<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission File No. 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
incorporation or organization) Identification No.)
399 Boylston Street, 13th FL.
Boston, Massachusetts 02116 02116
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(617) 578-1200
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which Registered
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Common Stock, par value $1.00 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 __
-
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Sec. 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non affiliates of the
Registrant as of March 1, 1996 was approximately $53,317,206. As of March 1,
1996, 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.
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DOCUMENTS INCORPORATED BY REFERENCE
NONE
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<PAGE>
PART I
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Item 1. Business.
---------
Copley Properties, Inc. ("Copley" or the "Company") was organized under
the General Corporation Law of the State of Delaware on May 8, 1985 and intends
to continue to qualify as a real estate investment trust ("REIT") under
applicable provisions of the Internal Revenue Code of 1986, as amended. Copley
acquires, develops, operates and owns commercial real estate, most of which is
comprised of industrial buildings.
As of December 31, 1995, Copley owned, directly or partially through
tenancy-in-common or joint venture ownership structures, 15 properties totaling
over 2.5 million square feet of net rentable area. Industrial properties,
including bulk distribution, research and development and light industrial space
account for approximately 92% of the total net rentable area in Copley's
portfolio. Over 86% of the net rentable area in Copley's portfolio is located in
California and Arizona.
In light of the strong preference of investors in REITs for direct
ownership of real estate by REITs, in the fall of 1993, the Company began the
process of restructuring its joint venture investments to realign its legal
ownership with the economic realities of each venture and to obtain operational
control. The last of the Company's investments were restructured effective
February 1996 through two separate exchange transactions (the "February
Exchanges"). See below for more detailed information regarding these exchanges.
Once the February Exchanges are consummated, Copley will own all except two of
its investments either directly or through 100% controlled partnerships and will
have operational control over all of its investments.
As of February 1996, Copley owned directly or through its two joint
venture investments, 11 properties totaling over 2.0 million square feet of net
rentable area. Industrial properties, including bulk distribution, research and
development and light industrial space account for approximately 91% of the
total net rentable area in Copley's portfolio. Over 87% of the net rentable area
in Copley's portfolio is located in California and Arizona.
A key element of Copley's strategy has been a concentrated focus on
industrial real estate in the western United States. In evaluating specific real
property investments, Copley considers such factors as (i) the geographic area
and type of property in light of Copley's investment and diversification
objectives; (ii) the proposed location, construction quality and design of the
property; (iii) projected cash flow; (iv) potential for capital appreciation;
(v) the terms of any proposed or existing tenant leases; (vi) the economic
growth, tax and regulatory environment in the community in which the property is
located; (vii) occupancy rates and demand for properties of similar type in the
vicinity; (viii) prospects for liquidity through sales or refinancing; and (ix)
if applicable, the experience, past performance and competence of Copley's
proposed joint venture partner or property manager. As a general rule, Copley
will not invest more than 25% of its total assets in a single property.
As discussed above, Copley has recently restructured a number of its
investments which were originally made through joint venture arrangements.
Copley anticipates that any future investments would be made through the
acquisition by Copley of fee interests in real estate.
Copley's By-Laws permit the directors, with the approval of a majority
of the Independent Directors (as defined in the Company's By-Laws), to alter
Copley's investment policies without approval of the stockholders, if in the
future the directors determine that such a change is in the best interest of
Copley and its stockholders. The methods of implementing Copley's investment
policies may also vary as new investment and financing techniques are developed.
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In general, Copley has a policy of seeking to reduce the amount of its
indebtedness. Under its By-Laws, Copley may not incur borrowings which, together
with the amount of all then outstanding indebtedness, would exceed at the time
of such borrowings, 300% of the net book assets of Copley, unless a majority of
its Independent Directors determines that it is advisable to do so.
Although Copley does not currently have plans to renovate, improve or
further develop its real properties, it owns undeveloped land at its Sample/I-95
Business Park property that it may develop or sell at some point in the future.
In the opinion of the management of Copley, the properties are adequately
covered by insurance.
The Company has an agreement with Copley Real Estate Advisors, Inc.
