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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, 1996
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.
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TABLE OF CONTENTS
PART I PAGE
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Equity and Related Security Holder Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
Item 8. Financial Statements and Supplementary Data 19
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 37
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 ("Unitholders" 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 Unitholder 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 the $2,500,000 payment to an affiliate of the General Partner to be made
when the 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.
On January 10, 1997, the Partnership and Glenborough Properties, L.P.
entered into an Agreement of Purchase and Sale (the "Purchase Agreement"). Under
the terms of the Purchase Agreement, the Glenborough Properties, L.P. will
purchase all of the real estate assets of the Partnership for an aggregate
purchase price of $29,650,000. Reference is made to Item 7 for a detailed
discussion of the Purchase Agreement and the sale of the Partnership's real
estate assets and subsequent liquidation of the Partnership.
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
(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 ("CGEP") is the
co-venturer. CGEP's general partner is an affiliate of the General Partner.
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. Employment in the St. Louis region grew by 4.3%, a gain of 52,000 new
jobs for 1996. The unemployment rate dropped again in 1996 to 4.7% from 4.8% in
1995, the lowest level in 20 years. The economy is fairly well diversified with
health and education service industries providing the largest number of jobs.
The growth industry appears to be the amusement and recreation industry as 1,400
new jobs were added in 1996. As the gaming industry continues to grow in St.
Louis an additional 8,000 to 10,000 new jobs can be added over the next few
years. The market quality index rating for St. Louis has dropped slightly from
last year, reflecting, in part, the uncertainty of Boatmen's Bank, now that it
is merging with NationsBank; McDonnell Douglas, now that it is being acquired by
Boeing; and the financial uncertainty of TWA. While the downtown St. Louis
office market continues to struggle to keep its occupancy rate around 88%, the
suburban office markets continue to flourish. The West County market contains
almost 12 million square feet of space (which represents 29% of the metropolitan
area supply) and is 96% leased. The West Port submarket, where Woodlands Tech
Center is located, has an occupancy rate of 96.2%. Woodlands Tech Center ended
the year behind the market at 86% occupied. Rental rates for space competing
with Woodlands Tech Center were up slightly in 1996, currently in the $7.00 to
$12.00 range. Woodlands Tech Center was in line with the market with base rental
rates ranging from $7.00 per square foot to $11.00 per square foot. Tenant
improvement packages in the market are currently in the $1.50 to $20.00 per
square foot range, depending on the component of office finish, relatively
unchanged from a year ago.
Westford Corporate Center is located in the Boston submarket known as the
Northwest Corridor, between Routes I-128 and I-495. Boston's overall employment
growth slowed to 1.5% in 1996. Job creation in high-technology and mutual funds
has continued, partially offset by layoffs in the manufacturing and banking
industries, resulting in approximately 39,000 new jobs in the Boston area for
1996. The Boston economy continues to exhibit signs of stabilization, including
declining vacancy rates in the retail, office and warehouse markets, a rise in
hotel occupancies, and a drop in the unemployment rate. Growth in the Boston
area is expected to diminish slightly over the next five years with employment
growth averaging 1.2% between 1997 and 2001. Trade employment, which has
expanded by 43,000 jobs over the last three years, will show growth of only
5,700 jobs per year through 2001. The Route 495 North market, which comprises
16.8 million square feet of research & development ("R&D") and office space,
continued to report positive absorption in 1996, with a third quarter 1996
vacancy rate of approximately 12%, including subleased space, down from 1995.
Leasing activity in 1996, totaling more than 950,000 square feet, was dominated
by R&D properties, accounting for 90% of the net absorption. Average asking
rents are approximately $12.75 per square foot for office space, and
approximately $7.00 per square foot on a triple net basis for R&D space.
The Piedmont Plaza is located in Apopka, Florida, north of Orlando in
northwest Orange County. 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 benefit from the tourism trade. Retail strip centers,
in particular, remain 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 15% vacancy rate for anchored
centers for 1995. For 1996, the vacancy rate improved to 13%. Piedmont was 94%
occupied at year-end, ahead of the market. Due to the overbuilt conditions,
rental rates have remained flat during the past few years. Rental rates for
small shop space in the anchored centers are approximately $8 to $15 per square
foot and pass through costs average $2.25 per square foot. Piedmont was in line
with the market at $7 to $9 per square foot for space in the back of the center
to $9 to $13 per square foot in the more visible and easily accessed areas.
Concessions of one month free rent per lease year was the norm. There was no new
retail construction in the area in 1996 and none is planned over the next year.
Overlook Apartments is located in Scottsdale, Arizona, approximately 20
miles outside downtown Phoenix. The Phoenix metropolitan area incorporates all
of Maricopa County, which includes the cities of Phoenix, Scottsdale, Paradise
Valley, and Tempe along with 16 other cities, covers approximately 9,226 square
miles, and ranks twentieth in population in the United States. The United States
Department of Commerce, Bureau of Economic Analysis projects that the Phoenix
area will rank number one in population growth through the 1990's, with a
greater than 20% increase from 1995 to 2000. During 1996, Phoenix enjoyed
continued in-migration trends. Scottsdale saw its population grow by 5% in 1996,
and this
5
trend is expected to continue through the end of the decade. Employment growth
in the Phoenix area continues to exceed the average growth in the United States.
Unemployment was less than 3% in 1996, one of the lowest in the nation. The
median income in Scottsdale approaches $50,000 and new homes in this upscale
market range from approximately $90,000 to $300,000. Scottsdale remains targeted
as a "hot spot" for development, particularly for single-family residential
communities.
