SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For Quarter Ended September 30, 1996 Commission File Number 0-15430
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Massachusetts 04-2893293
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
399 Boylston Street, 13th Fl.
Boston, Massachusetts 02116
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(617) 578-1200
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Former name, former address and former fiscal year if changed since
last report
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 twelve (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 ___
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1996
PART I
FINANCIAL INFORMATION
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BALANCE SHEET
(Unaudited)
September 30, 1996 December 31, 1995
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ASSETS
Real estate investments:
Property, net $ 3,666,560 $ 13,441,466
Joint ventures 4,771,257 8,971,192
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8,437,817 22,412,658
Cash and cash equivalents 1,556,312 449,092
Short-term investments -- 1,465,991
Deferred rent receivable -- 544,682
Other receivables 29,330 14,048
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$ 10,023,459 $ 24,886,471
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LIABILITIES AND PARTNERS' CAPITAL
Mortgage loan $ -- $ 4,238,857
Accounts payable 53,147 276,581
Accrued management fee 26,601 51,820
Deferred disposition fees 504,663 -
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Total liabilities 584,411 4,567,258
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Partners' capital (deficit):
Limited partners ($673 and
$1,000 per unit, respectively;
100,000 units authorized,
34,581 units issued and
outstanding) 9,537,713 20,422,156
General partners (98,665) (102,943)
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Total partners' capital 9,439,048 20,319,213
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$ 10,023,459 $ 24,886,471
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<FN>
(See accompanying notes to financial statements)
STATEMENT OF OPERATIONS
(Unaudited)
Quarter Ended Nine Months Ended Quarter Ended Nine Months Ended
September 30, 1996 September 30, 1996 September 30, 1995 September 30, 1995
------------------ ------------------ ------------------- ------------------
INVESTMENT ACTIVITY
Property rentals $ 192,306 $ 1,201,548 $ 546,986 $ 1,718,649
Property operating expenses (27,607) (80,951) -- --
Depreciation and amortization (50,652) (174,619) (123,419) (370,258)
Interest and other expenses 352 (114,798) (137,352) (355,825)
-------------- -------------- -------------- --------------
114,399 831,180 286,215 992,566
Joint venture earnings 79,884 236,118 128,048 397,767
Investment valuation allowance -- (250,000) (2,200,000) (2,200,000)
--------------- --------------- --------------- ---------------
Total real estate operations 194,283 817,298 (1,785,737) (809,667)
Gain on sale of property 885,059 885,059 -- --
--------------- --------------- --------------- --------------
Total real estate activity 1,079,342 1,702,357 (1,785,737) (809,667)
Interest on cash equivalents
and short term investments 29,917 88,048 29,580 84,780
-------------- -------------- -------------- --------------
Total investment activity 1,109,259 1,790,405 (1,756,157) (724,887)
-------------- -------------- -------------- --------------
Portfolio Expenses
Management fee 26,601 91,134 51,820 164,096
General and administrative 28,503 94,996 37,712 102,838
-------------- -------------- -------------- --------------
55,104 186,130 89,532 266,934
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Net Income (loss) $ 1,054,155 $ 1,604,275 $ (1,845,689) $ (991,821)
============== ============== ============== ==============
Net income (loss) per
limited partnership unit $ 30.18 $ 45.93 $ (52.84) $ (28.39)
============== ============== ============== ==============
Cash distributions per
limited partnership unit $ 158.68 $ 360.68 $ 15.00 $ 50.00
============== ============== ============== ==============
Number of limited partnership
units outstanding during the period 34,581 34,581 34,581 34,581
============== ============== ============== ==============
<FN>
(See accompanying notes to financial statements)
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
Quarter Ended Nine Months Ended Quarter Ended Nine Months Ended
September 30, 1996 September 30, 1996 September 30, 1995 September 30, 1995
------------------- ------------------- ------------------- ------------------
General Limited General Limited General Limited General Limited
Partners Partners Partners Partners Partners Partners Partners Partners
--------- --------- --------- --------- --------- --------- --------- ---------
Balance at
beginning of
period $(106,175) $13,981,413 $(102,943) $20,422,156 $ (74,092) $23,278,307 $ (70,405) $ 23,643,312
Cash
distributions (3,032) (5,487,313) (11,765) (12,472,675) (5,240) (518,715) (17,466) (1,729,049)
Net
income (loss) 10,542 1,043,613 16,043 1,588,232 (18,457) (1,827,232) (9,918) (981,903)
--------- ---------- --------- ---------- --------- ---------- ---------- ----------
Balance at
end of period $ (98,665) $ 9,537,713 $ (98,665) $ 9,537,713 $ (97,789) $20,932,360 $ (97,789) $ 20,932,360
========== =========== ========= ============ ========== =========== ========= ===========
<FN>
(See accompanying notes to financial statements)
SUMMARIZED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
--------------------------------
1996 1995
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Net cash provided by operating
activities $ 1,088,808 $ 2,009,814
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Cash flows from investing activities:
Net proceeds from sales of property 15,847,013 -
Increase in deferred disposition fees 504,663 -
Investment in property (1,052,637) -
Repayment of loan by joint venture - 14,188
Decrease (increase) in short-term
investments, net 1,442,670 (763,677)
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Net cash provided by (used in)
investing activities 16,741,709 (749,489)
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Cash flows from financing activities:
Repayment of mortgage loan (4,238,857) (93,477)
Distributions to partners (12,484,440) (1,746,515)
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Net cash used in financing
activities (16,723,297) (1,839,992)
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Net increase (decrease) in cash
and cash equivalents 1,107,220 (579,667)
Cash and cash equivalents:
Beginning of period 449,092 1,638,294
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End of period $ 1,556,312 $ 1,058,627
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<FN>
Non-cash transaction:
Effective January 1, 1996, the Partnership's joint venture
investment in East Anaheim Distribution Center Associates was
converted to a wholly-owned property. The carrying value of this
investment at conversion was $3,763,820.
