, administrative proceeding, condemnation or sale in lieu thereof,
or environmental, zoning or other land use regulation proceedings with respect
to any portion of any Individual Real Property owned by such Seller, except as
noted on Schedule 10.2.1 hereto;
(g) Except for those tenants and licensees in possession of portions
of the Individual Real Properties owned by such Seller under written leases or
license agreements for space in such Individual Real Properties, as shown in the
applicable Rent Rolls, there are no parties in possession of, or claiming any
possession to any portion of any such Individual Real Property as lessees,
tenants at sufferance, licensees, trespassers, sublessees (to the best of such
Seller's knowledge), or otherwise;
(h) The updated Rent Rolls for the Individual Real Properties owned by
such Seller, which shall be delivered at the Closing, will be true, correct and
complete as of the date set forth thereon; no tenant will be entitled to any
rebates, rent concessions, or free rent (other than as reflected in the
estoppels, such Seller's certificates delivered pursuant to Section 4.2(g)
hereof, or, with respect to the Overlook Project, in accordance with prevailing
market conditions at the time such lease is entered into) and no rents due under
any of the tenant or other leases will have been assigned, hypothecated, or
encumbered, to any party except pursuant to documents to be released at Closing;
(i) There are no attachments or executions affecting any Individual
Property owned by such Seller, general assignments for the benefit of creditors,
or voluntary or involuntary proceedings in bankruptcy, pending or, to the best
of such Seller's knowledge, threatened against such Seller;
(j) During the period of such Seller's ownership of each Individual
Property owned by such Seller, such Seller has not itself, and to the best of
such Seller's knowledge no prior owner or current or prior tenant or other
occupant of all or any part of any such Individual Property at any time has,
used Hazardous Materials (hereinafter defined) on, from, or affecting any such
Individual Property in any manner that violates federal, state, or local laws,
ordinances, rules, or regulations governing the use, storage, treatment,
transportation, generation, or disposal of Hazardous Materials (collectively,
the "Environmental Laws"), and to the best of Seller's knowledge no Hazardous
Materials have been disposed of on such Individual Property. "Hazardous
Materials" shall mean any flammable substances, explosives, radioactive
materials, hazardous wastes, toxic substances, pollutants, pollution, or related
materials regulated under any of the Environmental Laws (to the extent any such
substances, materials or wastes exceed permitted concentrations);
Notwithstanding anything contained herein to the contrary, "Hazardous
Materials" shall not include any ordinary use and incidental storage of small
and insignificant amounts of substances reasonably necessary for the regular and
ordinary maintenance of any Individual Property, or consumed in the repair and
ordinary use of common office business machines, nor to gasoline, oil, and other
automotive fluids to the extent that they are contained in the common and
ordinary manner in motor vehicles visiting any Individual Real Property, in each
case provided that the same do not constitute, give rise to, or create any
substantial risk of any violation of any requirements of any Environmental Law.
(k) Except as set forth on Schedule 10.2.2 hereto at the time of
Closing, there will be no outstanding written or oral contracts made by such
Seller for any improvements to any Individual Real Property owned by such Seller
which have not been fully paid for and such Seller shall cause to be discharged
all mechanics' and materialmen's liens arising from any labor or materials
furnished to any such Individual Real Property prior to the time of Closing.
Except as set forth on said Schedule 10.2.2, as of the Closing Date, such Seller
shall have completed all punch-list items with respect to any tenant
improvements constructed by such Seller as landlord under the leases. Except as
set forth on said Schedule 10.2.2, as of the Closing Date, such Seller shall
have paid in full any of landlord's leasing costs or obligations in connection
with the leases, including, but not limited to, any costs incurred by such
Seller in connection with any tenant improvements.
(l) Except as set forth on Schedule 10.2.3 hereto, Seller has not
received any written notice that the use or operation of any Individual Property
owned by such Seller fails to comply in any material respect with any applicable
restrictive covenant, building code, environmental, zoning or land use law, or
any other applicable local, state or federal law or regulation (collectively,
"Laws").
(m) Such Seller has not received notice of any special improvement
district, special use district or special assessment applicable to any
Individual Real Property owned by such Seller.
10.3 SELLER'S KNOWLEDGE
Whenever the term "to the best of such Seller's knowledge" is used in
this Agreement or in any representations and warranties given to Purchaser at
Closing, such knowledge shall be (i) in the case of CIR and the Individual Real
Property identified on Schedule 1.1 as Woodlands Tech Center, the actual
knowledge of John Carey, who is the president of the general partner of CIR, or
Ruth Van Winkle, who is the asset manager assigned to such Individual Real
Property, after review of the files of Cigna Investments, Inc. (which CIR
represents to Purchaser are the relevant files of CIR applicable to such
Individual Real Property) and inquiry of CIR's property managers regarding such
Individual Real Property and each of the matters addressed in the
representations and warranties set forth in Section 10.2; (ii) in the case of
CIR and the Individual Real Property identified on Schedule 1.1 as Piedmont
Plaza Shopping Center, the actual knowledge of John Carey or Sean Williams, who
is the asset manager assigned to such Individual Real Property, after review of
the files of Cigna Investments, Inc. (which CIR represents to Purchaser are the
relevant files of CIR applicable to such Individual Real Property) and inquiry
of CIR's property managers regarding such Individual Real Property and each of
the matters addressed in the representations and warranties set forth in Section
10.2; (iii) in the case of CIR and the Individual Real Property identified on
Schedule 1.1 as the Overlook Apartments, the actual knowledge of John Carey or
Steven Jacobs, who is the asset manager assigned to such Individual Real
Property, after review of the files of Cigna Investments, Inc. (which CIR
represents to Purchaser are the relevant files of CIR applicable to such
Individual Real Property) and inquiry of CIR's property managers regarding such
Individual Real Property and each of the matters addressed in the
representations and warranties set forth in Section 10.2; (iv) in the case of
CGEP and the Individual Real Property identified on Schedule 1.1 as Woodlands
Plaza II, the actual knowledge of John Carey, who is the president of the
general partner of CGEP, or Ruth Van Winkle, who is the asset manager
assigned to such Individual Real Property, after review of the files of Cigna
Investments, Inc. (which CGEP represents to Purchaser are the relevant files of
CGEP applicable to such Individual Real Property) and inquiry of CGEP's property
managers regarding such Individual Real Property and each of the matters
addressed in the representations and warranties set forth in Section 10.2, (v)
in the case of CGEP and the Individual Real Property identified on Schedule 1.1
as Lake Point I, II and III, the actual knowledge of John Carey or Annette
Sanders, who is the asset manager assigned to such Individual Real Property,
after review of the files of Cigna Investments, Inc. (which CGEP represents to
Purchaser are the relevant files of CGEP applicable to such Individual Real
Property) and inquiry of CGEP's property managers regarding such Individual Real
Property and each of the matters addressed in the representations and warranties
set forth in Section 10.2, and (vi) in the case of WOV and the Individual Real
Property identified on Schedule 1.1 as Westford Corporate Center, the actual
knowledge of John Carey, who is the president of the general partner of each of
the general partners of WOV, or Peter Clark, who is the asset manager assigned
to such Individual Real Property (together with John Carey, Ruth Van Winkle,
Sean Williams, Steven Jacobs and Annette Sanders, collectively, the "Key
Personnel"), after review of the files of Cigna Investments, Inc. (which WOV
represents to Purchaser are the relevant files of WOV applicable to such
Individual Real Property) and inquiry of WOV's property managers regarding such
Individual Real Property and each of the matters addressed in the
representations and warranties set forth in Section 10.2.
No Seller shall have any duty to conduct any further inquiry in making
any such representations and warranties, and no knowledge of any other person
shall be imputed to any Key Personnel. Purchaser acknowledges that no Seller is
a hands-on owner, and each Seller employs third-party management to oversee the
daily operations of the Individual Properties owned by such Seller and that each
Seller has limited first-hand information and knowledge pertaining to the daily
operations of the Individual Properties owned by such Seller.
10.4 SURVIVAL
All representations and warranties contained in Section 10.2 will
survive the Closing of this transaction (but only as to the status of facts as
they exist as of the Closing, it being understood that no Seller makes any
representations or warranties which would apply to changes or other matters
occurring after the Closing); provided that such representations and warranties
other than those set forth in Section 10.2 (a), (b), (c), (d), and (e), shall
expire on the date one (1) year from the date of Closing, and no action on such
representations and warranties may be commenced after such expiration.
11. INDEMNIFICATION
11.1 THE SELLERS' INDEMNIFICATION
Each Seller on behalf of itself, its affiliates, its successors and
assigns, and any independent property managers which such Seller has hired to
manage the Individual Properties owned by such Seller does hereby agree to
indemnify and hold Purchaser, its successors and assigns harmless from and
against all costs, charges and expenses related to the ownership, management and
operation of such Individual Properties prior to the Closing Date, but not
thereafter, including, costs (i) for any labor performed on, or materials
furnished to such Individual Properties prior to the Closing Date, (ii) for any
leasing commissions or other fees or commissions due in connection with any
lease renewals or lease extensions which are entered into prior to the Closing
Date, (iii) for compliance with any laws, requirements or regulations of, or
taxes, assessments or other charges due to any governmental authority, but only
to the extent any such liability is attributable to acts, omissions, events or
transactions which first occurred during such Seller's period of ownership of
such Individual Properties, and such liability is caused by any Seller, its
agents, contractors and/or its employees only, and not by any other party or
parties, excluding any and all costs of compliance with presently-existing and
future environmental laws, any environmental remediation costs, and any costs
of, or awards of damages for, damage to the environment to natural resources, or
to any third party (collectively, 'Environmental Compliance"), it being the
intent of this Agreement, as between Purchaser and the Sellers, that neither the
Sellers nor Purchaser provide any contractual indemnification to Purchaser for
such Environmental Compliance, but also that no party intends to release any
other claims with respect to Environmental Compliance, including claims under
CERCLA, (iv) for any other charges or expenses whatsoever pertaining to such
Individual Properties or to the ownership, title, possession, use or occupancy
of such Individual Properties but only to the extent any such liability is
attributable to acts, omissions, events or transactions which first occurred
during such Seller's period of ownership of such Individual Properties, and is
caused by such Seller, its agents, contractors and/or its employees, or (v) for
any breach of the representations or warranties in Section 10.2 hereof.
Notwithstanding the foregoing, Purchaser shall not be entitled to
indemnification by any Seller for any breach of the representations and
warranties of such Seller contained in Section 10.2 hereof (excluding, however,
such Seller's representations and warranties set forth in Section 10.2(a), (b),
(c), (d) and (e)) unless Purchaser makes a written claim for such
indemnification within one (1) year from the Closing Date. Each Seller on behalf
of itself, its affiliates, its successors and assigns, and any independent
property managers which such Seller has hired to manage the Individual
Properties owned by such Seller does hereby agree to indemnify and hold
Purchaser, its successors and assigns harmless from and against all liabilities,
damages, claims, charges, costs and expenses incurred in connection with any
third party claims involving such Individual Properties and which relate to
acts, omissions, events or transactions which occurred prior to the Closing.
11.2 PURCHASER'S INDEMNIFICATION
Purchaser on behalf of itself, its successors and assigns does hereby
agree to indemnify and hold each Seller, its successors and assigns, and any
independent property managers which such Seller has hired to manage the
Individual Properties owned by such Seller, harmless from and against all costs,
charges and expenses relating to the ownership, management and operation of such
Individual Properties from and after the Closing Date, including costs (i) for
any labor performed on, or materials furnished to such Individual Properties
subsequent to the Closing Date, (ii) for any leasing commissions disclosed to
Purchaser prior to the date of this Agreement and due in connection with any
lease renewals or lease extensions which are entered into subsequent to the
Closing Date as described on Schedule 10.2.2 hereto, (iii) for compliance with
any laws, requirements or regulations of, or taxes, assessments, or other
charges due to any governmental authority (excluding Environmental Compliance),
but only to the extent that any such liability is attributable to any acts,
omissions, events or transactions which first occurred during Purchaser's period
of ownership of such Individual Properties, and such liability is caused by
either Purchaser, its agents, contractors and/or its employees only and not by
any other party or parties, or (iv) for any other charges or expenses whatsoever
pertaining to such Individual Properties or to the ownership, title, possession,
use or occupancy of such Individual Properties, but only to the extent any such
liability is attributable to acts, omissions, events or transactions which first
occurred during Purchaser's period of ownership of such Individual Properties,
and is caused by Purchaser, its agents, contractors, and/or its employees.
Purchaser on behalf of itself, its affiliates, its successors and
assigns, and any independent property managers which Purchaser has hired to
manage any of the Individual Properties does hereby agree to indemnify and hold
each Seller, its successors and assigns harmless from and against all
liabilities, damages, claims, charges, costs and expenses incurred in connection
with any third party claims involving any of the Individual Properties and which
relate to acts, omissions, events or transactions which first occur following
the Closing.
The provisions of this Section 11 shall survive the Closing and shall
not be limited by the provisions of Section 10.4 (except that nothing contained
herein is intended to extend the survivability of Section 10.2(j) beyond the
period set forth in Section 10.4).
Except as specifically limited herein, nothing contained in this
Section 11 is in any way intended to limit the rights of the Sellers or
Purchaser to pursue any remedies that may exist at law or in equity against any
unrelated third parties with respect to any liabilities covered by this Section
11.
12. ASSIGNMENT
This Agreement may not be assigned or transferred by Purchaser except
to an affiliate of Purchaser. No assignment shall relieve Purchaser of any of
its obligations under this Agreement.
13. NOTICES
All notices hereunder or required by law shall be sent via United
States Mail, postage prepaid, certified mail, return receipt requested, via any
nationally recognized commercial overnight carrier with provisions for receipt,
or via telecopier followed by written notice as provided for herein, addressed
to the parties hereto at their respective addresses set forth below or as they
have theretofore specified by written notice delivered in accordance herewith:
PURCHASER: Glenborough Properties, L.P.
400 South El Camino Real
San Mateo, CA 94402-1708
Attn: Frank E. Austin, Esq.
Fax#: 415.343.7438
WITH A COPY TO: Morrison & Foerster LLP
425 Market Street
San Francisco, CA 94105
Attn: Craig B. Etlin, Esq.
Fax#: 415.268.7522
SELLERS: CIGNA Income Realty-I Limited Partnership
Connecticut General Equity Properties-I
Limited Partnership
Westford Office Venture
c/o CIGNA Investment Group
900 Cottage Grove Road
Hartford, CT 06152-2311
Attn: Real Estate Investment Department
Asset Management, S-311
Fax#: 860.726.6327
WITH A COPY TO: CIGNA Corporation
Investment Law Department
Mortgage and Real Estate Group, S-215A
900 Cottage Grove Road
Hartford, CT 06152-2215
Attn: Lawrence A. Cox, Esq.
Fax#: 860.726.8446
WITH A COPY TO: Kelley Drye & Warren LLP
101 Park Avenue
New York, NY 10178
Attn: Robert D. Bickford, Jr., Esq.
Fax#: 212.808.7897
Delivery will be deemed complete upon actual receipt or refusal to
accept delivery.