New construction in the Phoenix area totaled 6,828 units in 1995 and
approximately 3,200 units in 1996. In the North Scottsdale submarket, 1,898
units were constructed in 1995 and the Mira Vista (152 units) and the Scottsdale
Legacy (428 units) both opened in 1996. There are currently 636 units under
construction, (Mc Dowell Mt. Ranch, 368 units, and Sonoran Vista, 268 units),
and another 1,116 units planned. Although the majority of the new inventory
entering the North Scottsdale market does not compete directly with Overlook,
the entire market is offering rental concessions, move-in discounts and waiving
fees in an effort to lease new units or maintain current occupancy. The Adobe
Ranch area, the submarket in which Overlook directly competes, contains six
luxury apartment complexes and is extremely competitive. During 1996, the
property had average occupancy of 95%, slightly below the prior year but in line
with the market. After factoring in market concessions and discounts, Overlook's
rates are comparable to the market. New growth in rental rates is expected to be
minimal until demand meets the current supply.
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.
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 1994, 1995 and 1996. Excluded from this calculation is the joint venture
partner's share of the gross revenues of the Venture. In each year, interest
income accounted for the balance of gross revenues.
1994 1995 1996
---- ---- ----
1. Woodlands Tech Center
St. Louis, MO 17% 16% 16%
2. Westford Corporate Center
Westford, MA 24% 27% 26%
3. Piedmont Plaza Shopping Center
Apopka, FL 26% 23% 23%
4. Overlook Apartments
Scottsdale, AZ 31% 31% 33%
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.
On January 10, 1997, the Partnership entered into the Purchase Agreement to
sell all of the Partnership's real estate assets. Reference is made to Item 7
for a detailed discussion of the Purchase Agreement and the sale of the
Partnership's real estate assets.
6
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 98,037 square feet. The space layout includes up to 24 suites
(which may be combined) ranging in size from 2,521 to 15,335 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 10% or more
of Woodland Tech Center's net leasable area:
TENANT SQUARE PRINCIPAL BUSINESS BASE RENT LEASE RENEWAL OTHER
FOOTAGE PER DATES OPTION INFORMATION
ANNUM
1. Teleport 15,335 Telecommunications $134,184 11/01/96- 1,5 year --
Communications 10/31/06 renewal
Group, Inc. option
2. Landis & Staefa, Inc. 10,069 Environmental $70,488 12/01/96- 1,5 year --
Engineer 11/30/01 renewal
option
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
1997 3 18,773 $142,968 21%
1998 4 13,297 $114,552 17%
1999 3 15,498 $128,076 19%
2000 2 11,393 $91,140 13%
2001 1 10,069 $70,488 10%
2006 1 15,335 $134,184 20%
The Westford property consists of two 2-story R&D/office buildings
containing 163,247 square feet of net rentable area. 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 10% 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
7
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 151,000 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.
The following table provides information on tenants that occupy 10% 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
1997 1 1,550 $13,908 2%
1998 1 1,400 $13,296 1%
1999 4 6,550 $78,432 9%
2001 3 16,800 $76,800 8%
2002 1 1,000 $7,800 1%
2003 2 4,800 $44,160 5%
2005 1 2,900 $57,600 6%
2006 1 3,400 $37,400 4%
2012 1 107,400 $590,700 64%
8
The following table compares approximate occupancy levels by quarter for
the Partnership's investment properties during 1992, 1993, 1994, 1995 and 1996:
WOODLANDS TECH WESTFORD PIEDMONT PLAZA OVERLOOK
CENTER CORPORATE CENTER SHOPPING CENTER APARTMENTS
ST. LOUIS, MO WESTFORD, MA (A) APOPKA, FL SCOTTSDALE, AZ
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%
1996
AT 03/31 82% 100% 95% 99%
AT 06/30 82% 100% 94% 97%
AT 09/30 83% 100% 94% 92%
AT 12/31 86% 100% 94% 91%
(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.
9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Unitholders during the fourth
quarter of the fiscal year covered by this report. Reference is made to Item 7
for a description of an item currently under consideration by Unitholders for
consent.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS
As of March 3, 1997, there were approximately 3,772 record Unitholders.
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 1996 and 1995 as set forth in the following table:
Cash Distribution per Unit
Quarter Date Paid (a) 1996 1995
-------- --------- ---- ----
1st May 15 $ 3.42 $ 3.45
2nd August 15 3.42 3.75
3rd November 15 3.12 3.75
4th February 15 3.60 (b) 3.75
-------- --------
$ 13.56 $ 14.70
======== ========
(a) Quarterly distributions are paid 45 days following the end of the calendar quarter.
(b) The fourth quarter distribution was paid on March 10, 1997.
Reference is made to Item 6 for cash distributions paid to Limited Partners
during 1996, 1995, 1994, 1993, and 1992. There are no material legal
restrictions upon the Partnership's ability to make distributions in accordance
with the provisions of the Partnership Agreement. Reference is made to Item 7
for a description of the proposed sale of the Partnership's real estate assets
and subsequent liquidation. 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.
10
ITEM 6. SELECTED FINANCIAL DATA (A)
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
DECEMBER 31, 1996, 1995, 1994, 1993 AND 1992
(NOT COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS)
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Total income (b) $ 5,046,021 $ 5,174,279 $ 5,019,967 $ 4,289,754 $ 3,462,774
Net income (loss) (c) 750,601 1,702,991 1,244,897 954,378 (6,219,956)
Net income (loss) per Unit (c) 3.72 8.43 6.16 4.72 (30.79)
Total assets (b) 29,241,867 31,201,168 32,525,759 33,782,661 35,176,295
Cash distributions to Limited
Partners (d) 2,742,000 3,090,000 2,472,000 2,400,000 2,562,000
Cash distributions per Unit (d) 13.71 15.45 12.36 12.00 12.81
(a) The above selected financial data should be read in conjunction with the
consolidated financial statements and the related notes herein. On January
10, 1997, the Partnership entered into the Purchase Agreement to sell all
of the Partnership's real estate assets. Reference is made to Item 7 for a
detailed discussion of the Purchase Agreement and the sale of the
Partnership's real estate assets and subsequent liquidation.
(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 $816,000 ($4.08 per Unit) in
1996, $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 usually paid and recorded in the Partnership's
records as distributions 45 days following the close of the calendar
quarter. (The fourth quarter 1996 distribution was paid on March 10, 1997).