(the "Advisor") pursuant to which the Advisor provides investment management and
administrative services to the Company. See Note 9 of Notes to Financial
Statements. The Company has no employees. Executive officers of the Advisor also
serve as the executive officers of the Company but receive no remuneration from
the Company.
The Company has an unsecured line-of-credit in the amount of $5,000,000
from Fleet Bank of Massachusetts, N.A., which has no outstanding balance as of
December 31, 1995. This revolving line-of-credit bears interest at the Company's
election at the prime rate, or the London InterBank Offered Rate ("LIBOR") plus
1.5%. The current line-of-credit agreement expires July 31, 1996.
On February 12, 1996, Copley and EastGroup Properties ("EastGroup")
entered into a merger agreement (the "Agreement") whereby (i) Copley will merge
with and into EastGroup, (ii) the separate corporate existence of Copley will
cease, and (iii) EastGroup will become the surviving corporation (the "Merger").
In the Merger, each share of Copley's common stock will be converted
into shares of beneficial interest of East Group with a value of $15.60 (subject
to certain limitations described below). The value at which each share of
Copley's common stock will be converted into EastGroup shares is subject to
further adjustment in the event certain other cash distributions are made to
Copley stockholders prior to the effective date of the Merger.
The value of EastGroup shares for purposes of calculating the ratio at
which the Copley shares will be converted into EastGroup shares in the Merger
will be the average of the closing price of EastGroup shares on the New York
Stock Exchange on the 20 trading days immediately preceding the fifth trading
day prior to the effective date of the Merger (the "EastGroup Share Price");
provided, however, that if such average closing price as calculated in
- -------- -------
accordance with this sentence (i) is less than $20.25, the EastGroup Share Price
shall be deemed to equal $20.25 or (ii) is greater than $23.00, the EastGroup
Share Price shall be deemed to equal $23.00. Notwithstanding the foregoing,
Copley shall have the right, waivable by it, to terminate the Agreement without
liability if the average closing price of EastGroup shares on the New York Stock
Exchange on the twenty (20) trading days immediately preceding the fifth trading
day prior to either (A) the date on which the Form S-4 relating to the issuance
of EastGroup shares is declared effective by the Securities and Exchange
Commission or (B) the date on which the meeting of Copley's stockholders is to
be held with respect to the Merger, is equal to or less than $18.25.
The Agreement has been unanimously approved by the Board of Directors
of Copley and the Board of Trustees of EastGroup. The Merger is subject to
various approvals by third parties and other closing conditions including
approval by the stockholders of both companies.
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Further information regarding the Company's investments is set forth in
tabular form at the end of this Item 1 and should be read in conjunction with
the narrative. The schedules and narratives have been organized to provide
information first, for those properties unaffected by the February Exchanges;
second, for those properties which Copley will own 100% subsequent to the
February Exchanges; and third, for those properties in which the Company will no
longer have an interest after the February Exchanges.
1. Property Data Summary at December 31, 1995
2. Property Third-Party Debt Summary at December 31, 1995
3. Invested Capital Priorities at December 31, 1995
1. Broadway Industrial Center
- ------------------------------
On March 31, 1994, the Company purchased an approximately 121,000
square foot industrial building located in Tempe, Arizona. The total purchase
price was approximately $2,350,000. The Company acquired a 100% fee interest in
the property on a direct ownership basis, rather than through a joint venture
arrangement, and incurred no acquisition indebtedness. At the date of
acquisition, Copley had entered into an agreement with The Hewson Company
("Hewson") which included both an on-going management arrangement and granted
Hewson an interest in the property in lieu of an acquisition fee, which interest
was payable upon the sale or refinancing of the property or termination of the
management arrangement. In September 1995, Copley paid approximately $100,000 to
buy out Hewson's interest in the property.
*See Property Data Summary included at the end of this Item 1.
2. Kingsview Industrial Center
- -------------------------------
On July 14, 1995, the Company purchased an approximately 83,000 square
foot industrial building located in Carson, California. The total purchase price
was approximately $3,000,000. The Company acquired a 100% fee interest in the
property on a direct ownership basis, rather than through a joint venture
arrangement, and incurred no acquisition indebtedness.