(See accompanying notes to financial statements)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
In the opinion of management, the accompanying unaudited
financial statements contain all adjustments necessary to present
fairly the Partnership's financial position as of September 30, 1996
and December 31, 1995 and the results of its operations, its cash
flows and changes in partners' capital (deficit) for the interim
periods ended September 30, 1996 and 1995. These adjustments are of
a normal recurring nature.
See notes to financial statements included in the Partnership's
1995 Annual Report on Form 10-K for additional information relating
to the Partnership's financial statements.
NOTE 1 - ORGANIZATION AND BUSINESS
- ----------------------------------
Copley Realty Income Partners 1; A Limited Partnership (the
"Partnership") is a Massachusetts limited partnership organized for
the purpose of investing primarily in newly-constructed and existing
income-producing real properties. It commenced operations in August
1986, and acquired the two real estate investments it currently owns
prior to the end of 1987. The Partnership had intended to dispose
of its investments within nine years of their acquisition, and then
liquidate; however, the managing general partner has extended the
investment period at least into 1998, having determined it to be in
the best interest of the limited partners.
NOTE 2 -PROPERTY
- ----------------
Effective January 1, 1996, the East Anaheim Distribution Center
joint venture was dissolved and the venture partner's ownership
interest was assigned to the Partnership. Accordingly, as of this
date, the investment is being accounted for as a wholly-owned
property. The carrying value of the joint venture investment at
conversion ($3,763,820) was allocated to land, building and
improvements, and other net operating assets.
The Zehntel property, located in Walnut Creek, California, was
listed for sale during the third quarter of 1995. The indication
from the market was that the Partnership would not likely recover
its net carrying value over the shortened investment period.
Accordingly, during the third quarter of 1995, the Partnership
recognized an investment valuation allowance of $2,200,000 through a
charge to operations. The carrying value was further reduced by
$400,000 in the fourth quarter of 1995, with the refinement of the
fair market value estimate based on the terms of the pending sale
transaction. The property was sold on April 9, 1996 for
$11,449,612, of which $4,215,073 was used to repay the related
mortgage loan and $555,000 was used to complete certain improvements
and pay certain costs, as conditions of the sale. After closing
costs, the Partnership received net proceeds of $6,378,639. A
disposition fee of $343,488 was accrued but not paid to the advisor.
On April 25, 1996, the Partnership made a capital distribution of
$6,120,837 ($177 per limited partnership unit) from the proceeds of
the Zehntel sale.
On August 13, 1996, the United Exposition property was sold for
$5,372,500. The Partnership received net proceeds of $5,202,964,
after closing costs, and recognized a gain of $885,059 ($25.34 per
limited partnership unit) on the sale. A disposition fee of
$161,175 was accrued but not paid to the advisor. On August 29,
1996, the Partnership made a capital distribution of $5,187,150
($150 per limited partnership unit) from the proceeds of the United
Exposition sale.
The following is a summary of the Partnership's investments in
property:
September 30, 1996 December 31, 1995
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Land $ 1,279,147 $ 7,973,584
Buildings and improvements 2,466,286 12,085,214
Investment valuation allowance - (2,600,000)
Other net assets (liabilities) (16,979) 156,818
Accumulated depreciation (61,894) (4,174,150)
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Net carrying value $ 3,666,560 $ 13,441,466
============ ===========
The net carrying value at September 30, 1996 was comprised
solely of the East Anaheim property. The net carrying value at
December 31, 1995 was comprised of Zehntel and United Exposition at
$9,533,690 and $3,907,776, respectively.