Reference is made to the Notes to Consolidated Financial Statements for a
description of payments made to the State of Connecticut on behalf of
Limited Partners. These payments were charged to Limited Partner capital
accounts and have not been included as part of the selected financial data
presentation.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for historical information provided in this Management's Discussion
and Analysis, statements made throughout this document are forward-looking and
contain information about financial results, economic conditions, trends, and
known certainties. The Partnership cautions the reader that actual results could
differ materially from those expected by the Partnership.
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 Unitholder 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 the $2,500,000 payment to an affiliate of
the General Partner to be made when the 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.
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 significant tenant information and
lease information. Reference is made to Item 5 for information on cash
distributions to Limited Partners.
On November 8, 1996, the General Partner received an unsolicited
contingency free offer from Koll General Partner Services ("Koll"), on behalf of
the Glenborough Realty Trust Incorporated ("Glenborough"), 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 or $140 per
Unit, an amount equal to approximately 90% of the Partnership's net asset value
as of December 31, 1995 ($156 per Unit). The Partnership's net asset value was
based, in part, on valuations provided by CII and on an outside appraisal of the
Westford Corporate Center. Both the Glenborough offer and the net asset value
are gross numbers without a reduction for estimated sales costs. As part of the
offer, Glenborough proposed that the Partnership pay Koll a 2% fee and the
Partnership pay its share of closing costs. In addition Glenborough's offer to
purchase the assets of the Partnership was conditioned upon the simultaneous
purchase of the assets of CGEP. The General Partner, on behalf of the
Partnership, reviewed and analyzed the Koll offer and ultimately rejected it
because it was based upon outdated valuations of the Partnership's properties.
At that time, CII was in the process of preparing current valuations, and Koll
requested the opportunity to resume discussions regarding a possible sale at
such time as when the new valuations were prepared.
On November 18, 1996, Everest Realty Investors, LLC, a California limited
liability company ("Everest"), initiated a tender offer to Limited Partners to
purchase up to 40% or 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 Limited Partners after any distribution from operations for the third quarter
of 1996 and less any Partnership transfer fees (the "Everest Offer"). The
Partnership recommended that Limited Partners reject the Everest Offer primarily
for two reasons: (1) the General Partner 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 40% of outstanding
Units. In reaching its determination, the General Partner considered a number of
factors, including that the Partnership was negotiating with Glenborough for the
possible sale of all of the real estate assets of the Partnership for a purchase
price which would result in Limited Partners receiving an amount significantly
higher than the Everest Offer price of $115 per Unit.
12
Following the receipt of current valuations from CII, the Partnership
resumed discussions with Koll and Glenborough on December 2, 1996 regarding the
proposed sale of the Partnership's assets. During these negotiations,
Glenborough agreed (i) to limit the purchase to the Partnership's real estate
assets rather than all assets and liabilities, (ii) 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 (iii) 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 Glenborough executed a letter of
intent setting forth an agreement in principle on the terms and conditions of a
sale. On December 12, 1996, the Partnership informed Limited Partners that a
letter of intent had been executed with Glenborough and again recommending the
rejection of the Everest Offer. The Everest Offer expired on December 17, 1996,
and Limited Partners sold 366 Units or 0.18% of the outstanding Units to
Everest.
On January 10, 1997, the Partnership and an affiliate of Glenborough,
Glenborough Properties, L.P. ("Glenborough LP") entered into the Purchase
Agreement. Under the terms of the Purchase Agreement, Glenborough LP will
purchase all of the real estate assets of the Partnership (Piedmont Plaza
Shopping Center, Woodlands Tech Center, Overlook Apartments, and the
Partnership's joint venture interest in the Westford Corporate Center) for an
aggregate purchase price of $29,650,000 (the "Sale").
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, (ii) the requisite approval by the
Partnership's Unitholders and the unitholders of CGEP, (iii) the simultaneous
consummation of the purchase by Glenborough LP of the CGEP real estate assets,
(iv) Glenborough LP's satisfactory review of real estate surveys and title
reports, (v) the issuance to Glenborough LP by a title company of an Owner's
Title Insurance Policy for each of the properties, and (vi) the delivery by the
Partnership, the Venture and CGEP to Glenborough LP of appropriate instruments
of conveyance and certain documents relating to the purchased properties.
The Purchase Agreement contains representations and warranties with respect
to the Partnership and the real estate properties which are generally customary
in a transaction of this type. The Partnership has agreed to indemnify
Glenborough LP from and against all costs, charges and expenses related to (i)
the ownership, management and operation of the properties 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 Glenborough LP to
receive indemnification for breach of certain of the representations and
warranties of the Partnership, Glenborough LP must make a written claim for such
indemnification within one year of the closing. The General Partner will 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.
On January 24, 1997, the Board of Directors of the General Partner
unanimously approved the Sale to Glenborough LP pursuant to the Purchase
Agreement and the Liquidation, and directed that the Sale and 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 liquidation and in recommending that Unitholders
consent thereto was that the Board concluded that the purchase price was a fair
price to the Partnership and that it was an optimal time frame to sell all of
the Partnership's properties.
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 Glenborough LP 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, Glenborough LP 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 Glenborough LP's obligation to purchase under
the Purchase Agreement is subject to fewer conditions than is often the case,
the General Partner believes
13
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 Glenborough LP 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 (i)
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; (ii) all of the Partnership's properties have
relatively stable operations; (iii) real estate capital markets are active; (iv)
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;
(v) 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; (vi)
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);
(vii) if the Westford Corporate Center is not sold at this time, the 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 (viii) the sale of all of the Partnership's properties is within
the original projected ownership time-frame of the Partnership.