14. EXPENSES
Each Seller shall pay its own attorney's fees and the costs incurred
to repay any liens filed against any Individual Property owned by such Seller
(other than taxes and assessments which are not yet due and payable). Purchaser
shall pay its due diligence expenses, its own attorney's fees, the costs of the
Surveys, and any transfer taxes. Escrow fees, title premiums and all other
closing costs with respect to each Individual Real Property shall be allocated
according to the custom of the county in which such Individual Real Property is
located.
15. MISCELLANEOUS
15.1 SUCCESSORS AND ASSIGNS
All the terms and conditions of this Agreement are hereby made binding
upon the executors, heirs, administrators, successors and permitted assigns of
all parties hereto.
15.2 GENDER
Words of any gender used in this Agreement shall be held and construed
to include any other gender, and words in the singular number shall be held to
include the plural, and vice versa, unless the context requires otherwise.
15.3 CAPTIONS
The captions in this Agreement are inserted only for the purpose of
convenient reference and in no way define, limit or prescribe the scope or
intent of this Agreement or any part hereof.
15.4 CONSTRUCTION
No provision of this Agreement shall be construed by any Court or
other judicial authority against any party hereto by reason of such party's
being deemed to have drafted or structured such provisions.
15.5 ENTIRE AGREEMENT
This Agreement constitutes the entire contract among the parties
hereto and supersedes all prior agreements and understandings between the
parties relating to the subject matter hereof, including, without limitation,
the Letter of Intent dated December 10, 1996, entered into by and between the
Sellers and Purchaser. Aside from this Agreement, there are no other oral or
written promises, conditions, representations, understandings or terms of any
kind as conditions or inducements to the execution hereof and none have been
relied upon by any party.
15.6 RECORDING
The parties agree that this Agreement shall not be recorded. If
Purchaser causes this Agreement or any notice or memorandum thereof to be
recorded, this Agreement shall be null and void at the option of the Sellers.
15.7 NO CONTINUANCE
Purchaser acknowledges that there shall be no assignment, transfer or
continuance of any of Seller's insurance coverage or of any property management
contract.
15.8 TIME OF ESSENCE
Time is of the essence in this transaction.
15.9 ORIGINAL DOCUMENT
This Agreement may be executed by all parties in counterparts in which
event each shall be deemed an original.
15.10 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York. The parties recognize that, since the
Individual Properties are located outside of the State of New York, it may be
necessary for the parties to comply with certain aspects of the laws of the
states in which the Individual Properties are located in order to consummate the
purchase and sale of the Individual Properties pursuant hereto. The parties
agree to comply with such other laws to the extent necessary to consummate the
purchase and sale of the Individual Properties, provided that it is the parties'
intent that the provisions of this Agreement be applied to each Individual
Property in a manner which results in the greatest consistency possible. For
this reason, the parties have agreed that New York law shall govern with respect
to the purchase and sale of each Individual Property pursuant hereto to the
greatest extent possible.
15.11 ACCEPTANCE OF OFFER
This Agreement constitutes the Sellers' offer to sell to Purchaser on
the terms set forth herein and must be accepted by Purchaser by signing three
(3) copies hereof and delivering them to Escrow Holder no later than 5:00 P.M.
E.S.T. on January 17, 1997. If Purchaser has not accepted this Agreement by such
date, then this Agreement and the offer represented hereby shall automatically
be revoked and shall be of no further force or effect.
15.12 CONFIDENTIALITY
Purchaser and the Sellers agree that all documents and information
concerning the Property delivered to Purchaser, the subject matter of this
Agreement, and all negotiations
will remain confidential prior to Closing. Prior to closing, Purchaser and the
Sellers will disclose such information only to those parties required to know
it, including, without limitation, employees of any of the parties, consultants
and attorneys engaged by any of the parties, prospective or existing investors
and lenders, and Purchaser's insurance and reinsurance firms.
15.13 SURVIVING COVENANTS
Notwithstanding any provisions hereof to the contrary, the provisions
of the Second paragraph of Section 6.2 hereof and the provisions of Section 9
hereof (collectively, the "Surviving Covenants") shall survive the closing and
any termination of this Agreement.
15.14 APPROVAL
The Sellers' obligations to perform their respective duties hereunder
are contingent upon the obtaining of (i) all required approvals (the "Limited
Partner Approvals") of the transaction by the respective limited partners of CIR
and CGEP (the "Limited Partners") in accordance with their respective
partnership agreements, and (ii) the approvals of the boards of directors of the
general partners of each of CIR and CGEP (the "Board Approvals"). CIR and CGEP
will each seek such approvals promptly after the Effective Date, and will notify
Purchaser promptly of the decisions of such Limited Partners and boards of
directors. Without limiting the foregoing, CIR and CGEP shall (i) file proxy
materials with respect to the Limited Partner Approvals with the Securities and
Exchange Commission within three (3) business days after the Effective Date, and
(ii) use reasonable efforts to obtain the Limited Partner Approvals within
twenty (20) days after distributing such proxy materials to the Limited
Partners. If the Securities and Exchange Commission does not complete its review
of such proxy materials within thirty (30) days after the Effective Date, or if
Purchaser does not receive written notice from both CIR and CGEP, within ninety
(90) days after the Effective Date, that all of the Board Approvals and Limited
Partner Approvals have been obtained, then Purchaser shall have the right to
terminate this Agreement by giving written notice to the Sellers, which right to
terminate, if not previously exercised, shall itself terminate upon Purchaser's
receipt of written notice from CIR and CGEP that such Board Approvals and
Limited Partner Approvals have been obtained. In the event this Agreement
terminates or is terminated pursuant to this Paragraph 15.14, the Sellers shall
instruct the Escrow Holder to return the Deposit plus all interest earned
thereon to Purchaser, and no party shall have any further rights or duties
hereunder except for the Surviving Covenants.
EXECUTED BY SELLERS this _____ day of January, 1997.
SELLERS: CIGNA INCOME REALTY-I LIMITED
PARTNERSHIP,
a Delaware limited partnership
By: Cigna Realty Resources, Inc.-Tenth,
a Delaware corporation, its General
Partner
By:
John D. Carey
President
CONNECTICUT GENERAL EQUITY PROPERTIES-I
LIMITED PARTNERSHIP,
a Connecticut limited partnership
By: Connecticut General Realty Resources,
Inc.-Third,
a Delaware corporation, its General
Partner
By:
John D. Carey
President
1
## NY28/MCKEJ/75515.21
WESTFORD OFFICE VENTURE
a Connecticut general partnership
By: CIGNA Income Realty-I Limited
Partnership,
a Delaware limited partnership
By: Cigna Realty Resources, Inc.-
Tenth, a Delaware corporation, its
General Partner
By:
John D. Carey
President
By: Connecticut General Equity Properties-I
Limited Partnership,
a Connecticut limited partnership
By: Connecticut General Realty
Resources, Inc.-Third, its
General Partner
By:
John D. Carey
President
EXECUTED BY PURCHASER this _____ day of January, 1997.
PURCHASER: GLENBOROUGH PROPERTIES, L.P.,
a California limited partnership
By: Glenborough Realty Trust Incorporated,
a Maryland corporation, General Partner
By:
Name:
Title:
Receipt of original copies of this Agreement executed by Seller and
Purchaser is acknowledged this _____ day of , 1997.
ESCROW HOLDER: CHICAGO TITLE COMPANY
By:
Name:
Title:
2
## NY28/MCKEJ/75515.21
SCHEDULE 2.1
TO
AGREEMENT OF PURCHASE AND SALE
ALLOCATION OF PURCHASE PRICE
Property Name Location Price
- ------------- -------- -----
Woodlands Tech Center St. Louis, MO $ 4,583,885
Woodlands Plaza II St. Louis, MO 5,400,815
Westford Corporate Center Westford, MA 10,211,625
Piedmont Plaza Shopping Center Apopka, FL 6,353,900
Overlook Apartments Scottsdale, AZ 11,163,720
Lake Point I, II and III Orlando, FL 6,490,055
44,204,000
The above allocation is intended solely for the purposes of Paragraphs
6.4, 7.1 and 7.2 of the Agreement of Purchase and Sale to which this schedule is
attached and Exhibit A- 3 to such agreement, and shall not be binding on the
parties for any other purpose whatsoever.
1
## NY28/MCKEJ/75515.21
Annex 2
- ------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
Commission file number 0-15748
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 06-1149695
(State of Organization) (I.R.S. Employer Identification No.)
900 Cottage Grove Road, South Building
Bloomfield, Connecticut 06002
(Address of principal executive offices)
Registrant's telephone number, including area code: (860) 726-6000
Securities registered pursuant to Section
12(b) of the Act:
None
(Title of Each Class)
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 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
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. Not applicable.
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
PART I PAGE
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II
Item 5. Market for Registrant's Common Equity and Related Security Holder Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
Item 8. Financial Statements and Supplementary Data 18
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 33
PART III
Item 10. Directors and Executive Officers of the Registrant 33
Item 11. Executive Compensation 36
Item 12. Security Ownership of Certain Beneficial Owners and Management 36
Item 13. Certain Relationships and Related Transactions 36
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 37
SIGNATURES 39
2
PART I
ITEM 1. BUSINESS
The Registrant, CIGNA Income Realty-I Limited Partnership (the
"Partnership"), was formed on October 15, 1985, under the Delaware Revised
Uniform Limited Partnership Act for the purpose of acquiring, operating, holding
for investment and disposing of industrial and office buildings, retail and
service center space and, to a lesser extent, residential properties. On
February 4, 1986, the Partnership commenced an offering of $35,000,000 (subject
to increase up to $50,000,000) of Limited Partnership Interests (the "Units") at
$250 per Unit, pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933 (Registration No. 33-1818).
The General Partner of the Partnership is CIGNA Realty Resources,
Inc.-Tenth (the "General Partner"), which is an indirect wholly owned subsidiary
of CIGNA Corporation, a publicly held corporation whose stock is traded on the
New York Stock Exchange.
The offering terminated on December 1, 1987, with a total of 200,000 Units
having been sold to the public. The holders of 110,042 Units representing 64,146
non-taxable and 45,896 taxable Units were admitted to the Partnership in 1986;
the holders of the remaining 89,958 Units, representing 51,109 non-taxable and
38,849 taxable Units, were admitted to the Partnership in 1987. From the 200,000
Units sold, the Partnership received net proceeds of $45,463,209. The holders of
units ("Unit Holders" or "Limited Partners") of the Partnership share in the
ownership of the Partnership's real property investments according to the number
of Units held. Subsequent to admittance to the Partnership, no Unit Holder has
made any additional capital contribution. The Partnership is engaged solely in
the business of real estate investment. A presentation of information about
industry segments is not applicable.
The Partnership is engaged in passive activities and therefore its
investors are subject to the applicable provisions of the Internal Revenue
Service Code and Regulations. Losses from "passive activities" (which include
any rental activity) may only offset income from "passive activities".
Investors' passive losses in excess of passive income from all sources are
suspended and are carried over to future years when they may be deducted against
passive income generated by the Partnership in such year (including gain
recognized on the sale of the Partnership's assets) or against passive income
derived by investors from other sources. Any suspended losses remaining
subsequent to Partnership dissolution may be used by investors to offset
ordinary income.
The Partnership has acquired three commercial properties (including one
owned through a joint venture) located in Missouri, Massachusetts and Florida,
and one residential property located in Arizona. In order to acquire the
properties, the Partnership, which purchased its properties for all cash,
invested a total of $41,254,243 and paid $179,539 in acquisition expenses and
fees to non-affiliates. In conjunction with these purchases, the Partnership
owes acquisition fees of $2,500,000 to an affiliate of the General Partner.
Pursuant to the limited partnership agreement of the Partnership ("Partnership
Agreement"), the fees are payable from adjusted cash from operations
subordinated to a 6% non-cumulative, non-compounded annual return to Limited
Partners on their adjusted invested capital or, if necessary, from cash from
property sales. To date, no such fees have been paid and the General Partner
expects payment to be made as properties are sold.
Pursuant to the Partnership Agreement, the Partnership is required to
terminate on or before December 31, 2014. The Partnership anticipated that prior
to its termination and dissolution, some or all of the Partnership's properties
would be sold, the retention or sale of any property dependent, in part, on the
anticipated remaining economic benefits of continued ownership. It was expected
that most sales would occur after a period of ownership extending from nine to
twelve years.
3
The Partnership has made the real property investments set forth in the
following table:
===================================================================================================================================
PURCHASE ACQUISITION
NAME, TYPE OF PROPERTY AND PRICES (A)(B)(C) FEES AND DATE OF TYPE OF
LOCATION EXPENSES (D) SIZE(E) PURCHASE OWNERSHIP
- -----------------------------------------------------------------------------------------------------------------------------------
1. Woodlands Tech Center $ 7,820,000 $605,586 98,400 07/03/86 100% fee
St. Louis, MO sq. ft. simple
interest
- -----------------------------------------------------------------------------------------------------------------------------------
2. Westford Corporate Center $12,598,206 $733,542 162,835 11/01/86 73.92%
Westford, MA (f) sq. ft. fee simple
interest
- -----------------------------------------------------------------------------------------------------------------------------------
3. Piedmont Plaza $10,636,037 $640,406 147,750 05/01/87 100% fee
Shopping Center sq. ft. simple
Apopka, FL interest
- -----------------------------------------------------------------------------------------------------------------------------------
4. Overlook Apartments $10,200,000 $700,005 224 units 10/14/88 100% fee
Scottsdale, AZ simple
interest
===================================================================================================================================
<FN>
(a) Excludes all broker fees.
(b) The Partnership did not incur any debt in connection with the acquisition
of investment properties.
(c) The table does not reflect purchase price adjustments resulting from earnout
and master lease provisions.
(d) Pursuant to the Partnership Agreement, acquisition fees to affiliates will
be paid from adjusted cash from operations or, if necessary, from cash from
property sales.
(e) Represents net leasable area at acquisition date except for Piedmont Plaza;
current net leasable area may vary due to completion of tenant finish.
Piedmont Plaza added 21,052 square feet subsequent to acquisition.
(f) The Partnership owns a 73.92% interest in the Westford Joint Venture
Partnership (the "Venture") which owns the Westford Corporate Center.
Connecticut General Equity Properties-I Limited Partnership, an affiliated
partnership, is the co-venturer. The financial information shown represents
the Partnership's share of the total investment. Reference is made to the
Notes to Consolidated Financial Statements for a description of the joint
venture partnership through which the Partnership participates in this real
property investment.
4
Woodlands Tech is located in the Northwestern St. Louis service center market.
Overall, the St. Louis economy saw continued growth through 1995, albeit at a
slightly slower pace than in 1994. During the year, St. Louis added
approximately 34,000 new jobs and unemployment fell to a twenty-year low of
4.8%. While the manufacturing sector continued to decline, the service sector,
including computer services, health and tourism, grew by approximately 3.3% for
the year. The defense industry was also helped by a $1.8 billion contract from
the United States Air Force awarded to McDonnell Douglas, the largest defense
manufacturer and employer in the state. The submarket, consisting of 29
buildings totalling 964,709 square feet, ended 1995 at 93% occupancy. The
submarket reported negative absorption in 1995 as tenants moved back to
Chesterfield Valley to buildings that have been renovated since the 1993 floods.