The buildings and improvements of East Anaheim Distribution
Center are being depreciated over 30 years, beginning January 1,
1996.
NOTE 3 - REAL ESTATE JOINT VENTURES
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The following summarized financial information is presented in
the aggregate for the investments in joint ventures:
Assets and Liabilities
----------------------
September 30, 1996 December 31, 1995
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Assets
Real property, at cost less
accumulated depreciation
of $2,727,848 and $3,469,239 $ 7,838,502 $11,520,507
Other 248,882 352,804
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8,087,384 11,873,311
Liabilities 71,012 104,215
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Net Assets $ 8,016,372 $11,769,096
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Results of Operations
----------------------
Nine Months ended September 30,
--------------------------------
1996 1995
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Revenue
Rental income $ 965,082 $ 1,287,645
Other 1,627 4,412
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966,709 1,292,057
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Expenses
Depreciation and amortization 334,676 422,569
Operating expenses 209,318 300,182
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543,994 722,751
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Net income $ 422,715 $ 569,306
========= ==========
Liabilities and expenses exclude amounts owed and attributable
to the Partnership and (with respect to one joint venture) its
affiliate on behalf of their various financing arrangements with the
joint ventures.
Effective January 1, 1996, the East Anaheim joint venture was
dissolved, and the property became wholly-owned by the Partnership.
Accordingly, the 1996 amounts relate only to the Medlock Oaks joint
venture.
NOTE 4 - SUBSEQUENT EVENT
- -------------------------
Distributions of cash from operations relating to the quarter
ended September 30, 1996 were made on October 24, 1996 in the
aggregate amount of $268,963 ($7.70 per limited partnership unit).
Management's Discussion and Analysis of Financial Condition
- -----------------------------------------------------------
and Results of Operations
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Liquidity and Capital Resources
- -------------------------------
The Partnership completed its offering of units of limited
partnership interest in April 1987, and a total of 34,581 units were
sold. The Partnership received proceeds of $30,812,718, net of
selling commissions and other offering costs, which have been
invested in real estate, used to pay related acquisition costs or
retained as working capital reserves.
On April 9, 1996, the Partnership sold the Zehntel property for
$11,449,612, of which $4,215,073 was used to pay off the related
mortgage loan and $555,000 was used to complete certain
improvements. Net proceeds to the Partnership, after closing costs,
were $6,378,639. A disposition fee of $343,488 was accrued but not
paid to the advisor. On April 25, 1996, the Partnership made a
capital distribution of $6,120,837 ($177 per limited partnership
unit), which reduced the adjusted capital contribution to $823 per
unit.
On August 13, 1996, the United Exposition property was sold for
$5,372,500. The Partnership received net proceeds of $5,202,964,
after closing costs, and recognized a gain of $885,059 ($25.34 per
limited partnership unit) on the sale. A disposition fee of
$161,175 was accrued but not paid to the advisor. On August 29,
1996, the Partnership made a capital distribution of $5,187,150
($150 per limited partnership unit) from the proceeds of the United
Exposition sale. This distribution reduced the adjusted capital
contribution to $673 per unit.
At September 30, 1996, the Partnership had $1,556,312 in cash
and cash equivalents, of which $268,963 was used for cash
distributions to partners on October 24, 1996; the remainder is
being retained for working capital reserves. The source of future
liquidity and cash distributions to partners will be cash generated
by the Partnership's real estate and short-term investments.
Distributions of cash from operations relating to the first quarter
of 1995 were made at an annualized rate of 7.0% on a capital
contribution of $1,000 per unit. Distributions of cash from
operations for the second and third quarters of 1995 were made at an
annualized rate of 6.0%. The distribution rate was decreased in
1995 due to the restructuring and extension of a lease at the
Zehntel property, as discussed below. Distributions of cash from
operations were made at an annualized rate of 4.0% for the first
three quarters of 1996; the second and third quarter distribution
rates were based on a weighted average adjusted capital
contribution. The distribution rate was further decreased to 4.0%
in 1996 in anticipation of cash flow decreases resulting from the
sale of the Zehntel and United Exposition investments.
The carrying value of real estate investments in the financial
statements at September 30, 1996 is at depreciated cost, or if the
investment's carrying value is determined not to be recoverable
through expected undiscounted future cash flows, the carrying value
is reduced to estimated fair market value. The fair market value of
such investments is further reduced by the estimated costs of sale
for properties held for sale. Carrying value may be greater or less
than current appraised value. At September 30, 1996, the aggregate
appraised value of the Partnership's investments was approximately
$300,000 greater than their aggregate carrying value. The current
appraised value of real estate investments has been estimated by the
managing general partner and is generally based on a combination of
traditional appraisal approaches performed by the Partnership's
advisor, Copley Real Estate Advisors, Inc., and independent
appraisers. Because of the subjectivity inherent in the valuation
process, the current appraised value may differ significantly from
that which could be realized if the real estate were actually
offered for sale in the marketplace.