Based on the terms of the Purchase Agreement, the date of the closing will
occur on the 5th calendar day after the Partnership receives consent from the
Partnership's Unitholders and CGEP's unitholders, respectively, for the Sale and
subsequent Partnership liquidation. On March 25, 1997, the Partnership sent a
Consent Solicitation Statement to Unitholders of record as of the close of
business on March 3, 1997, in connection with the solicitation of consents (the
"Solicitation") to (i) the proposed sale of all of the real estate assets of the
Partnership to Glenborough LP pursuant to the Purchase Agreement, and (ii) the
dissolution and liquidation of the Partnership thereafter. The Sale must be
approved by at least a majority of the issued and outstanding Units. The
Solicitation expires April 15, 1997, unless extended by the General Partner in
its sole discretion. If the Partnership fails to receive the requisite consents,
then the Partnership 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.
Any remaining accounts receivable and accounts payable of the Partnership
after the Sale will be transferred 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 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
transfer of the remaining assets of the Partnership to the General Partner will
be approximately $29,980,000 or an average amount of $150 per Unit. The General
Partner estimates that the Partnership liquidation, including the distribution
of the net proceeds of the Sale along with the net cash value of the remaining
assets of the Partnership to the Unitholders, will be completed within sixty
days after the consummation of the Sale.
The actual amount distributed per Unit may vary from one Unitholder to
another depending on the original admission date of the Limited Partner's Unit.
The date of admission to the Partnership may cause the actual amounts
distributed per Unit to vary among Unitholders. During the Partnership's
offering period Limited Partners were admitted to the Partnership on a monthly
basis and during this period, cash distribution amounts and income and loss
allocations were applied to limited partner's capital accounts monthly,
beginning in the month of admission. In general, the earlier a Limited Partner
was admitted to the Partnership, the more cash distributions the Limited Partner
would have received and the lower a Limited Partner current capital account
balance will be. The liquidating distribution will vary based upon ending
capital account balances. For taxable Units with an admission date of April 1,
1986, the earliest possible admission date, the minimum amount of the
distribution has been estimated at approximately $150, whereas for taxable Units
with an admission date of December 1, 1987, the latest possible admission date,
the distribution has been estimated to be approximately $171. For nontaxable
Units with an admission date of April 1, 1986, the minimum amount of the
14
distribution will be approximately $149, whereas for nontaxable Units with an
admission date of December 1, 1987, the maximum amount of the distribution will
be approximately $155.
The Partnership estimates that the Sale of the Partnership's properties
will result in a tax loss of approximately $4,000,000 to the Partnership or
approximately $82 of tax loss per $250 Unit for nontaxable Unitholders and $65
of taxable income per $250 Unit for taxable Unitholders. The Sale, if achieved,
will result in a gain of approximately $3,900,000 to the Partnership under
generally accepted accounting principles.
RESULTS OF OPERATIONS
RESULTS - 1996 COMPARED WITH 1995
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, decreased in 1996 to approximately $3,165,000
compared to approximately $3,449,000 in 1995.
Westford's net operating income decreased approximately $189,000 in 1996 as
compared with 1995. Lower rental income due to a tenant change with a lower base
rent coupled with higher maintenance costs led to the decrease.
At Woodlands Tech Center, net operating income decreased approximately
$96,000 in 1996. A decline in rental income from lower occupancy coupled with
higher maintenance expenses for roof repairs, snow removal, and vacant units
caused the decrease. In addition, real estate taxes increased as a result of a
higher mill rate, and 1995 real estate tax expense was reduced by the receipt of
property tax refunds relative to 1993 and 1994 tax years.
Net operating income was flat at Piedmont Plaza. A decrease in other income
(due to an adjustment recorded in 1996 for overbilling of 1995 tenant expense
recoveries) was offset by a reduction in maintenance expense (1995 expenses
included an exterior painting project).
At Overlook Apartments, higher rental rates led to an increase in rental
income, and expenses were reduced as a result of fewer carpet replacements and
lower pest control costs. Overlook increased net operating income approximately
$50,000 in 1996 over 1995.
The balance of the decrease in Partnership net operating income for 1996,
as compared with 1995, was primarily the result of legal and mailing costs
relating to the Partnership's response to a tender offer and a decrease in
interest income due to lower interest rates.
Rental income decreased approximately $82,000 for the year ended December
31, 1996, as compared with 1995. A decline in occupancy led to a decrease in
rental income of $73,000 (net of $58,000 more of lease termination fees
collected in 1996 than 1995) at Woodlands Tech. A tenant change at Westford that
included a lower base rate contributed approximately $57,000 to the decrease.
Overlook had a $36,000 increase for the year as a result of rental rate
increases implemented throughout the year, although average occupancy declined
in 1996 compared with 1995.
Other income decreased approximately $49,000 for the year ended December
31, 1996, as compared with 1995. At Westford, although billable tenant expense
recoveries for common area maintenance ("CAM") and operating expenses and taxes
("OE&T") increased significantly in 1996 as the result of an increase in
expenses, revenue decreased. The Westford decrease was the result of a $42,000
adjustment that was recorded in 1996 because the calculation of actual 1995
billable tenant expense recoveries for CAM and OE&T was less than the estimated
amount accrued and billed throughout 1995. At Piedmont, the calculation of
actual billable 1995 CAM and OE&T was completed during 1996 and an adjustment
was recorded to reduce other income and accounts receivable by $17,000.
Interest income decreased for the year ended December 31, 1996, as compared
with 1995, due to a decrease in interest rates on short term investments.
15
Property operating expenses increased for the year ended December 31, 1996,
as compared with 1995. Severe winter weather resulted in higher snow removal and
maintenance costs at both Westford and Woodlands Tech. An HVAC project and a
rise in cleaning and janitorial and utility expenses led to additional increases
at Westford. Also during 1996, a landscaping project that was previously
capitalized was reclassified to an expense account at Westford. At Woodlands
Tech, maintenance of and design fees for vacant space contributed to the
increase. Partially offsetting the increases were decreases in maintenance
expense (1995 included an exterior painting project) at Piedmont Plaza, and
fewer carpet replacements and a lower pest control cost at Overlook Apartments.
Real estate taxes were up at Woodlands Tech because of a rate increase and a
1993 and 1994 tax refund that was recorded in 1995, up at Overlook due to an
increase in assessed value, and down at Westford and Piedmont, the result of
assessment reductions.