*See Property Data Summary included at the end of this Item 1.
3. Los Angeles Corporate Center.
- ---------------------------------
The Company owns a 100% interest in an office building in Monterey
Park, California .
As of December 31, 1995, the building was 50% leased. In January 1996,
the Company executed a lease agreement which increased the percentage leased to
100%.
*See Property Data Summary included at the end of this Item 1.
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4. University Business Center.
- -------------------------------
The Company invested in a two-phase development of four research and
development buildings in Santa Barbara, California. The Phase I buildings
consist of two two-story research and development buildings containing an
aggregate of approximately 133,000 square feet. The Phase II buildings consist
of two two-story research and development buildings containing an aggregate of
approximately 97,000 square feet.
Prior to November 1, 1993, the Company owned a 50% interest in the
joint venture owning the properties. All of the Company's capital contribution
related to its 50% ownership interest was returned. On November 1, 1993, the
Company purchased an additional 30% interest in the joint venture for
approximately $1,990,000 plus closing costs, bringing the Company's ownership
position to 80%. The Company also gained operational control of the joint
venture.
During 1993, the Company contributed additional capital to the joint
venture of $150,000 for tenant improvements. The capital earns a preferred
return of 12% and is required to be repaid over a three year period ending
March, 1996. The balance of this capital contribution was $14,652 as of December
31, 1995. In February 1995, in conjunction with a refinancing, Copley
contributed additional capital to the joint venture of $3,500,000 which earns a
preferred return of 11% and is amortized over a 22.5 years.
The joint venture obtained loans from Connecticut General Life
Insurance Company ("CIGNA"). One loan in the amount of $9,500,000 is secured by
a first mortgage on the two research and development buildings in Phase I. The
joint venture also obtained a second loan in the amount of $10,000,000 from
CIGNA which is secured by a first mortgage of the Phase II buildings.
*See Property Data Summary, Property Third-Party Debt Summary and
Invested Capital Priorities included at the end of this Item 1.
5. Huntwood Associates
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The Company owned an equity interest in a joint venture formed to
acquire three parcels of land within the Crocker South Industrial Park in
Hayward, California and to construct thereon bulk distribution/light industrial
space. Prior to the end of 1993, the Company owned a 60% interest in the joint
venture. As of December 31, 1993, the Company obtained operational control of
the property and 100% ownership interest in all the joint venture's assets.
Because of the high level of accrued guaranteed payments owed to the Company,
the joint venture partner surrendered its 40% ownership interest in the joint
venture to the Company at no cost.
Development of all the buildings has been completed. The Company
currently owns seven buildings totaling approximately 514,400 square feet. In
prior years, four buildings totaling 180,600 square feet were sold.
The joint venture obtained a loan from Massachusetts Mutual Life
Insurance Company. The loan is secured by a first mortgage on certain of the
land and buildings. The joint venture also obtained a construction loan from
Wells Fargo Bank. This loan is secured by a first mortgage of certain of the
land and buildings.
*See Property Data and Property Third-Party Debt Summary included at
the end of this Item 1.
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6. Wiegman Associates.
- -----------------------
The Company owns an interest in a joint venture which developed and now
owns four bulk distribution/light industrial buildings in Hayward, California.
On December 31, 1993, the Wiegman Associates joint venture was restructured to
(i) provide the Company with operating control, (ii) increase the Company's
interest in the venture from 60% to 80% and (iii) convert the joint venture from
a general partnership to a limited partnership. The joint venture agreement
entitles the Company to a 12% per annum cumulative compounded return on its
original capital contribution of $2,500,000. Any capital contributed after
December 31, 1993 will receive a 9.5% priority cumulative compounded return. The
Company made no additional investment in the property to acquire the additional
20% interest .
Three of the buildings are encumbered by a loan from Massachusetts
Mutual Life Insurance Company. The loan is secured by a first mortgage. The
Company executed a master lease for 38,900 square feet of space at an annual
rent of $126,036; the master lease expired December 25, 1995.
The property is also encumbered by a loan from Allstate Life Insurance
Company. The loan is secured by a first mortgage of the remaining land and
building.