The negative absorption may repeat again in 1996. As in the office market,
smaller service center spaces of up to 8,000 square feet are plentiful, while
spaces over 15,000 square feet are scarce and can command higher rental rates.
Overall, rates were relatively flat for the year, ranging between $6 and $11 per
square foot for comparable properties. The majority of comparable properties
with a large percentage of office space is leasing in the $8.00 to $8.50 per
square foot range. Woodlands Tech is leasing at rates comparable to the
competition. Tenant finish packages are still readily available in the service
center market in the range of $3 to $20 per square foot. Existing rollover
spaces can typically be improved within the lower end of the scale. Existing
space that has 30% to 60% finish will require $2 to $6 per square foot and space
which has a higher percentage of finish requires $5 to $10 per square foot.
Westford Corporate Center is located in the Boston submarket known as the
Northwest Corridor, between Routes I-128 and I-495. During 1995, metropolitan
Boston experienced continued job growth due to the strengthened economy.
Out-migration trends have finally reversed and over one-half of the jobs lost
during the 1989-1992 recession have been regained. Nearly two-thirds of all new
jobs are in the service sector, including computer software, engineering, and
research and health care. Overall, manufacturing employment continues to
decline, although the computer hardware industry has finally turned around. The
market in which Westford competes contains approximately 16.8 million square
feet of space with a 19% vacancy rate. Absorption through the end of 1995
totalled approximately 1,177,300 square feet. Westford maintained its 100%
occupancy level in 1995. Rents for R&D space held steady during the year in the
$5.75 to $7 per square foot range. Rents and occupancy levels in the market will
move up slowly as the market works through an estimated one to two year supply
of available R&D space.
The Piedmont Plaza is located in Apopka, Florida, north of Orlando in
northwest Orange County. Apopka experienced population growth of approximately
2% in 1995. The median income for the area is approximately $50,000 and
single-family home prices range from $60,000 to $120,000. The major industry in
Apopka is agriculture. Because of Apopka's affordable housing and its convenient
location on the axis of two main roads, Route 4 and State Road 436, many
residents work in downtown Orlando. However, while the property is located
approximately 20 miles outside Orlando and its major theme parks, including Walt
Disney World, it doesn't significantly benefit from the tourism trade.
In general, the retail environment was turbulent in 1995. Total retail
sales for 1995 were up only 3%; apparel sales were down. The Christmas season
proved to be very weak for many retailers. The 1995 retail market has been
affected by an over-supply of space combined with cautious consumer behavior.
Retail bankruptcies in general, and for apparel companies in particular, are
showing big increases. Most retailers have moved to value pricing, although most
have not made the transition profitably. Leasing decisions for both retailers
and shopping center owners have been postponed because of mergers, acquisitions,
reformatting, bankruptcy, and management reorganizations. The cost to attract
quality tenants continues to escalate at three times the inflation rate.
Effective rents, after tenant improvement amortization, have decreased for
virtually all retail product types. Current trends suggest a future drop in the
total demand for retail space and an intense competition for the consumer's
dollar. Poorly conceived retail centers will close or adopt alternative uses
with the stronger, more dominant centers capturing a greater market share and
better financial performance. All successful retailers and retail sites will
offer a high-grade blend of goods and services at value prices. Retailers will
be attempting to achieve success by efficiencies in distribution, inventory
control, better use of technology and better management.
5
Piedmont's submarket changed very little in 1995. Strip centers, in
particular, remained overbuilt with approximately 1.6 million square feet of
retail space housed in twenty-one centers, twelve of which are anchored by two
or more tenants. The strip center market had a 20% vacancy rate for unanchored
centers and a 15% vacancy rate for anchored centers. Piedmont was 95% occupied
at year end, ahead of the market. Due to the overbuilt conditions, rental rates
remained flat at approximately $6 per square foot for unanchored space to $10 to
$13 per square foot for anchored facilities. Pass through costs averaged $2.75
per square foot. Piedmont was in line with the market at $6 to $8 per square
foot for space in the back of the center to $9 to $12 per square foot in the
more visible and easily accessed areas. Concessions of one month free rent per
lease year were the norm. There was no new construction in 1995 and none is
planned for the next two years.
Overlook Apartments is located in Scottsdale, Arizona, approximately 20
miles outside downtown Phoenix. During 1995, Phoenix enjoyed continued
in-migration trends with the addition of approximately 50,000 residents and
20,000 new jobs. Scottsdale saw its population grow by 5% in 1995, and this
trend is expected to continue through the end of the decade. Unemployment was
under 3% in 1995, one of the lowest in the nation. Job growth in 1995 was
strong, particularly in the service sector, retail trade and the financial
industry. The tourism industry was also a major contributor to the local economy
during the year. Scottsdale remains targeted as a "hot spot" for development,
particularly for single-family residential communities. The median income in
Scottsdale approaches $50,000 and new homes in this upscale market range from
approximately $90,000 to $300,000.
The North Scottsdale apartment submarket, which contains approximately
7,300 units, expects an additional 1,300 to come online in 1996. The Adobe Ranch
submarket, in which Overlook directly competes, contains 1,446 units, 218 of
which came online in 1995. This market consists of six luxury apartment
complexes and is extremely competitive. During 1996, an additional 534 units are
scheduled to be added to the Adobe submarket. The average rent at Overlook
during the year was $573 per month, slightly ahead of the competition. The
addition of new units in the North Scottsdale market does not compete directly
with Overlook, but will keep rental rates increases at approximately 3% over the
coming year and continue to encourage the use of concessions through the end of
1996. The rent growth continues to be possible as a result of the upscale new
apartment inventory creating a high rental base for the area. While other
complexes offer a wider range of amenities, Overlook competes within its market
through its desirable location with mountain views, excellent on-site service,
and professionally landscaped grounds. During 1995, the property had average
occupancy of 96%, slightly below the prior year but in line with the market.
Approximate occupancy levels for the properties on a quarterly basis are
set forth in the table in Item 2.
The Partnership itself has no employees; however, the unaffiliated property
managers engaged by CIGNA Investments, Inc. ("CII", formerly CIGNA Capital
Advisers, Inc.) on behalf of the Partnership maintain on-site staff. For a
description of asset management services provided by CII and the terms of
transactions between the Partnership and affiliates of the General Partner, see
Item 13 below and the Notes to Consolidated Financial Statements.
6
The following list details gross revenues for each of the Partnership's
investment properties as a percentage of the Partnership's total gross revenues
during 1993, 1994 and 1995. Excluded from this calculation is the joint venture
partner's share of the gross revenues of the Westford joint venture. In each
year, interest income accounted for the balance of gross revenues.
1993 1994 1995
---- ---- ----
1. Woodlands Tech Center
St. Louis, MO 21% 17% 16%
2. Westford Corporate Center
Westford, MA 22% 24% 27%
3. Piedmont Plaza Shopping Center
Apopka, FL 23% 26% 23%
4. Overlook Apartments
Scottsdale, AZ 33% 31% 31%
ITEM 2. PROPERTIES
The Partnership owns the properties described in Item l herein. The lease
terms at the commercial properties generally range from three to twenty years.
Most of the leases contain provisions for one or more of the following:
automatic escalation, common area maintenance recapture and recapture for
operating expenses and taxes. See the Notes to Consolidated Financial Statements
for information regarding minimum future rentals under existing leases and
operating expense reimbursements. The residential property generally has lease
terms of one year or less. In the opinion of the General Partner, the
Partnership's properties are adequately insured.
Woodlands Tech Center is a single-story suburban office/warehouse located
in West St. Louis County. The building was completed in 1986 and purchased by
the Partnership on July 3, 1986. The 7.6 acre site contains a net leasable area
of approximately 97,383 square feet. The space layout includes up to 24 suites
(which may be combined) ranging in size from 2,521 to 16,848 square feet.
Ceiling heights are 8'6" in the office space and 12' in the service center
space. All spaces are served by either a dock high or grade level track door.
The spaces have separate HVAC units and are fully sprinklered.
The following table provides information on tenants that occupy ten percent
or more of Woodland Tech Center's net leasable area:
====================================================================================================================================
TENANT SQUARE PRINCIPAL BASE RENT PER LEASE RENEWAL OTHER
FOOTAGE BUSINESS ANNUM DATES OPTION INFORMATION
====================================================================================================================================
1. Honeywell, Inc. 16,848 Computer $153,864 01/01/91- -- --
Manufacturer 08/31/97
- ------------------------------------------------------------------------------------------------------------------------------------
2. ALTECH of 10,069 Computer $67,968 02/01/93- 1, 1 year --
Ladue, Inc. Sales/Leasing 01/31/96 ext. option
====================================================================================================================================
7
The following table provides lease expiration information relative to
Woodlands Tech Center:
===============================================================================================================
YEAR NUMBER OF LEASES SQUARE FOOTAGE ANNUALIZED BASE PERCENTAGE OF TOTAL
EXPIRING RENT ANNUALIZED BASE
RENT
- ---------------------------------------------------------------------------------------------------------------
1996 6 36,303 $274,296 39%
- ---------------------------------------------------------------------------------------------------------------
1997 3 28,725 $229,296 32%
- ---------------------------------------------------------------------------------------------------------------
1998 4 13,297 $114,552 16%
- ---------------------------------------------------------------------------------------------------------------
1999 2 7,976 $60,372 9%
- ---------------------------------------------------------------------------------------------------------------
2000 1 3,560 $28,476 4%
===============================================================================================================
<FN>
The Westford property consists of two 2-story R&D/office buildings
containing 163,247 square feet of net rentable area (81,623 square feet each).
The property is located in Westford, Massachusetts, at the interchange of Boston
Road and Interstate 495. The construction consists of steel frame with an
exterior masonry finish. Each building has features that include sprinklers,
variable air volume HVAC, two passenger elevators and security systems.
The following table provides information on tenants that occupy ten percent
or more of Westford Corporate Center's net leasable area:
===================================================================================================================================
TENANT SQUARE PRINCIPAL BASE RENT LEASE RENEWAL OTHER
FOOTAGE BUSINESS PER ANNUM DATES OPTION INFORMATION
- -----------------------------------------------------------------------------------------------------------------------------------
1. Cascade 81,615 Communications $486,535 10/01/93- 1, 3 year ext. --
Communication 03/31/99 option
Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
2. Sentry 81,632 Insurance $938,768 03/27/92- 1, 5 year ext. --
Insurance 03/26/99 option
===================================================================================================================================
The following table provides lease expiration information relative to
Westford Corporate Center:
===================================================================================================================
YEAR NUMBER OF LEASES SQUARE FOOTAGE ANNUALIZED BASE PERCENTAGE OF TOTAL
EXPIRING RENT ANNUALIZED BASE RENT
- -------------------------------------------------------------------------------------------------------------------
1999 2 163,247 $1,425,303 100%
===================================================================================================================
Piedmont Plaza is a one level, two-anchor, neighborhood strip shopping
center built in 1985. One anchor, Albertson's Supermarket, owns their store and
parking and is not a tenant. Small shop square footage ratio to total center is
27% (38% of owned gross leasable area). The property contains net leasable area
of 150,700 square feet. The property is located in Apopka, Florida, in northwest
Orange County, on a major commuter route (Semoran Boulevard) but with limited
visibility of small shop space from the main road. There is also an additional
enclosed area created for the Builder's Square garden center and lumber yard.
8
The following table provides information on tenants that occupy ten percent
or more of Piedmont Plaza's net leasable area:
===================================================================================================================================
TENANT SQUARE PRINCIPAL BASE RENT PER LEASE RENEWAL OTHER
FOOTAGE BUSINESS ANNUM DATES OPTION INFORMATION
===================================================================================================================================
1. Builder's Square 107,400 Home $590,700 09/01/92- 10, 5 year Percentage
Improvement 08/31/12 ext. options rent
Retailer
===================================================================================================================================
The following table provides lease expiration information relative to
Piedmont Plaza:
=================================================================================================================
YEAR NUMBER OF LEASES SQUARE FOOTAGE ANNUALIZED BASE PERCENTAGE OF TOTAL
EXPIRING RENT ANNUALIZED BASE RENT
- -----------------------------------------------------------------------------------------------------------------
1996 4 17,800 $94,379 11%
- -----------------------------------------------------------------------------------------------------------------
1997 2 3,350 $28,743 3%
- -----------------------------------------------------------------------------------------------------------------
1998 2 2,400 $24,144 3%
- -----------------------------------------------------------------------------------------------------------------
1999 3 5,350 $64,780 7%
- -----------------------------------------------------------------------------------------------------------------
Thereafter 4 114,100 $679,800 76%
=================================================================================================================
9
The following table compares approximate occupancy levels by quarter for
the Partnership's investment properties during 1991, 1992, 1993, 1994 and 1995:
========================================================================================================================
WOODLANDS TECH WESTFORD PIEDMONT PLAZA OVERLOOK
CENTER CORPORATE CENTER SHOPPING CENTER APARTMENTS
ST. LOUIS, MO WESTFORD, MA (A) APOPKA, FL SCOTTSDALE, AZ
========================================================================================================================
1991
- -----------------
AT 03/31 76% 10% 27% 89%
AT 06/30 76% 10% 25% 90%
AT 09/30 74% 10% 25% 98%
AT 12/31 82% 10% 19% 94%
- ------------------------------------------------------------------------------------------------------------------------
1992
- -----------------
AT 03/31 82% 60% 16% 95%
AT 06/30 85% 60% 17% 92%
AT 09/30 85% 60% 87% 90%
AT 12/31 90% 60% 89% 98%
- ------------------------------------------------------------------------------------------------------------------------
1993
- -----------------
AT 03/31 100% 60% 91% 99%
AT 06/30 100% 60% 91% 91%
AT 09/30 100% 60% 91% 96%
AT 12/31 95% 75% 92% 99%
- ------------------------------------------------------------------------------------------------------------------------
1994
- -----------------
AT 03/31 95% 75% 92% 99%
AT 06/30 100% 85% 94% 97%
AT 09/30 94% 100% 93% 99%
AT 12/31 94% 100% 95% 98%
- ------------------------------------------------------------------------------------------------------------------------
1995
- -----------------
AT 03/31 94% 100% 95% 98%
AT 06/30 96% 100% 95% 93%
AT 09/30 96% 100% 95% 97%
AT 12/31 92% 100% 95% 97%
========================================================================================================================
<FN>
(a) See the notes to Consolidated Financial Statements for a description of the
joint venture partnership through which the Partnership has made this real
property investment. The Partnership owns a 73.92% interest in the joint
venture which owns the property.
ITEM 3. LEGAL PROCEEDINGS
Neither the Partnership nor its properties are party to or the subject of
any legal proceedings involving any material exposure.
10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS
As of December 31, 1995, there were approximately 3,944 record Unit
Holders. There is no established public trading market for Units. The General
Partner will not redeem or repurchase the Units.