General and administrative expenses increased for the year ended December
31, 1996, as compared with the previous year, primarily due to an increase in
payroll costs at Overlook and legal and mailing expenses relating to the
Partnership's response to a tender offer for the Partnership's Units.
Provision for doubtful accounts increased for the year ended December 31,
1996, as compared with 1995, primarily due to uncollected rental and other
income at Piedmont Plaza relating to a tenant that walked away from its lease.
The decrease in depreciation and amortization for the year ended December
31, 1996, as compared with the previous year, was primarily the result of a drop
in depreciation expense at Overlook Apartments because furniture and fixtures
acquired as part of the property purchase in 1988 have been fully depreciated.
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.
In 1996, the Partnership recorded an impairment loss relative to Woodlands
Tech due to estimated future cash flow declines reflecting a change in the
estimated holding period.
RESULTS - 1995 COMPARED WITH 1994
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
$9,000 increase in net operating income in 1995 as compared to 1994.
16
The balance of the increase in Partnership net operating income for 1995
was due primarily to increased interest income due to increased rates.
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 collectability 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.
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.
INFLATION
With inflation at a low rate during 1996, 1995 and 1994, 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
17
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.
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 rise because of inflation, 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.
18
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 20
Financial Statements:
Consolidated Balance Sheets, December 31, 1996 and 1995 21
Consolidated Statements of Operations, For the Years Ended December 31, 1996, 1995 and 1994 22
Consolidated Statements of Partners' Capital, For the Years Ended December 31, 1996, 1995 and 1994 23
Consolidated Statements of Cash Flows, For the Years Ended December 31, 1996, 1995 and 1994 24
Notes to Financial Statements 25
Schedules:
III - Real Estate and Accumulated Depreciation, December 31, 1996 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.
19
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, 1996 and 1995, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, 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.
As discussed in Notes 1 and 4, on March 25, 1997, the Partnership sent a Consent
Solicitation Statement to the Limited Partners for approval of the sale of all
real estate assets of the Partnership, and the subsequent dissolution and
liquidation of the Partnership.
Price Waterhouse LLP
Hartford, Connecticut
March 27, 1997
20
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995
------ ---- ----
Property and improvements, at cost:
Land and improvements $ 9,413,952 $ 9,552,353
Buildings 26,646,297 27,323,577
Tenant improvements 5,317,299 5,257,538
Furniture and fixtures 826,755 820,904
--------------- ---------------
42,204,303 42,954,372
Less accumulated depreciation 14,473,340 13,104,206
--------------- ---------------
Net property and improvements 27,730,963 29,850,166
Cash and cash equivalents 3,496,686 3,227,503
Accounts receivable (net of allowance of $40,538 in
1996 and $15,158 in 1995) 313,521 300,941
Other assets 7,100 9,760
Deferred charges, net 487,606 492,190
--------------- ---------------
Total $ 32,035,876 $ 33,880,560
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses (including $27,254
in 1996 and $24,532 in 1995 due to affiliates) $ 274,474 $ 261,013
Tenant security deposits 98,871 113,188
Unearned income 57,986 25,032
Deferred acquisition fees due to affiliates 2,500,000 2,500,000
--------------- ---------------
Total liabilities 2,931,331 2,899,233
--------------- ---------------
Venture partner's equity in joint venture 2,794,009 2,679,392
--------------- ---------------
Partners' capital:
General Partner:
Capital contributions 1,000 1,000
Cumulative net income 50,176 42,670
--------------- ---------------
51,176 43,670
--------------- ---------------
Limited partners (200,000 Units):
Capital contributions, net of offering costs 45,463,209 45,463,209
Cumulative net income 4,967,445 4,224,350
Cumulative cash distributions (24,171,294) (21,429,294)
--------------- ---------------
26,259,360 28,258,265
--------------- ---------------
Total partners' capital 26,310,536 28,301,935
--------------- ---------------
Total $ 32,035,876 $ 33,880,560
=============== ===============
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 OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
---- ---- ----
Income:
Base rental income $ 4,551,236 $ 4,632,760 $ 4,394,632
Other income 821,110 869,720 943,355
Interest income 154,382 170,263 121,905
------------- ------------- -------------
5,526,728 5,672,743 5,459,892
------------- ------------- -------------
Expenses:
Property operating expenses 1,697,276 1,619,142 1,588,395
General and administrative 453,246 395,160 419,267
Fees and reimbursements to affiliates 184,859 189,643 161,006
Provision for doubtful accounts 26,143 19,412 3,519
Depreciation and amortization 1,483,986 1,588,427 1,660,381
Loss due to impairment of assets 816,000 -- 280,000
------------- ------------- -------------
4,661,510 3,811,784 4,112,568
------------- ------------- -------------
Income inclusive of venture
partner's share of venture operations 865,218 1,860,959 1,347,324
Venture partner's share of venture income (114,617) (157,968) (102,427)
------------- ------------- --------------
Net income $ 750,601 $ 1,702,991 $ 1,244,897
============= ============= =============
Net income:
General Partner $ 7,506 $ 17,030 $ 12,449
Limited partners 743,095 1,685,961 1,232,448
------------- ------------- -------------
$ 750,601 $ 1,702,991 $ 1,244,897
============= ============= =============
Net income per Unit $ 3.72 $ 8.43 $ 6.16
============= ============= =============
Cash distributions per Unit $ 13.72 $ 15.46 $ 12.37
============= ============= =============
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 PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
General Limited
Partner Partners Total
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
Cash distributions -- (2,742,000) (2,742,000)
Net income 7,506 743,095 750,601
----------- -------------- --------------
Balance at December 31, 1996 $ 51,176 $ 26,259,360 $ 26,310,536
=========== ============== ==============
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
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income $ 750,601 $ 1,702,991 $ 1,244,897
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred rent credits 34,370 19,877 30,682
Provision for doubtful accounts 26,143 19,412 3,519
Depreciation and amortization 1,483,986 1,588,427 1,660,381
Loss due to impairment of assets 816,000 -- 280,000
Venture partner's share of venture's operations 114,617 157,968 102,427
Accounts receivable (38,723) 55,153 (62,328)
Accounts payable and accrued expenses 4,193 31,124 (13,283)
Other, net 41,605 26,396 3,713
--------------- -------------- --------------
Net cash provided by operating activities 3,232,792 3,601,348 3,250,008
--------------- -------------- --------------
Cash flows from investing activities:
Distribution to joint venture partner -- (521,600) --
Purchases of property and improvements (74,021) (144,511) (330,303)
Payment of leasing commissions (144,638) (20,513) (90,862)
--------------- -------------- --------------
Net cash used in investing activities (218,659) (686,624) (421,165)
--------------- -------------- --------------
Cash flows from financing activities:
Cash distributions to limited partners (2,744,950) (3,092,030) (2,473,552)
--------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents 269,183 (177,306) 355,291
Cash and cash equivalents, beginning of year 3,227,503 3,404,809 3,049,518
--------------- -------------- --------------
Cash and cash equivalents, end of year $ 3,496,686 $ 3,227,503 $ 3,404,809
=============== ============== ==============
Supplemental disclosure of non-cash information:
Accrued purchase of property and improvements $ 30,000 $ 17,782 $ --
=============== ============== ==============
The Notes to Consolidated Financial Statements are an integral part of these statements.