*See Property Data Summary, Property Third-Party Debt Summary and
Invested Capital Priorities included at the end of this Item 1.
7. Baygreen Industrial Park
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On October 26, 1993, the Company purchased Baygreen Industrial Park in
Hayward, California for approximately $1,980,000. The Company acquired a 100%
fee interest in the property on a direct ownership basis, rather than through a
joint venture arrangement, and incurred no acquisition indebtedness. At the date
of acquisition, Copley had entered into an agreement with Zelman Development
Company ("Zelman") which included both an on-going management arrangement and
granted Zelman an interest in the property in lieu of an acquisition fee, which
interest was payable upon the sale or refinancing of the property or termination
of the management arrangement. In October 1995, Copley paid approximately
$200,000 to buy out Zelman's interest in the property.
Baygreen Industrial Park consisted of four industrial buildings
containing an aggregate of 80,400 square feet. As discussed below, two of the
buildings were sold in 1994. As of December 31, 1995, the Company owns two
buildings containing approximately 40,200 square feet.
Following acquisition and refurbishment of the property, the Company
received an unsolicited offer from an existing tenant to purchase one of the
buildings (representing approximately 15,000 net rentable square feet) for a
price of $47.00 per square foot. The sale of this building occurred in the
fourth quarter of 1994. In addition, in conjunction with the lease of one of the
buildings, a tenant requested and was granted an option to purchase one of the
buildings (containing approximately 25,200 square feet) for approximately $47.60
per square foot. The purchase option was exercised and the building was sold in
the fourth quarter of 1994. The Company made a loan to the purchaser of one of
the buildings in the amount of $700,000; this loan bears interest at the fixed
rate of 9% per annum, with interest only payable monthly in arrears through its
expiration in January 1997 when the principal balance is due. The loan is
secured by a first mortgage on the building. The Company recorded a gain
totaling approximately $627,000 on the sale of the two buildings.
*See Property Data Summary included at the end of this Item 1.
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8. Sample/I-95 Business Park
- ----------------------------
In 1987, the Company acquired a 65% interest in a joint venture formed
to acquire land in Pompano Beach, Florida and to construct industrial buildings
thereon. The Company has completed construction of approximately 157,000 square
feet. Approximately 345,000 square feet of space remains to be developed.
During 1993, the Company obtained operational control of the property
and as of January 6, 1994, 100% ownership interest in all of the joint venture's
assets. Because of the high level of accrued guaranteed payments owed to the
Company, the joint venture partner surrendered its 35% interest in the joint
venture to the Company at no cost.
*See Property Data Summary included at the end of this Item 1.
Properties owned 100% by Copley subsequent to the February Exchanges
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9. Metro Business Park
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Prior to August 1995, the Company owned a 50% general partnership
interest in a limited partnership which owned five service center industrial
buildings located in Phoenix, Arizona. Effective August 16, 1995, Copley entered
into agreements with its partners to restructure the ownership of the investment
as a tenancy-in-common. Copley contributed its capital and loans to the venture
in return for a 69.03% interest in the Metro Business Park tenancy-in-common.
Effective February 2, 1996, the Company exchanged its tenancy-in-common interest
in Carson Industrial Center, including the note due from the joint venture
partner, Central Distribution Center, West Side Business Park and the El
Presidio Properties to gain 100% ownership of Metro Business Park and the East
Dominguez Property. In addition, the Company paid approximately $138,000 to the
co-tenants-in-common.
The property is encumbered by loans from State Farm Life Insurance
Company and Allstate Life Insurance Company which are secured by first mortgages
on portions of the land and buildings. Together, the loans encumber the entire
property.
*See Property Data Summary and Property Third-Party Debt Summary
included at the end of this Item 1.