The Revenue Act of 1987 adopted provisions which have an adverse impact on
investors in a "publicly traded partnership" ("PTP"). A PTP is a partnership
whose interests are traded on an established securities market or readily
tradable on a secondary market (or the substantial equivalent thereof). If the
Partnership were classified as a PTP, (i) the Partnership may be taxed as a
corporation, and (ii) the passive activity rules of section 469 are applied
separately with respect to items attributable to each publicly traded
partnership. On November 29, 1995, the Internal Revenue Service ("IRS") issued
the Final PTP Regulations under section 1.7704-1. The Final PTP Regulations are
effective for the tax years beginning after December 31, 1995. However, a
transition rule exists for partnerships that were engaged in an activity before
December 4, 1995 and that do not add a substantial new line of business after
that date. The Partnership qualifies for the transition rule and may continue to
rely on Notice 88-75 for guidance through the end of 2005. In Notice 88-75, the
IRS established alternative safe harbors that allow interests in a partnership
to be transferred or redeemed in certain circumstances without causing the
partnership to be characterized as a PTP. Units of the Partnership are not
listed or quoted for trading on an established securities exchange. However,
CIGNA Financial Partners ("CFP") will, upon request, provide a Limited Partner
desiring to sell or transfer Units with a list of secondary market firms which
may provide a means for matching potential sellers with potential buyers of
Units, if any. Frequent sales of Units utilizing these services could cause the
Partnership to be deemed a PTP. The Partnership has adopted a policy prohibiting
transfers of Units in secondary market transactions unless, notwithstanding such
transfers, the Partnership will satisfy at least one of the safe harbors.
Although such a restriction could impair the ability of investors to liquidate
their investment, the service provided by CFP described above should allow a
certain number of transfers to be made in compliance with the safe harbor.
The Partnership declared quarterly cash distributions to Limited Partners
for 1995 and 1994 as set forth in the following table:
Cash Distribution per Unit
Quarter Date Paid 1995 1994
-------- --------- ---- ----
1st May 15 $ 3.45 $ 3.12
2nd August 15 3.75 3.12
3rd November 15 3.75 3.12
4th February 15 3.75 4.50
-------- --------
$ 14.70 $ 13.86
======== ========
<FN>
(a) Quarterly distributions are paid 45 days following the end of the calendar quarter.
Reference is made to Item 6 for information on cash distributions paid to
Limited Partners during 1995, 1994, 1993, 1992, and 1991.
There are no material legal restrictions upon the Partnership's ability to
make distributions in accordance with the provisions of the Partnership
Agreement. The Partnership intends to continue its policy of making quarterly
distributions of distributable cash from operations. Reference is made to the
Notes to Consolidated Financial Statements for a description of payments to the
State of Connecticut on behalf of Limited Partners and charged to Limited
Partner capital accounts.
11
ITEM 6. SELECTED FINANCIAL DATA (A)
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
DECEMBER 31, 1995, 1994, 1993, 1992 AND 1991
(NOT COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS)
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Total income (b) $ 5,174,279 $ 5,019,967 $ 4,289,754 $ 3,462,774 $ 3,102,718
Net income (loss) (c) 1,702,991 1,244,897 954,378 (6,219,956) (99,127)
Net income (loss) per Unit (c) 8.43 6.16 4.72 (30.79) (0.49)
Total assets (b) 31,201,168 32,525,759 33,782,661 35,176,295 44,162,951
Cash distributions to Limited
Partners (d) 3,090,000 2,472,000 2,400,000 2,562,000 1,248,000
Cash distributions per Unit (d) 15.45 12.36 12.00 12.81 6.24
<FN>
(a) The above selected financial data should be read in conjunction with the
consolidated financial statements and the related notes herein. Reference
is made to the Notes to Consolidated Financial Statements for a description
of payments to the State of Connecticut on behalf of Limited Partners.
These payments are charged to Limited Partner capital accounts and have not
been included as part of the above presentation.
(b) Total income excludes the venture partner's share of income and total
assets exclude venture partner's equity interest. See the Notes to
Consolidated Financial Statements for a description of the joint venture.
(c) Includes losses due to impairment of assets of $280,000 ($1.39 per Unit) in
1994 and $6,408,960 ($31.72 per Unit) in 1992, net of the venture partner's
share.
(d) Quarterly distributions are paid and recorded in the Partnership's records
as distributions 45 days following the close of the calendar quarter.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
On February 4, 1986, the Partnership commenced an offering of $35,000,000
(subject to increase up to $50,000,000) of limited partnership interests
pursuant to a Registration Statement on Form S-11 under the Securities Act of
1933. The offering terminated on December 1, 1987 and a total of 200,000 Units
were issued by the Partnership and assigned to the public at $250 per interest.
Subsequent to the termination of the offering, no Unit Holder has made any
additional capital contribution. The Partnership does not expect to seek
additional capital contributions.
After deducting selling expenses and other offering costs, the Partnership
had $45,463,209 with which to make investments in real property, to pay other
costs related to such investments and for working capital reserves. A portion of
the proceeds was utilized to acquire the properties described in Item 1 herein.
Acquisition fees to affiliates in the amount of $2,500,000 will be paid from
adjusted cash from operations after priority distributions to limited partners,
or if necessary, from cash from sale proceeds. To date, no such fees have been
paid and the General Partner expects payment to be made as properties are sold.
The Partnership did not incur any mortgage debt in connection with the
acquisition of the properties. The Partnership does not intend to incur mortgage
indebtedness at any time during the term of the Partnership.
At December 31, 1995, the Partnership's cash and cash equivalents,
excluding the joint venture's cash and cash equivalents, totalled $2,171,567.
The Partnership's share of cash and cash equivalents from the Westford Office
Venture was $780,548. Cash and cash equivalents were available for working
capital requirements, cash reserves, and distributions to Limited Partners.
Reference is made to Item 5 for information on cash distributions to Limited
Partners for 1995. Cash distributions for 1995 reflected the Partnership's
actual cash from operations after capital improvements, leasing commissions,
Partnership expenses and adjustments to cash reserves. The Partnership expects
to continue its practice of making quarterly cash distributions. Distributable
cash from operations is subject to changes in cash reserves for liabilities or
leasing risk. Based on property operational plans for 1996, the General Partner
estimates the Partnership will produce positive cash flow from operations after
capital improvements, leasing costs and Partnership expenses.
Reference is made to Item 1 for a description of the Partnership's
investment properties and a description of the markets in which the properties
operate. Reference is made to Item 2 for information on the properties'
significant tenants and lease expirations.
Subsequent to the opening of Piedmont Plaza's new anchor's store in the
third quarter of 1992, Piedmont has achieved a stabilized occupancy in the 95%
range. As of December 31, 1994, the property's net operating income had also
stabilized as a result of the new anchor, Builder's Square. The Builder's Square
lease carries a guarantee from its corporate parent, K-Mart. The property
continued to maintain a 95% occupancy throughout 1995, with minimal leasing
activity and capital costs. In 1993, it was determined that the Partnership
would realize the maximum value of Piedmont Plaza with a sale after income
stabilization. During the third quarter of 1995, CII marketed Piedmont Plaza for
sale. The marketing effort produced some offers, one of which the Partnership
elected to pursue. After a due diligence period, the potential purchaser
declined to continue with the purchase. CII revisited the other offers, none of
which proceeded beyond a letter of intent. Real estate investors have turned
very cautious toward K-Mart and retail in general as many retailers are working
through financial difficulties, consolidations, or changes in operating
philosophies. The Partnership and CII intend to re-evaluate the property's sales
price and to continue to pursue a sale if the anticipated realizable sales value
is equivalent or greater than the estimated remaining economic benefits of
continued ownership over a relatively short holding period. For 1996, no
significant leasing activity is planned, and capital improvements and leasing
costs are estimated to be minimal.
13
Westford Corporate Center is owned by a joint venture partnership in which
the Partnership owns a 73.92% equity investment. Adjusted cash from operations
at Westford Corporate Center for 1995 was $1,155,000 ($854,000 attributable to
the Partnership's interest) after capital expenditures of $44,000. During the
year one of the two existing tenants expanded into space vacated by a former
tenant. The property remains at 100% occupancy. Cash flow from operations in
1996 is expected to be similar to 1995, with no capital expenditures planned. A
sale of the Westford property, 73.92% owned through a joint venture, may be held
off until the existing tenants' leases reach expiration and are renewed or the
space is leased to new tenants in 1999 or 2000.
Adjusted cash from operations at Woodlands Tech for 1995 was $465,000 after
capital improvements and leasing commissions of $93,000. The property began 1995
with physical occupancy of 94%, and by May 31, 1995, had obtained 100% physical
occupancy. During June 1995, a tenant representing 3,854 square feet vacated
early, paying a $22,000 termination fee. In November, an existing tenant which
had expanded in April, decided to vacate the expansion space and agreed to a
termination fee $16,455. In December, a new tenant took occupancy of
approximately 3,700 square feet. The property ended the year with physical
occupancy of 92%. Leasing exposure for 1996 totals 36,303 square feet or 37% of
the net leasable area, of which 8,165 square feet is expected to be renewed (22%
of the 1996 exposure). The property has planned new leasing in 1996 totalling
17,591 square feet, or 49% of the 1996 exposure. Leasing costs for the new lease
in December 1995 and expected 1996 leasing activity have been estimated to be
approximately $267,000, to be funded by cash flow from operations. Leasing
exposure for 1997, currently 28,725 square feet representing 29% of the net
leasable area, also presents a challenge. Leasing activity for 1996 and 1997 is
not expected to require capital beyond the funding provided by cash flow from
operations. The Partnership's long term strategy includes a sale in
approximately three years after the property's operations have been stabilized
from the 1996 and 1997 leasing activity.
Overlook has provided consistently strong results for the Partnership
throughout 1995. Adjusted cash from operations for 1995 totalled approximately
$987,000 after $16,000 of capital improvements. The market in which Overlook
operates has continued to add new upscale apartments to the inventory, creating
a high rental base for the area and allowing the property to raise rates again
during 1995. Rental rates will continue to edge up in 1996 as renewals and
turnover occur. The Partnership's strategy for the property includes a holding
period of approximately three years.
RESULTS OF OPERATIONS
Partnership net operating income, (total revenue less property operating
expenses, general and administrative expenses, fees and reimbursements to
affiliates and provision for doubtful accounts) inclusive of the venture
partner's share of Venture, increased in 1995 to approximately $3,449,000
compared to approximately $3,288,000 in 1994. Continued strong occupancy at
Piedmont and Westford and modest rent increases at Overlook more than offset
decreased rental income at Woodlands Tech Center.
At Piedmont Plaza, net operating income decreased approximately $130,000 as
1994 included a $100,000 bankruptcy claim settlement from the former anchor
tenant. In addition, the property collected disputed expense recoveries in 1994
from the anchor tenant relating to 1992 and 1993. The decrease is partially
offset by slightly higher occupancy in 1995.
A tenant at Westford Corporate Center expanded in April and September of
1994. As a result, Westford's net operating income increased approximately
$248,000 for 1995 versus 1994.
At Woodlands Tech Center net operating income increased approximately
$6,000 in 1995. Slight decreases in occupancy and rental rates were more than
offset by approximately $13,000 of 1993 and 1994 property tax refunds received
in 1995.
Increased revenues at Overlook Apartments, due to higher rental rates in
1995, were partially offset by a rise in expenses for property taxes, insurance,
carpet replacements and pest control service. The result was an approximate
14
$9,000 increase in net operating income in 1995 as compared to 1994.
The balance of the increase in Partnership net operating income for 1995
was due primarily to increased interest income due to increased rates.
RESULTS - 1995 COMPARED WITH 1994
Base rental income increased approximately $238,000 for the year ended
December 31, 1995, as compared with 1994. Slightly higher occupancy at Piedmont
Plaza led to an increase in rental income of approximately $37,000. At Westford
Corporate Center, rent from a tenant's expansions in April and September of 1994
largely contributed to the approximate $139,000 increase. Rental income at
Overlook Apartments increased approximately $69,000 as a result of modest rental
rate increases. Tenant turnover has resulted in an approximate $7,000 decrease
in rental income at Woodlands Tech.
Other income decreased approximately $74,000 for the year ended December
31, 1995, as compared to 1994. Piedmont reported a $156,000 decrease as 1994
included a bankruptcy claim settlement from the former anchor tenant. In
addition, Piedmont collected expense recoveries in 1994 from the current anchor
tenant for 1992 and 1993. At Westford, a tenant's expansion led to additional
expense recovery income of approximately $87,000 for the year.
Interest income increased for the year ended December 31, 1995, as compared
to 1994, due to an increase in interest rates on short term investments.
Overall, property operating expenses increased for the year ended December
31, 1995, as compared to 1994. Insurance costs for each of the properties rose
slightly in 1995 over 1994. Repairs and maintenance expense increased at
Piedmont Plaza as a result of an exterior painting project, and at Overlook
Apartments due to a greater number of carpet replacements and expanded pest
control service. Westford's expenses dropped as less was spent on snowplowing
and elevator repairs. Expense savings at Westford were partially offset by an
increase in management fees (earned as a percentage of collected revenues). An
increase in property taxes at Overlook was offset by decreases at Westford
(reduced assessment) and Woodlands Tech (1993 and 1994 tax refunds recorded in
1995).
The decrease in general and administrative expenses for the year ended
December 31, 1995, as compared with the previous year, was primarily the result
of a second quarter 1994 agreement with Piedmont's anchor tenant for the
reimbursement of sales tax paid by the Partnership on rental income. The
reimbursement received from the tenant was netted directly against the sales tax
payment, which had been previously recorded as general and administrative
expense.
The increase in provision for doubtful accounts was primarily related to
the collectibility of expense reimbursements from the anchor tenant of Piedmont
Plaza.
The joint venture operations improved for the year ended December 31, 1995,
as compared with 1994, due to a tenant's expansions in the second and third
quarters of 1994.
The decrease in depreciation and amortization for the year ended December
31, 1995, as compared with 1994, was due to the expiration of useful lives of
certain assets at Woodlands Tech, Piedmont and Overlook in 1995 and accelerated
depreciation and amortization associated with vacated tenants at Woodlands Tech
in 1994. The decrease was partially offset by additional depreciation from
tenant improvements and leasing commissions associated with a 1994 tenant
expansion at Westford.
RESULTS - 1994 COMPARED WITH 1993
Base rental income increased approximately $340,000 for the year ended
December 31, 1994, as compared with
15
1993. The turnover of tenants and signing of new leases increased rents by
approximately $23,000 at Piedmont Plaza and decreased rents at Woodlands Plaza
by approximately $42,000. The decrease at Woodlands was partially offset by the
receipt in 1994 of a lease termination fee of approximately $22,000. At Westford
Corporate Center, rent from a 24,585 square foot lease executed in the third
quarter of 1993 and the tenant's subsequent 15,507 and 25,054 square foot
expansions on April 1, 1994 and September 1, 1994, respectively, added
approximately $221,000 to the increase. Rental income at Overlook Apartments
increased approximately $116,000 as a result of rental rate increases, averaging
5% upon renewal or turnover, and a reduction in concessions as the market
strengthened.