24
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
CIGNA Income Realty-I Limited Partnership (the "Partnership"), a Delaware
limited partnership, was organized in October 1985 to own and operate
residential and commercial real estate. The general partner of the Partnership
is CIGNA Realty Resources, Inc.-Tenth (the "General Partner"). On March 25,
1997, the Partnership sent a Consent Solicitation Statement to the Limited
Partners for approval of the sale of all real estate assets of the Partnership,
and the subsequent dissolution and liquidation of the Partnership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) BASIS OF PRESENTATION: The financial statements have been prepared in
conformity with generally accepted accounting principles, and reflect
management's estimates and assumptions that affect the reported amounts.
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.
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. Depreciation of assets to be disposed of is prohibited. On January 1,
1996, the Partnership adopted the statement which had no impact on the
Partnership's results of operations, liquidity and financial condition.
C) FINANCIAL INSTRUMENTS: Financial instruments subject to fair value
disclosure requirements are carried in the financial statements at amounts
that approximate fair value.
D) PROPERTY AND IMPROVEMENTS: Property and improvements were held for the
production of income at December 31, 1995 and were held for sale at
December 31, 1996. Property and improvements held for the production of
income are carried at depreciated cost less any write-downs to fair value.
The cost represents the initial purchase price and subsequent capitalized
costs and adjustments, including certain acquisition expenses. 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). Property and improvements held for sale are carried at the
lower of cost or fair value less costs to sell and are not depreciated.
E) 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.
F) 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.
G) PARTNERS' CAPITAL: Offering costs consisting of sales commissions and other
issuance expenses have been charged to the partners' capital accounts as
incurred.
25
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
H) 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.
3. FEDERAL INCOME TAX REPORTING
The principal differences between generally accepted accounting principles
and tax reporting is the classification of offering costs (sales commissions and
other issuance expenses), impairment losses and depreciation methods. The net
effects of the differences as of December 31, 1996, 1995 and 1994, are
summarized as follows:
1996 1995 1994
----------------------------- --------------------------------- ---------------------------------
Financial Tax Financial Tax Financial Tax
Reporting Reporting Reporting Reporting Reporting Reporting
Total assets $ 32,035,876 $ 42,264,470 $ 33,880,560 $ 43,233,774 $ 35,568,783 $ 44,459,133
Partners' capital:
General Partner 51,176 136,533 43,670 120,103 26,640 101,973
Limited partners 26,259,360 39,118,269 28,258,265 40,233,704 29,665,254 41,531,782
Net income (a):
General Partner 7,506 16,430 17,030 18,130 12,449 16,712
Limited partners 743,095 1,626,565 1,685,961 1,794,872 1,232,448 1,654,486
Net income (loss) 3.72 14.21- 8.43 15.18- 6.16 14.59-
per Unit(a)(b) (.13) .52 (.34)
(a) Includes losses due to impairment of assets for financial reporting of
$816,000 ($4.08 per Unit) in 1996 and $280,000 ($1.39 per Unit) in 1994.
(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
tax reporting represent the differing allocations to nontaxable and taxable
limited partners.
4. INVESTMENT PROPERTIES
The Partnership has acquired, either directly or through a joint venture, two
commercial office complexes, one shopping plaza and one apartment complex as
follows: Woodlands Tech Center, St. Louis, Missouri; Westford Corporate Center,
Westford, Massachusetts; Piedmont Plaza Shopping Center, Apopka, Florida; and
the Overlook Apartments, Scottsdale, Arizona. 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. At December 31, 1996, the properties were held for sale.
With respect to the Partnership's accounting policies for property and
improvements and impairment of assets, the Partnership recognized impairment of
asset losses in 1996, 1994 and 1992. In 1996, the Partnership recorded an
impairment of $816,000 relative to Woodlands Tech due to a reduction in the
estimated holding period and at December 31, 1996, the property is carried at
its fair value less costs to sell. 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.
26
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
On December 10, 1996, the Partnership and Glenborough Realty Trust
Incorporated ("Glenborough") executed a letter of intent setting forth an
agreement in principle on the terms and conditions of a sale of all of the
Partnership property and improvements (Piedmont Plaza Shopping Center, Woodlands
Tech Center, the Overlook Apartments, and the Partnership's joint venture
interest in the Westford Corporate Center) for an aggregate purchase price of
$29,650,000. On January 10, 1997, the Partnership and the Glenborough
Properties, L.P. ("Glenborough LP"), an affiliate of Glenborough, entered into
an Agreement of Purchase and Sale (the "Purchase Agreement") incorporating the
terms and conditions of the letter of intent.
