SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended MARCH 31, 1995 COMMISSION FILE NUMBER 1-8927
COPLEY PROPERTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-2866555
(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
(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
PAGE 1 OF 16 PAGES. SEE EXHIBIT INDEX ON PAGE 14
As of May 11, 1995, there were issued and outstanding 3,584,350 shares of
Common Stock, $1.00 par value, and one share of Class A Common Stock, $1.00 par
value.
<PAGE>
COPLEY PROPERTIES, INC.
FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1995
PART I
FINANCIAL INFORMATION
Page(s)
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 10
<PAGE>
COPLEY PROPERTIES, INC.
________________________________________________________________________
Consolidated Balance Sheets (Unaudited)
________________________________________________________________________
March 31, December 31,
1995 1994
----------- -----------
ASSETS
Real estate investments (Note 5):
Property, net $88,624,330 $88,795,709
Joint ventures 1,048,848 1,037,178
Loans to joint ventures 4,983,037 5,036,792
Ground lease 1,187,000 1,187,000
Notes receivable 796,074 824,077
Investment income receivable 694,280 681,356
----------- ----------
Total real estate investments 97,333,569 97,562,112
Cash and cash equivalents 1,889,950 1,491,554
Prepaid expenses 10,125 -
Deferred financing costs (Note 7) - 486,366
----------- ----------
Total assets $99,233,644 $ 99,540,032
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Losses of joint ventures
in excess of investment $ 3,183,959 $ 3,261,463
Accounts payable and other liabilities 678,034 436,478
Accrued management advisory fees 2,522,290 2,491,445
Line of credit borrowings 3,750,000 3,500,000
Mortgage notes payable (Notes 4 and 5) 48,934,984 49,374,668
Dividend payable 896,070 -
----------- -----------
Total liabilities 59,965,337 59,064,054
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, $1.00 par value;
authorized 20,000,000 shares;
issued 4,007,500 shares 4,007,500 4,007,500
Additional paid-in capital 69,625,444 69,625,444
Treasury stock; 423,150 shares
of common stock, at cost (4,895,726) (4,895,726)
Cumulative deficit (29,468,912) (28,261,241)
Class A common stock 1 1
----------- -----------
Total shareholders' equity 39,268,307 40,475,978
----------- -----------
Total liabilities and
shareholders' equity $99,233,644 $ 99,540,032
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
COPLEY PROPERTIES, INC.
Consolidated Statements of Operations and Cumulative Deficit (Unaudited)
Quarter Ended March 31,
1995 1994
----------- ----------
INVESTMENT ACTIVITY (Note 6):
Property operations, net $ 393,782 $ 200,427
Share of joint venture earnings 136,650 279,070
----------- ----------
Total real estate activity 530,432 479,497
Interest on short-term investments
and cash equivalents 1,992 24,591
----------- ----------
Total investment activity 532,424 504,088
----------- ----------
PORTFOLIO EXPENSES:
Management advisory fee (149,237) (220,030)
General and administrative (98,783) (87,288)
Interest expense (94,778) (14,084)
Write-off of deferred financing costs (Note 7) (501,227) -
----------- ----------
(844,025) (321,402)
----------- ----------
NET INCOME (LOSS) (311,601) 182,686
Common stock dividends (896,070) (788,544)
CUMULATIVE DEFICIT:
Beginning of period (28,261,241) (24,355,067)
------------ ------------
End of period $(29,468,912) $(24,960,925)
============ ============
PER SHARE DATA:
Net Income (Loss) $ (.09) $ .05
============ ============
Dividends $ .25 $ .22
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
COPLEY PROPERTIES, INC.
Consolidated Statements of Cash Flows (Unaudited)
Quarter Ended March 31,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (311,601) $ 182,686
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Equity in joint venture earnings (132,228) (252,263)
Cash distributions from joint ventures 96,812 671,994
Property depreciation and amortization 1,008,170 987,238
Write-off of deferred financing costs 501,227 -
Increase in investment income receivable (12,924) -
Increase in deferred leasing commissions (275,195) (109,879)
Decrease in property working capital 209,538 118,145
Increase in accounts payable and
accrued management advisory fees 42,196 171,556
Other, net (10,125) (47,075)
----------- ---------
Net cash provided by operating activities 1,115,870 1,722,402
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Property (830,829) (2,547,844)
Decrease in short-term investments, net - 1,967,451
Decrease in notes receivable 28,003 33,922
Increase in other assets - (24,837)
Deposit received on sale of property 250,000 -
----------- ---------
Net cash used in investing activities (552,826) (571,308)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in line of credit borrowings, net 250,000 5,000,000
Proceeds from third-party mortgage note 3,250,000 -
Principal payments on mortgage notes (3,534,464) (3,040,375)
Dividends paid - (788,544)
Financing costs paid (130,184) -
----------- ---------
Net cash provided by (used in) financing activities (164,648) 1,171,081
----------- ---------
Net increase in cash and cash
equivalents 398,396 2,322,175
CASH AND CASH EQUIVALENTS:
Beginning of period 1,491,554 1,901,790
----------- ---------
End of period $ 1,889,950 $ 4,223,965
=========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
COPLEY PROPERTIES, INC.