Other income increased approximately $464,000 for the year ended December
31, 1994, as compared to 1993. Piedmont reported a $300,000 increase,
principally related to expense recoveries from the anchor tenant and a
bankruptcy claim settlement from the former anchor tenant. Westford posted an
approximate $158,000 increase due primarily to expense charge-back billings
relating to the newly leased space.
Interest income increased for the year ended December 31, 1994, as compared
to 1993, due to an increase in the Partnership's average cash balance and higher
interest rates on short term investments.
Property operating expenses increased for the year ended December 31, 1994,
as compared to 1993. Piedmont's repair and maintenance expense increased as a
result of the replacement of water and sewer meters, partially offset by a
decrease in roof repairs. Property taxes at Piedmont increased slightly as a
result of an increase in assessed value. Westford had an increase in cleaning,
maintenance and management fee expenses, and, due to the extreme winter, spent
substantially more on snowplowing in early 1994. Property taxes at Westford
decreased as a result of a successful property tax appeal (fiscal year is July
1, 1993 to June 30, 1994). The tax appeal resulted in a decrease to the assessed
value and a refund which was received and posted to second quarter results.
Repairs and maintenance expense at Overlook Apartments increased due to carpet
and refrigerator compressor replacement expenditures and a painting and vinyl
replacement project.
The provision for doubtful accounts in 1993 related to a collection of
expense reimbursements problem at Piedmont Plaza.
Depreciation and amortization for the year ended December 31, 1994, as
compared with 1993, increased as a result of new tenant improvements and leasing
commissions at Westford and Woodlands and accelerated depreciation and
amortization of assets associated with vacated tenants at Woodlands.
In 1994 the Partnership recorded an impairment loss relative to Piedmont
Plaza due to estimated future cash flow declines reflecting a change in the
estimated holding period.
The joint venture operations improved for the year ended December 31, 1994,
as compared with 1993, due to a new tenant taking occupancy in the fourth
quarter of 1993 and its subsequent expansions in the second and third quarters
of 1994.
INFLATION
With inflation at a low rate during 1995, 1994 and 1993, the effect of
inflation and changing prices on current revenue and income from operations has
been minimal.
Any significant inflation in future periods is likely to increase rental
rates (from leases to new tenants or renewals of leases to existing tenants)
assuming no major changes in market conditions. At the same time, it is
anticipated that property operating expenses will be similarly affected.
Assuming no major changes in occupancy levels, increases in rental income are
expected to cover inflation driven increases in the cost of operating the
properties and in property taxes. Inflation may also contribute to capital
appreciation of the Partnership's investment properties over a period of time as
rental rates and replacement costs of properties increase.
16
The escalation clauses and recapture provisions that exist on certain
leases at Woodlands Tech Center, Westford Corporate Center and Piedmont Plaza
offer the Partnership some protection against inflation.
Escalation clauses dilute the increases in operating expenses due to
inflation. As operating expenses attributable to inflation increase, so will the
escalation revenues due to the Partnership, offsetting, at least in part, the
increase in total expenses. The recapture provisions protect the Partnership
from rising costs of common area maintenance as well as taxes and other
operating expenses by passing through, at least partially, these increases to
the lessees.
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
INDEX
PAGE
Report of Independent Accountants 19
Financial Statements:
Consolidated Balance Sheets, December 31, 1995 and 1994 20
Consolidated Statements of Operations, For the Years Ended December 31, 1995, 1994 and 1993 21
Consolidated Statements of Partners' Capital, For the Years Ended December 31, 1995, 1994 and 1993 22
Consolidated Statements of Cash Flows, For the Years Ended December 31, 1995, 1994 and 1993 23
Notes to Financial Statements 24
Schedules:
III - Real Estate and Accumulated Depreciation, December 31, 1995 31
Schedules not filed:
All schedules other than those indicated in the index have been omitted as
the required information is inapplicable or the information is presented in the
financial statements or related notes.
18
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
CIGNA Income Realty-I Limited Partnership
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of CIGNA Income
Realty-I Limited Partnership at December 31, 1995 and 1994, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Hartford, Connecticut
February 16, 1996
19
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS 1995 1994
------ ---- ----
Property and improvements, at cost:
Land and improvements $ 9,552,353 $ 9,492,296
Buildings 27,323,577 27,310,597
Tenant improvements 5,257,538 5,168,282
Furniture and fixtures 820,904 820,904
--------------- ---------------
42,954,372 42,792,079
Less accumulated depreciation 13,104,206 11,635,309
--------------- ---------------
Net property and improvements 29,850,166 31,156,770
Cash and cash equivalents 3,227,503 3,404,809
Accounts receivable (net of allowance of $15,158 in
1995 and $725 in 1994) 300,941 375,506
Prepaid expenses and other assets 9,760 20,614
Deferred charges, net 492,190 611,084
--------------- ---------------
Total $ 33,880,560 $ 35,568,783
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses (including $24,532
in 1995 and $20,526 in 1994 due to affiliates) $ 261,013 $ 211,187
Tenant security deposits 113,188 108,426
Unearned income 25,032 14,252
Deferred acquisition fees due to affiliates 2,500,000 2,500,000
--------------- ---------------
Total liabilities 2,899,233 2,833,865
--------------- ---------------
Venture partner's equity in joint venture 2,679,392 3,043,024
--------------- ---------------
Partners' capital:
General Partner:
Capital contributions 1,000 1,000
Cumulative net income 42,670 25,640
--------------- ---------------
43,670 26,640
--------------- ---------------
Limited partners (200,000 Units):
Capital contributions, net of offering costs 45,463,209 45,463,209
Cumulative net income 4,224,350 2,538,389
Cumulative cash distributions (21,429,294) (18,336,344)
--------------- ---------------
28,258,265 29,665,254
--------------- ---------------
Total partners' capital 28,301,935 29,691,894
--------------- ---------------
Total $ 33,880,560 $ 35,568,783
=============== ===============
The Notes to Consolidated Financial Statements are an
integral part of these statements.
20
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
---- ---- ----
Income:
Base rental income $ 4,632,760 $ 4,394,632 $ 4,054,590
Other income 869,720 943,355 479,468
Interest income 170,263 121,905 89,689
------------- ------------- -------------
5,672,743 5,459,892 4,623,747
------------- ------------- -------------
Expenses:
Property operating expenses 1,619,142 1,588,395 1,484,361
General and administrative 395,160 419,267 427,975
Fees and reimbursements to affiliates 189,643 161,006 154,472
Provision for doubtful accounts 19,412 3,519 13,794
Depreciation and amortization 1,588,427 1,660,381 1,568,450
Loss due to impairment of assets -- 280,000 --
------------- ------------- -------------
3,811,784 4,112,568 3,649,052
------------- ------------- -------------
Income inclusive of venture
partner's share of venture operations 1,860,959 1,347,324 974,695
Venture partner's share of venture income (157,968) (102,427) (20,317)
------------- -------------- -------------
Net income $ 1,702,991 $ 1,244,897 $ 954,378
============= ============= =============
Net income:
General Partner $ 17,030 $ 12,449 $ 9,544
Limited partners 1,685,961 1,232,448 944,834
------------- ------------- -------------
$ 1,702,991 $ 1,244,897 $ 954,378
============= ============= =============
Net income per Unit $ 8.43 $ 6.16 $ 4.72
============= ============= =============
Cash distributions per Unit $ 15.46 $ 12.37 $ 12.01
============= ============= =============
The Notes to Consolidated Financial Statements are an
integral part of these statements.
21
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
General Limited
Partner Partners Total
Balance at December 31, 1992 $ 4,647 $ 32,363,554 $ 32,368,201
Cash distributions -- (2,401,552) (2,401,552)
Net income 9,544 944,834 954,378
----------- -------------- --------------
Balance at December 31, 1993 14,191 30,906,836 30,921,027
Cash distributions -- (2,474,030) (2,474,030)
Net income 12,449 1,232,448 1,244,897
----------- -------------- --------------
Balance at December 31, 1994 26,640 29,665,254 29,691,894
Cash distributions -- (3,092,950) (3,092,950)
Net income 17,030 1,685,961 1,702,991
----------- -------------- --------------
Balance at December 31, 1995 $ 43,670 $ 28,258,265 $ 28,301,935
=========== ============== ==============
The Notes to Consolidated Financial Statements are an
integral part of these statements.
22
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Net income $ 1,702,991 $ 1,244,897 $ 954,378
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred rent credits 19,877 30,682 5,588
Provision for doubtful accounts 19,412 3,519 13,794
Depreciation and amortization 1,588,427 1,660,381 1,568,450
Loss due to impairment of assets -- 280,000 --
Venture partner's share of venture's operations 157,968 102,427 20,317
Accounts receivable 55,153 (62,328) (157,448)
Accounts payable and accrued expenses 31,124 (13,283) 5,309
Other, net 26,396 3,713 39,403
--------------- -------------- --------------
Net cash provided by operating activities 3,601,348 3,250,008 2,449,791
--------------- -------------- --------------
Cash flows from investing activities:
Distribution to joint venture partner (521,600) -- --
Purchases of property and improvements (144,511) (330,303) (288,267)
Payment of leasing commissions (20,513) (90,862) (73,314)
--------------- -------------- --------------
Net cash used in investing activities (686,624) (421,165) (361,581)
--------------- -------------- --------------
Cash flows from financing activities:
Cash distributions to limited partners (3,092,030) (2,473,552) (2,403,507)
--------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents (177,306) 355,291 (315,297)
Cash and cash equivalents, beginning of year 3,404,809 3,049,518 3,364,815
--------------- -------------- --------------
Cash and cash equivalents, end of year $ 3,227,503 $ 3,404,809 $ 3,049,518
=============== ============== ==============
Supplemental disclosure of non-cash information:
Accrued purchase of property and improvements $ 17,782 $ -- $ 31,225
=============== ============== ==============
The Notes to Consolidated Financial Statements are an
integral part of these statements.
23
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF ACCOUNTING
The General Partner of CIGNA Income Realty-I Limited Partnership (the
"Partnership") is CIGNA Realty Resources, Inc.-Tenth (the "General Partner"), an
indirect wholly owned subsidiary of CIGNA Corporation. The Partnership is a
Delaware limited partnership which owns and operates three commercial properties
(including one owned through a joint venture) located in Missouri, Massachusetts
and Florida, and one residential property located in Arizona.
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
The accompanying consolidated financial statements include the accounts of
the Partnership and its consolidated venture, Westford Office Venture. The
effect of all transactions between the Partnership and the consolidated venture
has been eliminated.
The Partnership's records are maintained on the accrual basis of accounting
for financial reporting purposes and are adjusted for federal income tax
reporting. The net effects of the adjustments as of December 31, 1995, 1994 and
1993, principally relating to the classification of syndication costs,
impairment losses and differences in depreciation methods, are summarized as
follows:
1995 1994 1993
---- ---- ----
Financial Tax Financial Tax Financial Tax
Reporting Reporting Reporting Reporting Reporting Reporting
Total assets $ 33,880,560 $ 43,233,774 $ 35,568,783 $ 44,459,133 $ 36,723,258 $ 45,291,922
Partners' capital:
General Partner 43,670 120,103 26,640 101,973 14,191 85,261
Limited partners 28,258,265 40,233,704 29,665,254 41,531,782 30,906,836 42,351,326
Net income (a):
General Partner 17,030 18,130 12,449 16,712 9,544 10,184
Limited partners 1,685,961 1,794,872 1,232,448 1,654,486 944,834 1,008,241
Net income (loss) 8.43 15.18- 6.16 14.59- 4.72 11.43-
per Unit(a)(b) .52 (.34) (3.64)
<FN>
(a) Included in 1994 is $280,000 ($1.39 per Unit) of losses due to impairment
of assets for financial reporting.
(b) For tax reporting only, all depreciation is allocated 1% to the General
Partner and 99% to the taxable limited partners in accordance with the
Partnership Agreement. The two amounts on a per Unit basis presented for
1995, 1994 and 1993 for tax reporting represent the differing allocations
to nontaxable and taxable limited partners.
24
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) PROPERTY AND IMPROVEMENTS: Property and improvements are recorded at cost
less accumulated depreciation. The cost represents the initial purchase
price, subsequent capitalized costs and adjustments, including certain
acquisition expenses and impairment losses. Amounts received under master
lease agreements from the sellers of the properties have been treated as a
reduction of purchase price. Payments to the seller of the Woodlands Tech
Center under an earnout provision have been treated as an increase in
purchase price.
Depreciation on property and improvements is calculated on the
straight-line method based on the estimated useful lives of the real
property (15 to 39 years), tangible personal property (7 years) and
tenant improvements (respective lease terms). Maintenance and repair
expenses are charged to operations as incurred.
As a result of inherent changes in market values of real estate property
and improvements, the Partnership reviews potential impairment annually.
The undiscounted future cash flows for each property, as estimated by the
Partnership, are compared to the net book value. If the carrying value is
greater than the sum of the estimated future undiscounted cash flows, and
deemed other than temporary, an impairment loss is recorded.
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"). Under the Statement, entities should continue to compare
the sum of the expected undiscounted future net cash flows to the
carrying value of the asset. If an impairment exists, the Statement
requires a writedown to fair value. 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 will
adopt this Statement in the first quarter of 1996; the effect on the
Partnership's results of operations, liquidity and financial condition
can not be estimated.
B) CASH AND CASH EQUIVALENTS: Short-term investments with a maturity of three
months or less at the time of purchase are generally reported as cash
equivalents.
C) DEFERRED CHARGES: Deferred charges consist of leasing commissions and
rental concessions that are being amortized using the straight-line method
over the respective lease terms.
D) PARTNERS' CAPITAL: Offering costs comprised of sales commissions and other
issuance expenses have been charged to the partners' capital accounts as
incurred.
E) INCOME TAXES: No provision for income taxes has been made as the liability
for such taxes is that of the partners rather than the Partnership.
F) BASIS OF PRESENTATIONS: Certain amounts in the 1993 and 1994 financial
statements have been reclassified to conform with the 1995 presentation.
3. INVESTMENT PROPERTIES
The Partnership has acquired, either directly or through a joint venture, two
commercial office complexes, one shopping plaza and one apartment complex
located in Missouri, Massachusetts, Florida and Arizona, respectively. Leases in
effect are generally for a term of twenty years or less for the commercial
properties, and for one year or less for the residential property. No mortgage
debt was incurred in the purchases.
25
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
During 1995, the Partnership attempted to sell its shopping center property,
Piedmont Plaza. After a marketing period and the completion of due diligence by
potential buyers, the Partnership did not sell the property. The Partnership is
currently reevaluating Piedmont Plaza's sale strategy and, therefore, the
property's sale status is uncertain as of December 31, 1995.