Based on the terms of the Purchase Agreement, the date of the closing will
occur on the 5th calendar day after the Partnership receives consent from the
Partnership's Limited Partners for the sale of the Partnership's property and
improvements and subsequent Partnership liquidation. On March 25, 1997, the
Partnership sent a Consent Solicitation Statement to Limited Partners. The
Partnership has fixed March 3, 1997 as the record date for determining the
Unitholders entitled to notice of and to consent to the sale, the Purchase
Agreement and the liquidation. The sale must be approved by at least a majority
of the issued and outstanding Units. The Consent Solicitation Statement expires
April 15, 1997.
The Partnership has estimated that the net proceeds from the sale of the
Partnership's property and improvements (after deduction of estimated expenses
of approximately $70,000) when added to the net cash from the transfer of the
remaining assets of the Partnership to the General Partner will be approximately
$29,980,000 or an average amount of $150 per Unit. The Partnership has estimated
that the liquidation will be completed within sixty days after the sale is
completed.
5. DEFERRED CHARGES
Deferred charges at December 31, 1996 and 1995 consist of the following:
1996 1995
---- ----
Deferred leasing commissions $ 1,203,646 $ 1,059,008
Accumulated amortization (719,254) (604,402)
-------------- -------------
484,392 454,606
Deferred rent credits 3,214 37,584
-------------- -------------
$ 487,606 $ 492,190
============== ==============
6. VENTURE AGREEMENT
The Partnership acquired a 73.92% interest in the Westford Office Venture
(the "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.
27
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Summary financial information for the Venture as of and for the years ended
December 31, 1996, 1995 and 1994 follows:
1996 1995 1994
---- ---- ----
Total assets $ 11,712,625 $ 11,280,276 $ 12,671,892
Total liabilities 744,867 751,999 749,320
Total income 1,843,202 1,911,290 1,686,829
Net income 439,481 605,705 392,741
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 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 1996 or 1994.
7. 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, excluding tenant renewal
options:
Year ending December 31:
1997 $2,979,855
1998 2,812,417
1999 1,601,356
2000 1,063,147
2001 1,007,982
Thereafter 7,558,021
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 $716,433 in 1996, $751,338 in 1995 and, $807,628
in 1994 as a result of such provisions. These amounts are included as other
income in the Statement of Operations.
Generally, a portion of the net leasable area for commercial real estate
properties is occupied by significant tenants (occupying 10% or more of the 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 26% 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 64% 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.
28
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
8. 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 upon the sale of the Partnership's properties.
Fees and other expenses related to the General Partner or its affiliates
during the periods ended December 31, 1996, 1995 and 1994 are as follows:
1996 1995 1994
---- ---- ----
Property management fee (a)(b) $ 114,755 $ 116,633 $ 109,952
Printing 14,793 10,609 10,127
Reimbursement (at cost) for
out of pocket expenses 55,311 62,401 40,927
----------- ---------- ----------
$ 184,859 $ 189,643 $ 161,006
=========== ========== ==========
(a) Does not include property management fees earned by independent property
management companies of $195,486, $194,007 and $187,062 for 1996, 1995 and
1994, 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 1996, 1995 and 1994, $14,002, $14,577 and $13,210, respectively, were
attributable to the joint venture partner's share of the Venture.
9. PARTNERS' CAPITAL
During 1991, the State of Connecticut enacted income tax legislation, a
part of which affected partnerships. The portfolio income allocations made by
the Partnership to the limited partners are considered Connecticut-based income
and are subject to Connecticut tax. The Partnership had elected to pay the tax
due on the limited partners' share of portfolio income in 1995 and, therefore,
paid tax due of $2,950 directly to the State of Connecticut in April 1996 for
the 1995 Form CT-G Connecticut Group Income Tax Return. This amount was treated
as a reduction of partners' capital and reported as a distribution in 1995.
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;
29
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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;
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 EVENT
On March 10, 1997, the Partnership paid a cash distribution of $720,000 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, 1996
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 $ -- $ 586,093
St. Louis, MO
Westford Corporate Center (G) 3,223,875 13,759,689 -- (2,248,845)
Westford, MA
Piedmont Plaza Shopping Center 4,367,093 6,201,165 -- (1,277,196)
Apopka, FL
Overlook Apartments 2,932,103 6,462,901 788,608 73,246
Scottsdale, AZ
------------- ------------- ----------- -------------
Totals $11,768,471 $32,513,926 $ 788,608 $(2,866,702)
============= ============= =========== =============
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 $1,118,520 $ 5,482,095 $1,321,049 $ -- $ 7,921,664
St. Louis, MO
Westford Corporate Center (G) 2,526,235 10,716,382 1,492,102 -- 14,734,719
Westford, MA
Piedmont Plaza Shopping Center 2,801,996 3,984,918 2,504,148 -- 9,291,062
Apopka, FL
Overlook Apartments 2,967,201 6,462,902 -- 826,755 10,256,858
Scottsdale, AZ
------------- ------------- ----------- ---------- -----------
Totals $9,413,952 $26,646,297 $5,317,299 $ 826,755 $42,204,303
============= ============= =========== ========== ===========
31
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP SCHEDULE III
(A DELAWARE LIMITED PARTNERSHIP
AND CONSOLIDATED VENTURE)
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
Life on Which
Depreciation in Latest
Accumulated Statement of Operations
Description Depreciation (F) Date of Construction Date Acquired is Computed
Woodlands Tech Center $ 3,337,948 1986 07/03/86 2-39 years
St. Louis, MO
Westford Corporate 5,237,109 1986 11/01/86 2-39 years
Center (G)
Westford, MA
Piedmont Plaza Shopping 2,856,419 1985 05/01/87 2-39 years
Center
Apopka, FL
Overlook Apartments 3,041,864 1988 10/14/88 7-27.5 years
Scottsdale, AZ
-------------------
Totals $14,473,340
===================
(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 1996 relative to Woodlands Tech Center in the
amount of $816,000, 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, 1996 for
federal income tax purposes is $50,700,304.