Notes to Consolidated Financial Statements (Unaudited)
1 GENERAL
These financial statements have been prepared by Copley Properties, Inc. (the
"Company") without audit and reflect all normal and required adjustments which
are, in the opinion of management, necessary to fairly present the interim
results. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements
be read in conjunction with the financial statements and notes thereto included
in the Company's audited financial statements for the year ended December 31,
1994.
2 ORGANIZATION AND BUSINESS
Copley Properties, Inc., a Delaware corporation, was incorporated in May 1985
and operates as a qualified real estate investment trust under applicable
provisions of the Internal Revenue Code of 1986, as amended. The Company
acquires, develops, operates and owns industrial real estate. The Company
currently owns and operates, either directly or through joint ventures, 16
properties totaling over 3.3 million square feet of net rentable area. Copley
Real Estate Advisors, Inc. (the "Advisor") provides investment management and
administrative services to the Company. The Advisor is an indirect wholly-owned
subsidiary of New England Investment Companies, L.P. ("NEIC"), a publicly traded
limited partnership. New England Mutual Life Insurance Company is the principal
unitholder of NEIC.
3 LINE OF CREDIT
The Company has an unsecured line of credit agreement with a bank which expires
on June 1, 1995. Under its terms, the Company can borrow up to $5,000,000 at
the prime rate of interest or LIBOR plus 1.5%. The outstanding balance was
$3,750,000 as of March 31, 1995. The Company is currently negotiating an
extension of the line of credit.
4 RESTRUCTURINGS, FINANCINGS AND SALES AND DISPOSITIONS
Restructurings
On March 30, 1995, the restructuring of the ownership of three partnerships
that were formed to own a portion of the Park North Business Center investment
(the "Parknorth Partnerships") was completed and transfer of 100% ownership of
the property to the Company occurred. This restructuring does not impact the
accompanying consolidated financial statements as the Company obtained 100%
economic control of the entity at the beginning of 1994.
<PAGE>
Financings
A mortgage note payable to CIGNA, secured by the University Business Center
property, with a $13,000,000 outstanding principal balance at December 31, 1994,
matured and was refinanced in February 1995. A principal paydown of $3,500,000
was made, the interest rate was reduced to 9.06% and the maturity date was
extended to April 1, 2000. The modified note requires principal amortization
payments based on a 20-year amortization schedule with the remaining balance due
at maturity. The Company obtained funds for the principal paydown from a short-
term mortgage loan secured by the Peachtree Corners Distribution Center
property.
Sales and Dispositions
On March 28, 1995, the Company signed a purchase and sale agreement to sell all
of its interests and rights related to the Park North Business Center investment
for approximately $18,500,000. Upon consummation of the sale, the Company will
receive cash of approximately $7,020,000.
Also on March 28, 1995, the Company signed a purchase and sale agreement, with
the same buyer, to sell its interest in the Peachtree Corners Distribution
Center investment for a purchase price of approximately $10,000,000. This sale
is contingent upon the closing of the Park North Business Center sale. In
addition, the buyer loaned the Company $3,250,000 in February 1995. The loan is
secured by a first mortgage on the Peachtree property, bears interest at the
rate of 10% per annum payable monthly in arrears, may be prepaid at any time
without penalty, and matures November 30, 1995. Upon consummation of the sale,
the Company will receive cash of approximately $6,750,000.
The Company expects to recognize a gain on each of these sales.