With respect to the Partnership's accounting policy for impairment of assets,
the Partnership recognized impairment of asset losses in 1994 and 1992. In 1994,
the Partnership recorded an impairment of $280,000 relative to Piedmont Plaza
due to a reduction in the estimated holding period. In 1992, the Partnership
recorded impairments of $3,600,000 and $3,800,000 relative to Piedmont Plaza and
Westford Corporate Center, respectively. At Piedmont, estimated future cash
flows declined reflecting changes in estimated potential revenue from future
leasing. As a result of the oversupply of space and the continued downward
pressure on rental rates in the market which Piedmont operates, expected future
rental rates would be renewed and/or renegotiated at lower rates. At Westford,
the estimated holding period was reduced.
4. DEFERRED CHARGES
Deferred charges at December 31, 1995 and 1994 consist of the following:
1995 1994
---- ----
Deferred leasing commissions $ 1,059,008 $ 1,038,495
Accumulated amortization (604,402) (484,872)
------------- -------------
454,606 553,623
Deferred rent credits 37,584 57,461
------------- -------------
$ 492,190 $ 611,084
============= =============
5. VENTURE AGREEMENTS
The Partnership acquired a 73.92% interest in the Westford Office Venture
(the "Venture"), which owns the Westford Corporate Center in Westford,
Massachusetts. The remaining equity interest in the Venture is held by
Connecticut General Equity Properties-I Limited Partnership, an affiliated
limited partnership.
Summary financial information for the Venture as of and for the years ended
December 31, 1995, 1994 and 1993 follows:
1995 1994 1993
---- ---- ----
Total assets $ 11,280,276 $ 12,671,892 $ 12,343,992
Total liabilities 751,999 749,320 814,161
Total income 1,911,290 1,686,829 1,280,650
Net income 605,705 392,741 77,904
<FN>
Pursuant to the Joint Venture Agreement, net income or loss, cash
distributions from operations, net income and distributable cash from the sale
or disposition of the property are generally allocated to the venturers in
accordance
26
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
with their percentage capital contributions. Percentage interests are subject to
change if any future contributions made by the venturers to the Venture are
disproportionate to their percentage interests.
The Venture paid a distribution to the venturers of $2,000,000 in 1995, of
which the Partnership's share was $1,478,400. No distributions were made by the
Venture in 1994 or 1993.
6. LEASES
All of the commercial properties have leases currently in effect which have
been accounted for as operating leases. The majority have terms which range from
three to five years. Following is a schedule of minimum annual future rentals
based upon non-cancelable leases currently in effect, assuming no exercise of
tenant renewal options.
Year ending December 31:
1996 $2,853,884
1997 2,589,842
1998 2,323,081
1999 1,128,158
2000 689,292
Thereafter 7,195,138
Certain of the leases contain escalation and expense recapture clauses
which provide that tenants will pay their pro rata share of any increases in
common area maintenance, taxes and other operating expenses over base period
amounts. The Partnership earned $751,338 in 1995, $807,628 in 1994 and, $367,523
in 1993 as a result of such provisions. These amounts are included in other
income on the Statement of Operations.
Generally, a portion of the net leasable area for commercial real estate
properties is occupied by significant tenants (occupying ten percent or more of
net leasable area). Significant tenant information for the Partnership's
investment properties, including the property owned through a joint venture, is
as follows: Woodlands Tech - two tenants occupy 28% of net leasable area and
account for 30% of gross rental revenue; Piedmont Plaza - one tenant occupies
71% of net leasable area and accounts for 66% of gross rental revenue; Westford
- - two tenants occupy 100% of the net leasable area and account for 100% of gross
rental revenue. Any loss of a significant tenant could have a material adverse
effect on the Partnership's results of operations. Although an uncertainty
exists relative to the replacement of a tenant upon early termination, the
revenue effect of an early termination of a significant tenant is tempered by
the potential for termination fees, and is therefore not likely to be material
to the Partnership's liquidity or financial condition.
7. TRANSACTIONS WITH AFFILIATES
An affiliate of the General Partner provided investment property
acquisition services to the Partnership for fees of $2,500,000 which will be
payable from adjusted cash from operations after priority distributions to the
Partners or, if necessary, from sales proceeds.
27
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Fees and other expenses related to the General Partner or its affiliates
during the periods ended December 31, 1995, 1994 and 1993 are as follows:
1995 1994 1993
---- ---- ----
Property management fee (a)(b) $ 116,633 $ 109,952 $ 108,042
Printing 10,609 10,127 12,382
Reimbursement (at cost) for
out of pocket expenses 62,401 40,927 34,048
----------- ------------ -----------
$ 189,643 $ 161,006 $ 154,472
=========== ============ ===========
<FN>
(a) Does not include property management fees earned by independent property
management companies of $194,007, $187,062 and $168,037 for 1995, 1994 and
1993 respectively. Certain 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.
(b) In 1995, 1994 and 1993, $14,577, $13,210 and $9,351, respectively, was
attributable to the joint venture partner's share of the Venture.
8. PARTNERS' CAPITAL
During 1991, the State of Connecticut enacted income tax legislation, a
part of which affects partnerships. The portfolio income allocations made by the
Partnership to the limited partners are considered Connecticut based income and
subject to Connecticut tax. The Partnership has elected to pay the tax due on
the limited partners' share of portfolio income and, therefore, paid tax due of
$2,030 directly to the State of Connecticut in April 1995 for the 1994 Form CT-G
Connecticut Group Income Tax Return. The Partnership also accrued the 1995
estimated payment of $2,950 as of December 31, 1995. These amounts were treated
as reductions of partners' capital and reported as distributions in the
accompanying financial statements.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of the Partnership's financial instruments at December 31, 1995. Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments", defines the fair value of a financial instrument as the
amount at which the instrument could be exchanged in a current transaction
between willing parties.
Carrying Fair
Amount Value
ASSETS:
Cash and cash equivalents $3,227,503 $3,227,503
Accounts receivable, net 300,941 300,941
Other assets 9,760 9,760
28
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Carrying Fair
Amount Value
LIABILITIES:
Accounts payable and accrued expenses $ 261,013 $ 261,013
Deferred acquisition fees due to affiliates 2,500,000 2,028,536
<FN>
The carrying amounts shown in the table are included in the balance sheet under
the indicated captions.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Cash, Accounts receivable, Other assets, and Accounts payable and accrued
expenses: The carrying amounts approximate fair value because of the short
maturity of those instruments.
Deferred acquisition fees due to affiliates: The fair value was estimated
by discounting cash flows over the estimated holding periods of the
investment properties using a market rate.
10. PARTNERSHIP AGREEMENT
Pursuant to the terms of the Partnership Agreement, net income or loss
before depreciation and cash distributions from operations are to be allocated
1% to the General Partner and 99% to the Limited Partners. All depreciation in
each taxable year shall be allocated 1% to the General Partner and 99% to the
taxable Limited Partners. Cash distributions from operations are generally
allocated in the following order:
o To the Limited Partners until each Limited Partner has received
aggregate distributions in respect of the fiscal year of the
Partnership equal to 6% non-cumulative and non-compounded on Adjusted
Invested Capital, as defined in the Partnership Agreement;
o To the General Partner until it has received aggregate distributions in
respect of the fiscal year of the Partnership equal to 1%
non-cumulative and non-compounded of the sum of all amounts distributed
to the Limited Partners and all amounts received by the General Partner
as described herein;
o To the General Partner or its Affiliates in an amount equal to any
subordinated fees which remain unpaid;
o To an affiliate of the General Partner as a subordinated incentive
management fee in an amount generally equal to 9% of adjusted cash from
operations, but only after the Partners have received their priority
distributions; and
o With respect to the remainder, 99% to the Limited Partners and 1% to
the General Partner.
Generally net income or loss from the sale or disposition of investment
properties is to be allocated in the following order:
o To each Partner having a deficit balance in the same ratio of such
balance to the aggregate balance of all Partners;
29
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
o To the Partners who received allocations of depreciation in the same
ratio as the amount of such depreciation previously allocated;
o To the Partners to the extent of, and in proportion to, the amount of
cash distributions from sales to be received by each, other than the
return of original invested capital; and
o To the Partners in proportion to the cash from sales distributed in
the return of original invested capital.
Distributable cash from the sale or disposition of investment properties is
to be generally allocated in the following order:
o To the General Partner or its affiliates in an amount equal to any
acquisition fees which remain unpaid;
o To the Limited Partners until each Limited Partner has received
aggregate distributions equal to his original invested capital;
o To the Limited Partners until each Limited Partner has received
distributions in an aggregate amount which shall be equal to a 10% per
annum cumulative non-compounded return on his adjusted invested
capital;
o To an affiliate of the General Partner in payment of a subordinated
disposition fee in an amount equal to the lesser of 3% of the gross
sales price of the property or one-half of the normal and competitive
rate charged for similar services by unaffiliated parties; and
o With respect to the remainder, 85% to the Limited Partners and 15% to
the General Partner.
11. SUBSEQUENT EVENTS
On February 15, 1996, the Partnership paid a cash distribution of $750,000
to the limited partners.
30
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP SCHEDULE III
(A DELAWARE LIMITED PARTNERSHIP
AND CONSOLIDATED VENTURE)
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
====================================================================================================================
Costs Capitalized
Initial Cost to Partnership (A)(B) Subsequent to
Acquisition (C)
---------------------------------------------------------------------------------------
Land, Building
Description Land and Land Buildings Furniture and Improvements and
Improvements Fixtures Furniture & Fixtures
- --------------------------------------------------------------------------------------------------------------------
Woodlands Tech Center 1,245,400 $ 6,090,171 $ -- $ 1,336,051
St. Louis, MO
Westford Corporate Center (G) 3,223,875 13,759,689 -- (2,229,002)
Westford, MA
Piedmont Plaza Shopping Center 4,367,093 6,201,165 -- (1,282,755)
Apopka, FL
Overlook Apartments 2,932,103 6,462,901 788,608 59,073
Scottsdale, AZ
- --------------------------------------------------------------------------------------------------------------------
Totals $11,768,471 $32,513,926 $ 788,608 $ (2,116,633)
====================================================================================================================
=====================================================================================================================
Gross Amount at Which Carried at Close of Period (D)(E)
----------------------------------------------------------------------------------------
Description Land and Land Buildings and Tenant Furniture and
Improvements Improvements Improvements Fixtures Total
- ---------------------------------------------------------------------------------------------------------------------
Woodlands Tech Center $1,245,400 $ 6,159,375 $1,266,847 $ -- $ 8,671,622
St. Louis, MO
Westford Corporate Center (G) 2,546,078 10,716,382 1,492,102 -- 14,754,562
Westford, MA
Piedmont Plaza Shopping Center 2,801,996 3,984,918 2,498,589 -- 9,285,503
Apopka, FL
Overlook Apartments 2,958,879 6,462,902 -- 820,904 10,242,685
Scottsdale, AZ
- ---------------------------------------------------------------------------------------------------------------------
Totals $9,552,353 $27,323,577 $5,257,538 $ 820,904 $42,954,372
=====================================================================================================================
31
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP SCHEDULE III
(A DELAWARE LIMITED PARTNERSHIP
AND CONSOLIDATED VENTURE)
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
==================================================================================================================
Life on Which
Depreciation in Latest
Accumulated Statement of Operations
Description Depreciation (F) Date of Construction Date Acquired is Computed
- ------------------------------------------------------------------------------------------------------------------
Woodlands Tech Center $ 3,044,027 1986 07/03/86 2-39 years
St. Louis, MO
Westford Corporate 4,726,178 1986 11/01/86 2-39 years
Center (G)
Westford, MA
Piedmont Plaza 2,579,616 1985 05/01/87 2-39 years
Shopping Center
Apopka, FL
Overlook Apartments 2,754,385 1988 10/14/88 7-27.5 years
Scottsdale, AZ
- ------------------------------------------------------------------------------------------------------------------
Totals $13,104,206
==================================================================================================================
<FN>
(A) The cost to the Partnership represents the initial purchase price of the
properties including certain acquisition fees and expenses. In accordance
with the Partnership Agreement, all properties were acquired without
incurring any long-term debt.
(B) The Partnership received $516,550, $245,531, $173,232 and $371,389 from the
sellers of Woodlands Tech Center, Westford Corporate Center, Piedmont Plaza
and Overlook Apartments, respectively, under master lease agreements, which
were treated as a reduction of initial cost. The Partnership paid $308,589
under an earnout agreement with the sellers of Woodlands Tech Center, which
was treated as an addition to initial cost.
(C) Includes impairment losses in 1994 relative to Piedmont Plaza in the amount
of $280,000 and in 1992 relative to Piedmont Plaza and Westford Corporate
Center in the amounts of $3,600,000 and $3,800,000, respectively.
(D) The aggregate cost of the real estate owned at December 31, 1995 for federal income tax purposes is $50,634,373.
(E) Reconciliation of real estate owned:
=================================================================================================
Description 1995 1994 1993
=================================================================================================
Balance at beginning of period $42,792,079 $42,773,001 $42,453,509
Additions during period 162,293 299,078 319,492
Reductions during period (C) -- (280,000) --
- -------------------------------------------------------------------------------------------------
Balance at end of period $42,954,372 $42,792,079 $42,773,001
=================================================================================================
(F) Reconciliation of accumulated depreciation:
=================================================================================================
Description 1995 1994 1993
=================================================================================================
Balance at beginning of period $11,635,309 $10,115,121 $8,652,572
Additions during period 1,468,897 1,520,188 1,462,549
- -------------------------------------------------------------------------------------------------
Balance at end of period $13,104,206 $11,635,309 $10,115,121
=================================================================================================
<FN>
(G) Includes ownership interest of the venture partner.
32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The General Partner of the Partnership, CIGNA Realty Resources, Inc.-Tenth,
a Delaware corporation, is an indirect, wholly owned subsidiary of CIGNA
Corporation, a publicly held corporation whose stock is traded on the New York
Stock Exchange. The General Partner has responsibility for and control over the
affairs of the Partnership.
The directors and executive officers of the General Partner as of February
15, 1996, are as follows:
Name Office Served Since
R. Bruce Albro Director May 2, 1988
David Scheinerman Director July 25, 1995
Philip J. Ward Director May 2, 1988
John D. Carey President, Controller September 7, 1993
September 4, 1990
Verne E. Blodgett Vice President, Counsel April 2, 1990
Joseph W. Springman Vice President, Assistant Secretary September 7, 1993
David C. Kopp Secretary September 29, 1989
Marcy F. Blender Treasurer August 1, 1994
There is no family relationship among any of the foregoing directors or
officers. There are no arrangements or understandings between or among said
officers or directors and any other person pursuant to which any officer or
director was selected as such.
The foregoing directors and officers are also officers and/or directors of
various affiliated companies of CIGNA Realty Resources, Inc.-Tenth, including
CIGNA Financial Partners, Inc. (the parent of CIGNA Realty Resources,
Inc.-Tenth), CIGNA Investments, Inc., CIGNA Corporation (the parent of CIGNA
Investments, Inc.) and Connecticut General Corporation (the parent of CIGNA
Financial Partners, Inc.).
33
The business experience of each of the directors and executive officers of
the General Partner of the Partnership is as follows:
R. BRUCE ALBRO - DIRECTOR
Mr. Albro, age 53, a Senior Managing Director of CIGNA Investment
Management (CIM), joined Connecticut General's Investment Operations in 1971 as
a Securities Analyst in Paper, Forest Products, Building and Machinery.