Results of Operations
- ---------------------
Form of Real Estate Investments
The Medlock Oaks investment is structured as a joint venture
with an affiliate of the Partnership. The East Anaheim investment
was structured as a joint venture with a real estate
management/development firm. Effective January 1, 1996, however,
the venture was dissolved and all of its assets and liabilities were
transferred to the Partnership, whereby the property became wholly-
owned by the Partnership. The Zehntel and United Exposition
investments, which were sold in April and August of 1996,
respectively, were wholly-owned properties.
Operating Factors
The Zehntel property, which is comprised of two R&D buildings
totaling approximately 145,000 square feet, was fully leased to a
single tenant through June, 1996. During the third quarter of 1995,
however, the Partnership signed a lease extension with the lessee
for the 60,000 square foot building through December, 2000. The
extension was retroactive to April 1, 1995, and was at a lower
rental rate than under the previous lease. In the third quarter of
1995, the tenant sub-leased the second building, containing 85,000
square feet, to a sub-tenant which has executed a primary lease for
the building through June 2002. During the third quarter of 1995,
after deciding to market the Zehntel property for sale, the managing
general partner determined that the Partnership would not likely
recover its carrying value over the shortened investment period.
Accordingly, the Partnership reduced the carrying value to its
estimated net fair market value with a charge to operations of
$2,200,000. The carrying value was further reduced by $400,000 in
the fourth quarter, with the refinement of the estimate based on the
terms of the sale transaction discussed above.
The United Exposition property also consists of two buildings
which have been 100% leased to one tenant since 1987. As discussed
above, the Partnership sold the property and recognized a gain of
$885,059.
Occupancy at Medlock Oaks decreased slightly to 95% during the
third quarter of 1996. (Occupancy was 95% at December 31, 1995 and
97% at September 30, 1995.) The managing general partner determined
in 1994 that the carrying value of this investment would likely not
be recoverable, and reduced the carrying value to estimated net
realizable value with a charge to operations of $200,000. The
carrying value was further reduced by $250,000 in the first quarter
of 1996, with a revised estimate of fair market value based on a
then contemplated sales transaction.
Occupancy at Anaheim Distribution Center remained at 100% at
September 30, 1996. Occupancy was also 100% at December 31, 1995
and September 30, 1995. Two leases for a total of 77% of the space
expire in 1997.
Investment Results
Exclusive of the valuation allowances related to Medlock Oaks
in 1996 and Zehntel in 1995, and the aggregate operating results
from Zehntel and United Exposition of $608,417 in 1996, and
$1,001,314 in 1995, total real estate operations for the first nine
months of 1996 increased by $70,000, or 18%, compared to the same
period of 1995. This improvement is primarily due to increases in
rental income at both Anaheim and Medlock Oaks.
Interest on cash equivalents and short-term investments
increased by approximately $3,000, or 4%, between the two nine-month
periods due to higher average invested balances, partially offset by
lower short-term yields.
Cash flow provided by operating activities decreased by
$921,000 between the first nine months of 1996 and 1995. This
change was primarily caused by the Zehntel and United Exposition
sales, including a net reduction of approximately $669,000 due to
lower revenue and expenses, as well as the payment of $77,000 for
lease commissions at Zehntel, and the payment of $207,000 held by
the Partnership as various deposits. These decreases were partially
offset by an increase in cash flow from Medlock Oaks.
Portfolio Expenses
General and administrative expenses primarily consist of real
estate appraisal, legal, accounting, printing and servicing agent
fees. These expenses decreased approximately $8,000, or 8%, for the
first nine months of 1996 as compared to the same period in 1995,
primarily due to a decrease in legal fees. The Partnership
management fee is 9% of distributable cash flow from operations
after any increase or decrease in working capital reserves as
determined by the managing general partner. Management fees
decreased between the two nine-month periods due to the decrease in
distributable cash flow.
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1996
PART II
OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: None.
b. Reports on Form 8-K: The Partnership filed
one current report on Form 8-K dated August 13,
1996, reporting on Item No. 2 (Acquisition or
Disposition of Assets).
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
(Registrant)
November 12, 1996 /S/ Peter P. Twining
----------------------------------------
- -
Peter P. Twining
Managing Director and General Counsel
of Managing General Partner,
First Income Corp.
November 12, 1996 /S/ Daniel C. Mackowiak
----------------------------------------
- -
Daniel C. Mackowiak
Principal Financial and Accounting
Officer of General Partner,
First Income Corp.