<PAGE>
5 REAL ESTATE ASSETS AND LIABILITIES
The following is a summary of the assets and liabilities underlying the
Company's real estate investments:
March 31, December 31,
1995 1994
---------------- --------
PROPERTY
Land $ 24,018,575 $ 24,018,575
Buildings and improvements 66,774,135 66,402,879
Accumulated depreciation (5,975,463) (5,079,353)
Deferred leasing costs and other assets, net 1,746,341 1,487,678
Minority interest 1,485,887 1,471,483
------------- -------------
Total real estate assets 88,049,475 88,301,262
Accounts receivable 2,119,057 2,254,603
Accounts payable and other liabilities (1,544,202) (1,760,156)
------------- -------------
$ 88,624,330 $ 88,795,709
============= =============
Mortgage notes payable to third-parties $ 48,934,984 $ 49,374,668
============= =============
JOINT VENTURES
Land $ 8,246,048 $ 8,246,048
Buildings and improvements 35,576,606 35,542,264
Accumulated depreciation (12,755,002) (12,370,021)
Cash 629,375 346,176
Other, net 3,301,998 3,521,924
------------- ------------
Total assets 34,999,025 35,286,391
------------- ------------
Mortgage notes payable to third-parties 31,979,473 32,127,307
Other 2,075,607 1,913,431
------------- ------------
Total liabilities 34,055,080 34,040,738
------------- ------------
Net assets $ 943,945 $ 1,245,653
============= ============
Company's share:
Loans to joint ventures $ 4,983,037 $ 5,036,792
Capital (2,135,111) (2,224,285)
------------- ------------
$ 2,847,926 $ 2,812,507
============= ============
<PAGE>
6 RESULTS OF REAL ESTATE INVESTMENTS
Operations
The following is a summary of the operating results of the properties
underlying the Company's real estate investments:
Quarter Ended March 31,
1995 1994
PROPERTY
Rentals $ 3,375,393 $ 3,224,284
Operating expenses (805,007) (788,509)
Interest expense (1,142,838) (1,205,415)
Depreciation and amortization (1,008,170) (987,238)
Minority interest (25,596) $ (42,695)
----------- -------------
$ 393,782 $ 200,427
=========== =============
JOINT VENTURES
Rentals $ 1,572,188 $ 1,663,330
Operating expenses (257,485) (132,842)
Interest expense (703,674) (750,675)
Depreciation and amortization (458,187) (468,578)
----------- -------------
$ 152,842 $ 311,235
=========== =============
Company share:
Interest on loans to
joint ventures $ 4,422 $ 26,807
Equity in net income 132,228 252,263
----------- -------------
$ 136,650 $ 279,070
=========== =============
7 COSTS ASSOCIATED WITH PENDING EQUITY OFFERING AND AN INCREASED LINE OF
CREDIT
In late 1994, the Company commenced the marketing of additional equity on a
private placement basis and incurred $501,227 in Deferred Financing Costs in
connection with pursuing the private placement and arranging for an increased
line of credit, which was contingent on additional equity. To date, discussions
with potential investors have not produced agreement on the terms of an equity
investment. While the Company is continuing to pursue potential investors,
because of the increased uncertainty of a successful equity offering, the
Company has written-off the Deferred Financing Costs in the quarter ended March
31, 1995.
<PAGE>
COPLEY PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's assets consist primarily of investments in real estate. Several
properties are owned directly by the Company; others are owned by joint ventures
in which the Company is a general partner. The Company's investments also
include secured loans to certain joint ventures. As a general partner in its
joint venture investments, the Company is obligated to fund its proportionate
share of operating deficits.
At March 31, 1995, the Company had cash and cash equivalents totaling
$1,889,950. The Company also has a $5,000,000 bank line of credit which expires
on June 1, 1995. The outstanding balance on the line of credit as of March 31,
1995 was $3,750,000. The Company is currently negotiating an extension of the
line of credit.
Two mortgage notes secured by portions of Park North Business Center are due
May 31, 1995. The Company is currently negotiating a short-term extension of
these notes. The notes will be repaid in conjunction with the sale of the
property as discussed under "Results of Operations" below. A third mortgage
note, secured by a portion of the Huntwood Associates property, matures on June
15, 1995. The Company is presently negotiating an extension of this note.
As more fully discussed under "Results of Operations" below, cash flow from
operations was $1,115,870 for the first quarter of 1995 compared to $1,722,402
for the first quarter of 1994. The Company intends to distribute to its
shareholders at least 95% of taxable income so as to maintain its qualification
as a real estate investment trust under the Internal Revenue Code of 1986, as
amended. Dividends will continue to be paid from cash generated by operations,
which usually exceeds taxable income.
In late 1994, the Company commenced the marketing of additional equity on a
private placement basis and incurred $501,227 in Deferred Financing Costs in
connection with pursuing the private placement and arranging for an increased
line of credit, which was contingent on additional equity. To date, discussions
with potential investors have not produced agreement on the terms of an equity
investment. While the Company is continuing to pursue potential investors,
because of the increased uncertainty of a successful equity offering, the
Company has written-off the Deferred Financing Costs in the quarter ended March
31, 1995.
The carrying value of real estate investments in the consolidated financial
statements is reduced to net realizable value, if lower, which is measured by
the expected undiscounted future cash flows of the investment. Carrying value,
however, may be greater or less than current appraised value. At March 31,
1995, the net excess appraised value over carrying value for all of the
Company's real estate assets and joint venture investments was $15,400,000.