Subsequently, he served as a Research Department Unit Head, as an Assistant
Portfolio Manager, then as Director of Equity Research and a member of the
senior staff of CIGNA Investment Management Company and as a Portfolio Manager
in the Fixed Income area. He then headed the Marketing and Merchant Banking area
for CII. Prior to his current assignment of Division Head, Portfolio Management
Division, he was an insurance portfolio manager, and prior to that, he was
responsible for Individual Investment Product Marketing. In addition, Mr. Albro
currently serves as President of the CIGNA Funds Group and other CIGNA
affiliated mutual funds. Mr. Albro received a Master of Arts degree in Economics
from the University of California at Berkeley and a Bachelor of Arts degree in
Economics from the University of Massachusetts at Amherst.
DAVID SCHEINERMAN - DIRECTOR
Mr. Scheinerman, age 35, was appointed Chief Financial Officer of CIGNA
Individual Insurance, a division with more than $77 billion of life insurance in
force, in July of 1995. Mr. Scheinerman has served in various actuarial and
business management capacities with CIGNA. In 1991 he was appointed Vice
President and Pricing Actuary for CIGNA HealthCare. He has more than 12 years of
financial management experience and has served as Chief Financial Officer of
Crusader Insurance PLC, a CIGNA subsidiary life company in the United Kingdom.
Mr. Scheinerman holds a BA in Mathematics from Rice University and an MBA from
the University of Pennsylvania Wharton School of Business. He is a fellow of the
Society of Actuaries and a member of the American Academy of Actuaries.
PHILIP J. WARD - DIRECTOR
Mr. Ward, age 47, is Senior Managing Director and Division Head of CIGNA
Investment Management (CIM), in charge of the Real Estate Investment Division of
CIM. He was appointed to that position in December 1985. Mr. Ward joined
Connecticut General's Mortgage and Real Estate Department in 1971 and became an
officer in 1976. Since joining the company he has held real estate investment
assignments in Mortgage and Real Estate Production and in Portfolio Management.
Prior to his current position, Mr. Ward held assignments in CIGNA Investments
Inc., responsible for the Real Estate Production area, CIGNA Realty Advisors,
Inc. and Congen Realty Advisory Company, all wholly-owned subsidiaries of CIGNA
Corporation and/or Connecticut General. Mr. Ward has held various positions with
the General Partner. His experience includes all forms of real estate
investments, with recent emphasis on acquisitions and joint ventures. Mr. Ward
is a 1970 graduate of Amherst College with a Bachelor of Arts degree in
Economics. He is a member of the Society of Industrial and Office Realtors, the
National Association of Industrial and Office Parks, the Urban Land Institute
and the International Council of Shopping Centers. He is a member of the Board
of Directors of DeBartolo Realty Corporation.
34
JOHN D. CAREY - PRESIDENT, CONTROLLER
Mr. Carey, age 32, joined CIGNA Investment Management-Real Estate as
Controller of Tax Advantaged Investments in 1990. In September 1993, Mr. Carey
was appointed President. Prior to joining CIGNA Investment Management, he held
the position of manager at KPMG Peat Marwick LLP in the audit department and was
a member of the Real Estate Focus Group. His experiences include accounting and
financial reporting for public and private real estate limited partnership
syndications. Mr. Carey is a graduate of Central Connecticut State University
with a Bachelor of Science Degree and is a Certified Public Accountant.
VERNE E. BLODGETT - VICE PRESIDENT, COUNSEL
Mr. Blodgett, age 58, is an Assistant General Counsel of CIGNA Corporation.
He joined Connecticut General Life Insurance Company in 1975 as an investment
attorney and has held various positions in the Legal Division of Connecticut
General Life Insurance Company prior to his appointment as Assistant General
Counsel in 1981. Mr. Blodgett received a Bachelor of Arts degree from Yale
University and graduated with honors from the University of Connecticut School
of Law. He is a member of the Connecticut and the American Bar Associations.
JOSEPH W. SPRINGMAN - VICE PRESIDENT, ASSISTANT SECRETARY
Mr. Springman, age 54, is Managing Director and department head responsible
for asset management. He joined CIGNA's Real Estate operations in 1970. He has
held positions as an officer or director of several real estate affiliates of
CIGNA. His past real estate assignments have included Development and
Engineering, Property Management, Director, Real Estate Operations, Portfolio
Management and Vice President, Real Estate Production. Prior to assuming his
asset management post, Mr. Springman was responsible for production of real
estate and mortgage investments. He received a Bachelor of Science degree from
the U.S. Naval Academy.
DAVID C. KOPP - SECRETARY
Mr. Kopp, age 50, is Secretary of CII, Corporate Secretary of Connecticut
General Life Insurance Company and Assistant Corporate Secretary and Assistant
General Counsel, Insurance and Investment Law of CIGNA Corporation. He also
serves as an officer of various other CIGNA Companies. In August of 1995, he
also assumed responsibility as chief compliance officer for CIGNA HealthCare, a
division of CIGNA Corporation. He joined Connecticut General Life Insurance
Company in 1974 as a commercial real estate attorney and held various positions
in the Legal Department of Connecticut General Life Insurance Company prior to
his appointment as Corporate Secretary in 1977. Mr. Kopp is an honors graduate
of Northern Illinois University and served on the law review at the University
of Illinois College of Law. He is a member of the Connecticut Bar Association
and is Past President of the Hartford Chapter, American Society of Corporate
Secretaries.
MARCY F. BLENDER - TREASURER
Marcy F. Blender, age 39, is Assistant Vice President, Bank Resources of
CIGNA Corporation. In this capacity she is responsible for bank relationship
management, bank products and services, bank compensation and control, and bank
exposure management. Marcy joined Insurance Company of North America (INA) in
1979. She has held a variety of financial and investment positions with INA and
later with the merged CIGNA Corporation before assuming her current
responsibilities in 1992. She received a BA degree from Rutgers University and
an MBA from Drexel University. She is a Certified Public Accountant.
35
ITEM 11. EXECUTIVE COMPENSATION
Officers and directors of the General Partner receive no current or
proposed direct compensation from the Partnership in such capacities. However,
certain officers and directors of the General Partner received compensation from
the General Partner and/or its affiliates (but not from the Partnership) for
services performed for various affiliated entities, which may include services
performed for the Partnership, but such compensation was not material in the
aggregate.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No person or group is known by the Partnership to own beneficially more
than 5% of the outstanding Units of interest of the Partnership.
There exists no arrangement, known to the Partnership, the operation of
which may at a subsequent date result in a change in control of the Partnership.
As of February 15, 1996, the individual directors, and the directors and
officers as a group, of the General Partner beneficially owned Partnership Units
and shares of the common stock of CIGNA, parent of the General Partner, as set
forth in the following table:
Units Shares
Beneficially Beneficially Percent of
Name Owned(a) Owned(b) Class
R. Bruce Albro (c) 0 6,653 *
David Scheinerman 0 0 *
Philip J. Ward (d) 0 16,491 *
All directors and officers
Group (8) (e) 0 29,994 *
* Less than 1% of class
<FN>
(a) No officer or director of the General Partner possesses a right to acquire
beneficial ownership of additional Units of interest of the Partnership.
(b) The directors and officers have sole voting and investment power over all
the shares of CIGNA common stock they own beneficially.
(c) Shares beneficially owned includes options to acquire 4,487 shares and
1,432 shares which are restricted as to disposition.
(d) Shares beneficially owned includes options to acquire 8,826 shares and
2,400 shares which are restricted as to disposition.
(e) Shares beneficially owned by directors and officers include 15,318 shares
of CIGNA common stock which may be acquired upon exercise of stock options
and 8,126 shares which are restricted as to disposition.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The General Partner of the Partnership is generally entitled to receive l%
of cash distributions, subordinated to a priority distribution of 6%
non-cumulative, non-compounded return to the limited partners on their adjusted
invested capital and l% of profits or losses. In 1995, the General Partner
received no cash distributions and a share of the Partnership's net income of
$17,030. Reference is also made to the Notes to Consolidated Financial
Statements included in this annual report for a description of such
distributions and allocations. The relationship of the General Partner (and its
directors and officers) to its affiliates is set forth in Item 10.
36
CII provided asset management services to the Partnership during 1995 for
the Woodlands Tech Center, Westford Corporate Center and Piedmont Plaza at fees
calculated at 6% of gross revenues collected less amounts earned by independent
third party property management companies contracted by CII on behalf of the
Partnership. For Overlook Apartments fees are calculated at 5% of gross revenues
collected less amounts earned by independent third party property management
companies contracted by CII on behalf of the Partnership. In 1995, CII earned
asset management fees amounting to $116,633 for such services, of which $18,670
was unpaid as of December 31, 1995. Independent third party property managers
earned $194,007 of management fees, of which $11,350 was unpaid as of December
31, 1995.
A nonrecurring acquisition fee for evaluating and selecting real property
to be acquired equal to the lesser of (1) 5% of the Gross Proceeds from sales of
Units, or (2) the normal and customary charges by third parties for such
services, is to be paid to CII. To date, no such fees have been paid since no
payment is due until priority distributions have been paid as described above. A
subordinated incentive management fee of 9% of adjusted cash from operations
will be payable to CII, but only after the limited partners have received their
priority distributions as described above, the General Partner has received its
1% distribution described above and acquisition fees have been paid.
The General Partner and its affiliates may be reimbursed for their direct
expenses incurred in the administration of the Partnership. In 1995, the General
Partner and its affiliates were entitled to reimbursement for such out of pocket
expenses in the amount of $73,010 of which $5,863 was unpaid as of December 31,
1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements. See Index to Financial Statements in
Item 8.
2. Financial Statement Schedules
(a) Real Estate and Accumulated Depreciation. See Index
to Financial Statements in Item 8.
3. Exhibits
3 Partnership Agreement, incorporated by reference to
Exhibit A to the Prospectus of Registrant, dated October
15, 1985, as amended, filed pursuant to Rule 424(b) under
the Securities Act of 1933, File No. 33-1818.
4 Certificate of Limited Partnership dated October 11, 1985,
as filed October 15, 1985, incorporated by reference to
Exhibit 4 to Form S-11 Registration Statement under the
Securities Act of 1933, File No. 33-1818.
10 (a) Acquisition and Disposition Services Agreement, dated
as of February 4, 1986, between CIGNA Income Realty-I
Limited Partnership and CIGNA Capital Advisers, Inc.,
incorporated by reference to Exhibit 10(a) to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1987.
(b) Supervisory Property Management Agreement, dated as of
February 4, 1986, between CIGNA Income Realty-I Limited
Partnership and CIGNA Capital Advisers, Inc., incorporated
by reference to Exhibit 10(b) to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1987.
37
(c) Agreements concerning Certain Capital Contributions, dated
as of February 3, 1986, between CIGNA Financial Partners,
Inc. and CIGNA Realty Resources, Inc.-Tenth, incorporated
by reference to Exhibit 10(c) to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1987.
(d) Real Estate Purchase Agreement relating to Woodlands Tech
Center (including, as Exhibit I, the Master Lease
Agreement between CIGNA Income Realty-I Limited
Partnership, as landlord, and Turco Development Company,
as master tenant) dated July 3, 1986, between Registrant,
as purchaser, and Turco Development Company, as seller,
incorporated by reference to Exhibit 10(a) to Current
Report on Form 8-K dated July 3, 1986.
(e) Real Estate Purchase Agreement dated September 10, 1986,
between Westford Office Venture, as purchaser, and Robert
M. Doyle and Ian S. Gillespie as Trustees of Westford
Office Center Trust, as seller, incorporated by reference
to Exhibit 10(f) to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1986.
(f) Amended and Restated Joint Venture Agreement between
Registrant and Connecticut General Equity Properties-I
Limited Partnership dated as of November l, 1986, relating
to the acquisition of the Westford Corporate Center,
incorporated by reference to Exhibit 10(g) to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1986.
(g) Management Agreement dated September 10, 1986, between
Westford Office Venture and Codman Management Co.,
incorporated by reference to Exhibit 10(h) to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1986.
(h) Real Estate Purchase Agreement dated December 5, 1986,
between Piedmont Plaza Partnership and Piedmont Plaza,
Ltd. relating to the acquisition of Piedmont Plaza
Shopping Center, incorporated by reference to Exhibit
10(j) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1987.
(i) Real Estate Purchase Agreement relating to Overlook
Apartments (including, as Exhibit 4.3.11, the Management
and Leasing Agreement between CIGNA Income Realty-I
Limited Partnership and Brentwood - Doramus, Inc.) dated
February 22, 1988, between Registrant, as purchaser, and
TCR-Adobe Ranch I Limited Partnership, as seller,
incorporated by reference to Exhibit 10(k) to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988.
27 Financial Data Schedules
(b) No reports on Form 8-K were filed during the last quarter of the
fiscal year.
38
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.
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
By: CIGNA Realty Resources, Inc.-Tenth,
General Partner
Date: March 26, 1996 By: /s/ John D. Carey
-------------------
John D. Carey, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities (with respect to the General Partner) and on the date
indicated.
/s/ R. Bruce Albro Date: March 26, 1996
------------------------------------------
R. Bruce Albro, Director
/s/ David Scheinerman Date: March 26, 1996
------------------------------------------
David Scheinerman, Director
/s/ Philip J. Ward Date: March 26, 1996
------------------------------------------
Philip J. Ward, Director
/s/ John D. Carey Date: March 26, 1996
------------------------------------------
John D. Carey, President, Controller
(Principal Executive Officer)
(Principal Accounting Officer)
/s/ Marcy F. Blender Date: March 26, 1996
------------------------------------------
Marcy F. Blender, Treasurer
(Principal Financial Officer)
39
- -------------------------------------------------------------------------------
Annex 3
- -------------------------------------------------------------------------------
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 0-15748
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 06-1149695
(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
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1996 1995
ASSETS (UNAUDITED) (AUDITED)
Property and improvements, at cost:
Land and improvements $ 9,557,012 $ 9,552,353
Buildings 27,323,577 27,323,577
Tenant improvements 5,290,988 5,257,538
Furniture and fixtures 826,755 820,904
--------------- ---------------
42,998,332 42,954,372
Less accumulated depreciation 14,129,000 13,104,206
--------------- ---------------
Net property and improvements 28,869,332 29,850,166
Cash and cash equivalents 3,492,956 3,227,503
Accounts receivable (net of allowance of $71,053 in 1996
and $15,158 in 1995) 317,657 300,941
Prepaid expenses and other assets 9,790 9,760
Deferred charges, net 436,872 492,190
--------------- ---------------
Total $ 33,126,607 $ 33,880,560
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses (including $60,663
in 1996 and $24,532 in 1995 due to affiliates) $ 439,109 $ 261,013
Tenant security deposits 118,425 113,188
Unearned income 19,831 25,032
Deferred acquisition fees due to affiliates 2,500,000 2,500,000
--------------- ---------------
Total liabilities 3,077,365 2,899,233
--------------- ---------------
Venture partner's equity in joint venture 2,752,841 2,679,392
--------------- ---------------
Partners' capital:
General Partner:
Capital contributions 1,000 1,000
Cumulative net income 53,795 42,670
--------------- ---------------
54,795 43,670
--------------- ---------------
Limited partners (200,000 Units):
Capital contributions, net of offering costs 45,463,209 45,463,209
Cumulative net income 5,325,691 4,224,350
Cumulative cash distributions (23,547,294) (21,429,294)
--------------- ---------------
27,241,606 28,258,265
--------------- ---------------
Total partners' capital 27,296,401 28,301,935
--------------- ---------------
Total $ 33,126,607 $ 33,880,560
=============== ===============
The Notes to Consolidated Financial Statements are an integral part of these statements.