10. Dominguez Properties
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Prior to August 1995, the Company owned a 55% general partnership
interest in a limited partnership which owned four bulk distribution facilities
in Carson (Los Angeles), California. Effective August 16, 1995, Copley entered
into agreements with its partners to restructure the ownership of the investment
as a tenancy-in-common for each of the four buildings. Copley received a 55%
tenancy-in-common interest in each of the four Dominguez buildings. Three of the
four buildings are located on El Presidio and contain approximately 165,400
square feet (the "El Presidio Properties"). The fourth building is located on
East Dominguez Street and contains approximately 261,900 square feet (the "East
Dominguez Property"). Effective February 2, 1996, the Company exchanged its
tenancy-in-common interest in Carson Industrial Center, including the note due
from the joint venture partner, Central Distribution Center, West Side Business
Park and the El Presidio Properties to gain 100% ownership of Metro Business
Park and the East Dominguez Property. In addition, the Company paid
approximately $138,000 to the co-tenants-in-common, as discussed above.
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<PAGE>
The East Dominguez Property is encumbered by a loan from Allstate Life
Insurance Co. which is secured by a first mortgage. The El Presidio Properties
are encumbered by mortgage loans from Aetna Life Insurance Company.
*See Property Data Summary and Property Third-Party Debt Summary
included at the end of this Item 1.
11. Columbia Place.
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Prior to August 1995, the Company owned a 50% general partnership
interest in a limited partnership (the "Partnership") which was formed for the
purpose of developing and owning a five-story office building ( "Columbia
Place") located in Columbia, Maryland. Effective August 16, 1995, Copley entered
into an agreement with its partner to restructure the ownership of the
investment as a tenancy-in-common. Copley contributed its capital and loans to
the partnership in return for a 78% interest in the Columbia Place tenancy-in-
common. Effective February 1, 1996, the Company exchanged its tenancy-in-common
interest in 270 Technology Park to gain 100% ownership of Columbia Place. In
addition, the Company received $50,000 in cash and a secured promissory note of
$180,000 bearing interest at 9.56%, maturing on February 1, 2000, with annual
interest and principal payments of $56,250.
Columbia Place is encumbered by a loan from American General Investment
Corporation.
*See Property Data Summary and Property Third-Party Debt Summary
included at the end of this Item 1.
Properties in which Copley will no longer have an ownership interest after the
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February Exchanges.
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12. Central Distribution Center
- --------------------------------
Prior to August 1995, the Company owned a 50% interest in a joint
venture which owned two bulk distribution industrial buildings in Phoenix,
Arizona. Effective August 16, 1995, Copley entered into agreements with its
partners to restructure the ownership of the investment as a tenancy-in-common.
Copley contributed its capital and loans to the venture in return for a 57.38%
interest in the Central Distribution Center tenancy-in-common. Effective
February 2, 1996, the Company exchanged its tenancy-in-common interest in Carson
Industrial Center, including the note due from the joint venture partner,
Central Distribution Center, West Side Business Park and the El Presidio
Properties to gain 100% ownership of Metro Business Park and the East Dominguez
Property. In addition, the Company paid approximately $138,000 to the
co-tenants-in-common, as discussed above.
The property is encumbered by a loan from Confederation Life Insurance
Company that is secured by a first mortgage of the land and buildings and the
property in the West Side Business Park described below.
*See Property Data Summary and Property Third-Party Debt Summary
included at the end of this Item 1.
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<PAGE>
13. West Side Business Park
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Prior to August 1995, the Company owned a 50% interest in a joint
venture which owned two bulk distribution/light industrial buildings in Phoenix,
Arizona. Effective August 16, 1995, Copley entered into agreements with its
partners to restructure the ownership of the investment as a tenancy-in-common.
Copley contributed its capital and loans to the venture in return for a 75.49%
interest in the West Side Business Park tenancy-in-common with only a 57.38%
allocation of the mortgage principal balance and debt service. Effective
February 2, 1996, the Company exchanged its tenancy-in-common interest in Carson
Industrial Center, including the note due from the joint venture partner,
Central Distribution Center, West Side Business Park and the El Presidio
Properties to gain 100% ownership of Metro Business Park and the East Dominguez
Property. In addition, the Company paid approximately $138,000 to the
co-tenants-in-common, as discussed above.
The property is also encumbered by a loan from Confederation Life
Insurance Company which is secured by a first mortgage on the land and buildings
and on the Central Distribution Center described above.