Investments with excess appraised value aggregated approximately $20,000,000
more than their carrying values, and investments with excess carrying value
aggregated approximately $4,600,000 more than their appraised values. The
current appraised value of real estate investments has been estimated by
management based on a combination of traditional appraisal approaches. Because
of the subjectivity inherent in the valuation process, the estimated current
appraised value of real estate may differ significantly from that which could be
realized if the real estate were offered for sale in the marketplace.
<PAGE>
RESULTS OF OPERATIONS
Financings
A mortgage note payable, secured by the University Business Center property,
matured and was refinanced in February 1995. A principal paydown of $3,500,000
was made in conjunction with the refinancing. The funds for the paydown were
primarily obtained from a short-term mortgage loan secured by the Peachtree
Corners Distribution Center property.
Sales and Dispositions
During the first quarter of 1995, the Company signed purchase and sales
agreements to sell its rights and interests in the Park North Business Center
and Peachtree Corners Distribution Center investments. The aggregate sales
price is approximately $28,500,000. The buyer of the properties loaned the
Company $3,250,000 in February 1995. Upon consummation of both sales, and after
the repayment of related mortgage indebtedness, the Company will receive net
cash proceeds of approximately $13,770,000.
Restructurings
On March 30, 1995, the restructuring of the ownership of three partnerships
that were formed to own a portion of the Park North Business Center investment
(the "Parknorth Partnerships") was completed and transfer of 100% ownership of
the property to the Company occurred. This restructuring transaction does not
affect net income (loss) or shareholders' equity.
Investment Performance
The overall leased percentage for the portfolio was 98% at March 31, 1995, up
from 92% a year earlier. Leases for 16% of the Company's square footage are
scheduled to expire in 1995. Due to the sustained strengthening of demand for
industrial space, management does not expect occupancy to be significantly
affected by the upcoming expirations.
Real estate operating results were $530,432 for the first quarter of 1995
compared to $479,497 for the first quarter of 1994. The improvement of 1995
operating results over 1994 is due to primarily to higher income at Columbia
Place as a result of a lease transaction completed in 1994, lower interest
expense at certain properties due to debt reductions in 1994, and higher income
at certain properties due to increases in occupancy rates. These improvements
were partially offset by a provision for bad debts recorded at Dominguez
Properties related to a tenant in arrears on rent and by a reduction in rent at
Los Angeles Corporate Center due to the vacancy of approximately half of the
building at the end of February as anticipated.
Cash flow from operations was $1,115,870 for the first quarter of 1995 compared
to $1,722,402 for the first quarter of 1994. The decrease is due primarily to
the following two factors: 1) the terms of the new lease at Columbia Place
provide for a period of free rent at the beginning of the lease term, and 2)
cash from operations in the first quarter of 1994 benefited from the realization
of cash flow upon conversion of the Park North Business Center property from a
joint venture accounted for under the equity method to a wholly-owned property
accounted for on a consolidated basis.
<PAGE>
Portfolio Expenses
Portfolio expenses increased in the first quarter of 1995 compared to 1994,
primarily due to the $501,227 write-off of deferred financing costs. Management
advisory fees for first quarter of 1995 decreased by $70,793 compared to the
first quarter of 1994. This decrease is consistent with the decrease in cash
flow from operations upon which the fee is based. Interest expense in the first
quarter of 1995 increased over the same period in 1994 as a result of increased
borrowings in 1995 on the Company's line of credit.
<PAGE>
COPLEY PROPERTIES, INC.
FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1995
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: See Exhibit Index on page 14.
b. Reports on Form 8-K: No reports on Form 8-K were filed during
the quarter ended March 31, 1995.
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT PAGE NUMBER
27 Financial Data Schedule 15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COPLEY PROPERTIES, INC.
(Registrant)
May 12, 1995 /s/ Peter P. Twining
----------------------
Peter P. Twining
Vice President and Secretary
May 12, 1995 /s/ Daniel C. Mackowiak
-------------------------
Daniel C. Mackowiak
Treasurer and Principal Financial
and Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF COPLEY PROPERTIES, INC., FOR THE QUARTER
ENDED MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000769017
<NAME> DAVID MORRISON
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 1889950
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 91979710
<DEPRECIATION> 5975463
<TOTAL-ASSETS> 99233644
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 52684984
<COMMON> 4007500
0
0
<OTHER-SE> 35260807
<TOTAL-LIABILITY-AND-EQUITY> 99233644
<SALES> 0
<TOTAL-REVENUES> 4949573
<CGS> 0
<TOTAL-COSTS> 2570637
<OTHER-EXPENSES> 248020
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1941290
<INCOME-PRETAX> (311601)
<INCOME-TAX> 0
<INCOME-CONTINUING> (311601)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (311601)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
<FN>
<F1>NOT APPLICABLE AS THE COMPANY PRESENTS AN UNCLASSIFIED BALANCE SHEET DUE
TO THE NATURE OF ITS INDUSTRY.
</FN>
</TABLE>