(E) Reconciliation of real estate owned:
Description 1996 1995 1994
Balance at beginning of period $42,954,372 $42,792,079 $42,773,001
Additions during period 65,931 162,293 299,078
Reductions during period (C) (816,000) -- (280,000)
------------ ----------- ------------
Balance at end of period $42,204,303 $42,954,372 $42,792,079
============ =========== ============
(F) Reconciliation of accumulated depreciation:
Description 1996 1995 1994
Balance at beginning of period $13,104,206 $11,635,309 $10,115,121
Additions during period 1,369,134 1,468,897 1,520,188
----------- ----------- -----------
Balance at end of period $14,473,340 $13,104,206 $11,635,309
=========== =========== ===========
(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 14, 1997, 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 September 7, 1993
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
Kenneth Garrett Treasurer April 26, 1996
Josephine C. Donofrio Controller September 23, 1996
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 54, a Senior Managing Director of CIM, joined Connecticut
General's Investment Operations in 1971 as an Equities 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. He is a Chartered Financial Analyst.
DAVID SCHEINERMAN - DIRECTOR
Mr. Scheinerman, age 36, was appointed Chief Financial Officer of CIGNA
Individual Insurance, a division with more than $94 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 13 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 48, 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 Simon DeBartolo Corporation and Wyndham Hotel Corporation.
34
JOHN D. CAREY - PRESIDENT
Mr. Carey, age 33, is the President of the General Partner and CIGNA
Financial Partners, Inc. (CFP) and manages the Tax Advantaged Investment unit of
CIGNA Investment Management-Real Estate. Mr. Carey was elected President in
1993, and from 1990 to 1996, he served as the Controller of the General Partner
and CFP, primarily responsible for accounting and financial reporting. Prior to
joining CIGNA Investment Management, he held the position of manager at KPMG
Peat Marwick in the audit department and was a member of the Real Estate Focus
Group. 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 59, 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 55, is Managing Director and department head responsible
for Acquisitions. 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,
Vice President - Real Estate Production and Managing Director - Asset
Management. He received a Bachelor of Science degree from the U.S. Naval
Academy.
DAVID C. KOPP - SECRETARY
Mr. Kopp, age 51, 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.
KENNETH R. GARRETT - TREASURER
Kenneth R. Garrett, age 40, is Assistant Vice President, Bank
Reconciliation and Services of CIGNA Corporation. In this capacity he manages a
staff responsible for reconciling approximately 500 CIGNA Corporation and
subsidiaries bank accounts, establishing and enforcing signature authority
limits on checks and drafts, working and negotiating with banks for paper based
disbursement services and providing check and draft services to CIGNA's
operating divisions. Kenneth joined the Insurance Company of North America (INA)
in 1988. He has held a number of positions in insurance, finance and strategy
with INA and later with the merged CIGNA Corporation before assuming his current
responsibilities. He received a B.A. degree for Delaware State University and an
M.B.A. in finance from Atlanta University.
35
JOSEPHINE C. DONOFRIO - CONTROLLER
Ms. Donofrio, age 29, was elected Controller of Tax Advantaged Investments
in 1996. In 1993, Ms. Donofrio joined CIGNA Investment Management - Real Estate
as a member of the Tax Advantaged Investment Unit. Prior to joining CIGNA
Investment Management, Ms. Donofrio was a senior accountant at Kostin, Ruffkess
& Company, LLC. Her experiences include financial and tax reporting for public
and private real estate limited partnership syndications. Ms. Donofrio is a
graduate of the University of Connecticut with a Bachelor of Science Degree. She
is a Certified Public Accountant and a member of the Connecticut Society of
Certified Public Accountants.
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 14, 1997, 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 9,192 *
David Scheinerman (d) 0 2,153 *
Philip J. Ward (e) 0 12,683 *
All directors and officers
Group (9) (f) 0 29,896 *
* 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 345 shares and 1,599
shares which are restricted as to disposition.
(e) Shares beneficially owned includes options to acquire 4,630 shares and
1,645 shares which are restricted as to disposition.
(f) 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.
36
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 1996, the General Partner
received no cash distributions and a share of the Partnership's net income of
$7,506. 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.
CII provided asset management services to the Partnership during 1996 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 1996, CII earned
asset management fees amounting to $114,755 for such services, of which $22,191
was unpaid as of December 31, 1996. Independent third party property managers
earned $195,486 of management fees, of which $17,839 was unpaid as of December
31, 1996.
CII has earned a nonrecurring acquisition fee for evaluating and selecting real
property to be acquired equal to $2,500,000. Acquisition fees 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 when the properties are
sold.
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 1996, the General
Partner and its affiliates were entitled to reimbursement for such out of pocket
expenses in the amount of $70,104 of which $5,063 was unpaid as of December 31,
1996.
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.
37
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.
(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.
(j) Agreement of Purchase and Sale dated January 10, 1997,
between CIGNA Income Realty-I Limited Partnership,
Connecticut General Equity Properties-I Limited
Partnership, and Westford Office Venture, as sellers and
Glenborough Properties, L.P., as purchaser, incorporated
by reference to Annex 1 to the Registrant's Consent
Solicitation Statement on Schedule 14A filed on March 25,
1997.
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 28, 1997 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 28, 1997
-----------------------------
R. Bruce Albro, Director
/s/ David Scheinerman Date: March 28, 1997
-----------------------------
David Scheinerman, Director
/s/ Philip J. Ward Date: March 28, 1997
-----------------------------
Philip J. Ward, Director
/s/ John D. Carey Date: March 28, 1997
-----------------------------
John D. Carey, President
(Principal Executive Officer)
/s/ Kenneth Garrett Date: March 28, 1997
-----------------------------
Kenneth Garrett, Treasurer
(Principal Financial Officer)
/s/ Josephine C. Donofrio Date: March 28, 1997
-----------------------------
Josephine C. Donofrio, Controller
(Principal Accounting Officer)
39