2
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
Income:
Base rental income $ 1,115,848 $ 1,155,735 $ 3,391,878 $ 3,480,186
Other income 195,324 226,796 594,673 684,131
Interest income 38,284 43,523 113,954 125,498
------------- ------------- ------------- -------------
1,349,456 1,426,054 4,100,505 4,289,815
------------- ------------- ------------- -------------
Expenses:
Property operating expenses 417,802 423,170 1,294,968 1,229,371
General and administrative 103,587 91,492 311,229 273,866
Fees and reimbursements to affiliates 44,930 49,132 142,379 128,282
Provision for doubtful accounts 49,152 5,458 56,659 9,217
Depreciation and amortization 368,777 412,377 1,109,355 1,229,080
------------- ------------- ------------- -------------
984,248 981,629 2,914,590 2,869,816
------------- ------------- ------------- -------------
Income inclusive of venture
partner's share of venture operations 365,208 444,425 1,185,915 1,419,999
Venture partner's share of venture net income 33,696 39,010 73,449 123,142
------------- ------------- ------------- -------------
Net income $ 331,512 $ 405,415 $ 1,112,466 $ 1,296,857
============= ============= ============= =============
Net income:
General Partner $ 3,315 $ 4,055 $ 11,125 $ 12,969
Limited partners 328,197 401,360 1,101,341 1,283,888
------------- ------------- ------------- -------------
$ 331,512 $ 405,415 $ 1,112,466 $ 1,296,857
============= ============= ============= =============
Net income per Unit $ 1.64 $ 2.01 $ 5.51 $ 6.42
============= ============= ============= =============
Cash distribution per Unit $ 3.42 $ 3.75 $ 10.59 $ 11.70
============= ============= ============= =============
The Notes to Consolidated Financial Statements are an integral part of these statements.
3
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 1,112,466 $ 1,296,857
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred rent credits 15,894 14,738
Provision for doubtful accounts 56,659 9,217
Depreciation and amortization 1,109,355 1,229,080
Venture partner's share of venture's operations 73,449 123,142
Accounts receivable (73,375) 70,942
Accounts payable 198,828 271,392
Other, net 20,314 16,806
--------------- ---------------
Net cash provided by operating activities 2,513,590 3,032,174
--------------- ---------------
Cash flows from investing activities:
Distribution to joint venture partner -- (521,600)
Purchases of property and improvements (82,050) (112,375)
Payment of leasing commissions (45,137) (9,171)
--------------- ---------------
Net cash used in investing activities (127,187) (643,146)
--------------- ---------------
Cash flows from financing activities:
Cash distribution to limited partners (2,120,950) (2,342,030)
--------------- ---------------
Net increase in cash and cash equivalents 265,453 46,998
Cash and cash equivalents, beginning of year 3,227,503 3,404,809
--------------- ---------------
Cash and cash equivalents, end of period $ 3,492,956 $ 3,451,807
=============== ===============
The Notes to Consolidated Financial Statements are an integral part of these statements.
4
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Readers of this quarterly report should refer to CIGNA INCOME REALTY-I
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. Adoption of the Statement in the first quarter of
1996 had no effect on the Partnership's results of operations, liquidity
and financial condition.
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. CONSOLIDATED JOINT VENTURE - SUMMARY INFORMATION
The Partnership owns a 73.92% interest in the Westford Office Venture which
owns the Westford Corporate Center in Westford, Massachusetts. The general
partner of the Partnership's joint venture partner is an affiliate of the
General Partner.
Venture operations information:
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Total income of venture $ 465,585 $ 478,526 $ 1,346,746 $ 1,452,241
Net income of venture 129,203 149,575 281,630 472,168
Venture balance sheet information:
September 30, December 31,
1996 1995
Total assets $ 11,549,208 $ 11,280,276
Total liabilities 739,300 751,999
The Venture paid a distribution to the venturers of $2,000,000 in 1995, of
which the Partnership's share was $1,478,400.
5
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
3. DEFERRED CHARGES
Deferred charges consist of the following:
September 30, December 31,
1996 1995
Deferred leasing commissions $ 1,104,145 $ 1,059,008
Accumulated amortization (688,963) (604,402)
--------------- ----------------
415,182 454,606
Deferred rent credits 21,690 37,584
--------------- ---------------
$ 436,872 $ 492,190
=============== ===============
4. TRANSACTIONS WITH AFFILIATES
An affiliate of the General Partner provided investment property
acquisition services to the Partnership for fees of $2,500,000 which will be
payable from adjusted cash from operations after priority distributions to the
Partners or, if necessary, from sales proceeds.
Other fees and expenses incurred by the Partnership 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 fees(a)(b) $ 26,849 $ 29,406 $ 83,143 $ 88,421 $ 18,581
Reimbursement (at costs)
for out-of-pocket expenses 18,081 19,726 59,236 39,861 42,082
------------ ------------- ----------- ------------ ------------
$ 44,930 $ 49,132 $ 142,379 $ 128,282 $ 60,663
============ ============= =========== ============ ============
(a) Included in property management fees is $3,501 and $3,613 for the three
months ended September 30, 1996 and 1995 respectively, and $10,499 and
$11,026 for the nine months ended September 30, 1996 and 1995,
respectively, attributable to the venture partner's share of the Westford
Office Venture.
(b) Does not include on-site management fees earned by independent property
management companies of $45,040 and $50,102 for the three months ended
September 30, 1996 and 1995, respectively, and $142,220 and $149,012 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.
5. SUBSEQUENT EVENTS
On November 15, 1996, the Partnership paid a distribution of $624,000 to
the limited partners.
6
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Partnership's cash and cash equivalents and the
Partnership's share of cash and cash equivalents from the Westford Office
Venture totaled $1,721,611 and $1,309,378, respectively. The Partnership's cash
and cash equivalents were available for working capital requirements, cash
reserves and distributions to partners. The Partnership paid the first quarter
cash distribution of $684,000 or $3.42 per Unit on May 15, 1996, the second
quarter cash distribution of $684,000 or $3.42 per Unit on August 15, 1996, and
the third quarter cash distribution of $624,000 or $3.12 per Unit on November
15, 1996, representative of each quarter's adjusted cash from operations,
inclusive of adjustments to cash reserves. The Partnership's distributions from
operations for the remainder of the year should reflect actual operating results
subject to changes in reserves for liabilities or leasing risk.
Piedmont Plaza Shopping Center produced adjusted cash from operations for
the third quarter of $119,000 after $5,400 of leasing costs. During the quarter,
the property signed a renewal for 1,200 square feet and two new leases
representing 4,600 square feet, increasing leased space to 97%. In reaction to
the reluctance of the property's anchor, Builders Square, to pay 100% of its
billed common area maintenance (CAM) charges, the Partnership has set up a
reserve for Builders Square CAM accounts receivable and has adjusted the CAM
billing accrual for 1996. The total impact of the CAM receivable adjustments to
the third quarter income statement was approximately $53,000. The Partnership
plans to hold the property for the short-term to allow the retail market and
K-Mart (the parent company of the property's anchor tenant) to show signs of
improvement. The Partnership also plans to remain open to opportunities to sell
the property if investor interest returns.
At Westford Corporate Center, adjusted cash from operations for the second
quarter was $270,000 ($199,600 attributable to the Partnership's interest). The
property remains 100% occupied. No capital expenditures have been planned for
the year. During the first quarter, a portion of the 1995 capital expenditures
was reimbursed by the tenants. In addition, adjustments were made to reduce
other income (and the portion of account receivable representing 1995 tenant
reimbursement billings) based on the final calculation of actual 1995 tenant
reimbursable operating expenses. The 1996 estimated billings for tenant expense
reimbursement are based on the annual budget.
Adjusted cash from operations at Woodlands Tech for the third quarter was
$85,000 after $61,700 of capital improvements and tenant leasing costs, and a
$40,000 reduction to cash reserves for leasing costs. After factoring in the
quarter's leasing activity, the property's leased occupancy ended the quarter at
93%. During the third quarter, the property met its leasing goal by leasing the
10,069 square foot vacancy from the first quarter as well as executing a renewal
with a tenant occupying 3,321 square feet. Also, operations for the third
quarter benefitted from the move in of a new 7,522 square foot tenant on July 1,
1996. The lease was executed during the second quarter. Leasing costs estimates
for the remainder of the year have been estimated at approximately $63,000.
Overlook's average occupancy dropped from 98% for the second quarter to 92%
for the third quarter. Year-to-date occupancy averaged 96% for both 1996 and for
the same period of the prior year. The drop in occupancy has been attributed to
heavy competition from new projects currently in lease-up, as well as the timing
of tenant turnover. Adjusted cash from operations for the third quarter totaled
approximately $239,000 including $14,000 of capital expenditures and a $5,000
reduction to cash reserves for capital improvements. Capital expenditures have
been estimated to total approximately $18,000 to $22,000 for the year. The
market in which Overlook operates continues to expand, adding high-end
multi-family, new single family developments and retail. Six properties in the
North Scottsdale market are currently in the lease-up phase and competition from
home ownership is strong as single family home development continues to
increase. In addition to completed projects, approximately 600 multi-family
units are under construction and approximately 1,100 more units are planned. The
Partnership is currently reviewing the property's current and estimated future
operations, rental rate trends in the market, as well as the property's position
in the market, to determine the best window
7
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
of opportunity to time a sale of the property. Considering that the planned
liquidation of the Partnership's properties is relatively short-term, the
Partnership may conclude to pursue a sale as early as the first half of 1997.
RESULTS OF OPERATIONS
Rental income decreased approximately $40,000 and $88,000 for the three and
nine months ended September 30, 1996, respectively, as compared with the same
periods of 1995. Woodland Tech lost a large tenant in the first quarter of 1996
and received a $22,000 lease termination fee in the second quarter of 1995,
leading to the $19,000 and $86,000 decrease in rental income for the three and
nine months, respectively. A tenant change at Westford that included a lower
base rate contributed approximately $23,000 and $52,000 to the decrease.
Overlook recorded a $41,000 increase for the nine months, offsetting a portion
of the rental income decrease. The rental rate increases implemented throughout
the year at Overlook accounted for the improvement over the nine-month period,
and also compensated for the third quarter drop in average occupancy.
Other income decreased for the three and nine months ended September 30,
1996, as compared with the same periods of 1995. At Westford, a $42,000
adjustment was recorded in the first quarter of 1996 because the calculation of
actual 1995 billable tenant expense recoveries for common area maintenance (CAM)
was less than the estimated amount accrued and billed throughout 1995. In
addition, the amount billed to tenants for property taxes declined $14,000 as a
result of Westford's lower tax expense. At Piedmont, the calculation of actual
billable CAM was completed during the third quarter 1996 and an adjustment was
recorded to reduce other income and accounts receivable. Based on the adjustment
for 1995 CAM billings, the Partnership reduced the 1996 CAM accrual during the
third quarter. The two CAM adjustments reduced other income at Piedmont Plaza by
$23,000 for the three and nine months ending September 30, 1996.
Interest income decreased for the three and nine months ended September 30,
1996, as compared with the same periods of 1995, due to a decrease in interest
rates on short term investments.
Property operating expenses decreased slightly for the three months and
increased for the nine months ended September 30, 1996, as compared with the
same periods of 1995. In the first quarter, a harsh winter caused snow removal
and maintenance costs to increase at both Westford and Woodlands Tech. Also in
the first quarter, a landscaping project that was previously capitalized was
reclassified to an expense account at Westford. Partially offsetting the first
quarter increase was a decrease in maintenance expense at Piedmont Plaza due to
a first quarter 1995 exterior painting project. During the second quarter, an
HVAC project at Westford and a tax refund recorded in 1995 at Woodlands led to
further increases. In general, fewer carpet replacements at Overlook Apartments
partially offset the increase during the first half of the year and heavily
contributed to the decrease for the third quarter. For the three and nine
months, real estate taxes are up at Piedmont and Overlook and down at Westford
resulting in an overall increase.
General and administrative expenses increased for the three and nine months
ended September 30, 1996, as compared with the previous year, primarily due to
an increase in payroll costs at Overlook Apartments and legal costs at Piedmont.
The increase in fees and reimbursements to affiliates for the nine months
ended September 30, 1996, as compared with the same period of 1995, was due to
higher reimbursable expenses than the previous year. The decrease for the three
months ended September 30, 1996 was due to timing of reimbursable expenses.
The decrease in depreciation and amortization for the three and nine months
ended September 30, 1996, as compared with the previous year, was primarily the
result of the expiration of useful lives of certain assets at Overlook
Apartments, Woodlands Tech, and Piedmont Plaza. Offsetting the decrease for the
three months at Woodlands Tech was depreciation on tenant
8
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
improvements placed in service in 1996 and late 1995.
The decrease in the venture partner's share of Venture's operation in 1996,
as compared with 1995, was the result of a decrease in Westford's overall
results as described herein.
Provision for doubtful accounts increased for the three and nine months
ended September 30, 1996, as compared with the same periods of 1995. The anchor
at Piedmont Plaza has not yet paid its 1995 CAM billing and the Partnership's
property manager has estimated that 100% of the billing may not be collectible.
Based on the problem with the 1995 Piedmont Plaza anchor tenant CAM billing, the
Partnership has established a reserve for both the 1995 billed amount and the
1996 accrued amounts.
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. Woodlands Tech Center
St. Louis, Missouri 94% 96% 96% 92% 82% 82% 83%
2. Westford Corporate Center
Westford, Massachusetts(a) 100% 100% 100% 100% 100% 100% 100%
3. Piedmont Plaza Shopping Center
Apopka, Florida 95% 95% 95% 95% 95% 94% 94%
4. Overlook Apartments
Scottsdale, Arizona 98% 93% 97% 97% 99% 97% 92%
(a) See the Notes to Consolidated Financial Statements for information on the
joint venture partnership through which the Partnership has made this real
property investment. The Partnership owns a 73.92% interest in the joint
venture which owns the property.
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.
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
By: CIGNA Realty Resources, Inc. - Tenth,
General Partner
Date: November 13, 1996 By: /s/ John D. Carey
----------------- -----------------
John D. Carey, President
(Principal Executive Officer)
Date: November 13, 1996 By: /s/ Josephine C. Donofrio
----------------- -------------------------
Josephine C. Donofrio, Controller
(Principal Accounting Officer)
10