*See Property Data Summary and Property Third-Party Debt Summary
included at the end of this Item 1.
14. Carson Industrial Center
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The Company owns a 50% tenancy-in-common interest in a bulk
distribution industrial facility located in Carson (Los Angeles), California. In
connection with the dissolution of the original joint venture and conversion to
a tenancy-in-common ownership structure, the Company received a promissory note
from its joint venture partner in the amount of $176,889. This note bears simple
interest at the rate of 10% per annum. Interest is payable currently to the
extent the maker receives cash flow distributions from the property; any
interest not paid currently is accrued. As of December 31, 1995, interest of
$4,422 was due on the note which was paid in January. Effective February 2,
1996, the Company exchanged its tenancy-in-common interest in Carson Industrial
Center, including the note due from the joint venture partner, Central
Distribution Center, West Side Business Park and the El Presidio Properties to
gain 100% ownership of Metro Business Park and the East Dominguez Property. In
addition, the Company paid approximately $138,000 to the co-tenants-in-common,
as discussed above.
The property is encumbered by a loan from State Farm Life Insurance
Company and is secured by a first mortgage of the land and building.
*See Property Data Summary and Property Third-Party Debt Summary
included at the end of this Item 1.
15. 270 Technology Park.
- --------------------------
Prior to August 1995, the Company owned a 50% general partnership
interest in a limited partnership which owned two research and development
buildings located in Frederick, Maryland. Effective August 16, 1995, Copley
entered into an agreement with its partner to restructure the ownership of the
investment as a tenancy-in-common. Copley contributed its capital and loans to
the venture in return for a 61% interest in the 270 Technology Park tenancy-in-
common. Effective February 1, 1996, the Company exchanged its tenancy-in-common
interest in 270 Technology Park to gain 100% ownership of Columbia Place. In
addition, as discussed above, the Company received $50,000 in cash and a secured
promissory note of $180,000 bearing interest at 9.56%, maturing on February 1,
2000, with annual interest and principal payments of $56,250.
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<PAGE>
The buildings are encumbered by a first mortgage securing tax-exempt
industrial revenue bonds with an outstanding balance of $3,713,011 as of
December 31, 1995. The Company and its joint venture partner have guaranteed
payments of principal and interest on the bonds. The Company's guarantee is
limited to 50% of the obligations of the limited partnership and is in no case
greater than $2,000,000. A similar guarantee was provided by The Manekin
Corporation, a general partner of the partnership. As part of the exchange, the
Company's guarantee was extinguished.
*See Property Data Summary and Property Third-Party Debt Summary
included at the end of this Item 1.
Properties sold during 1995
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16. Park North Business Center ("Park North")
- ----------------------------------------------
In 1985, the Company agreed to invest in a service center industrial
development in DeKalb County, Georgia known as Park North Business Center. Nine
service center industrial buildings were constructed on the 38.4 acres of land.
In June 1995, the Company sold all of its interests and rights, including its
ground lease position, related to the Park North investment for approximately
$18,500,000. The Company recognized a gain of approximately $758,000 on the sale
of this investment.
17. Peachtree Corners Distribution Center.
- --------------------------------------------
The Company owned a 100% fee interest in four bulk distribution
industrial buildings in Norcross, Georgia. In November 1995, the Company sold
its interests in the Peachtree Corners Distribution Center for approximately
$10,000,000. The Company recognized a gain of approximately $1,806,000.
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Copley Properties, Inc.
- --------------------------------------------------------------------------------
Property Data Summary 12/31/95
<TABLE>
<CAPTION>
Number of
Buildings Approximate Approximate
Property Location Type Owned Existing SF Land (acres) Developable SF
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Properties of the Company
- -------------------------
Broadway Industrial Center Tempe, AZ Industrial-Bulk Distribution 1 121,463 5.7 0
Kingsview Industrial Center Los Angeles, CA Industrial-Bulk Distribution 1 82,920 3.6 0
Los Angeles Corporate Center Los Angeles, CA Office 1 76,542 4.5 0
University Business Center Santa Barbara, CA Research & Development 4 230,412 12.8 0
Huntwood Associates Hayward, CA Industrial-Bulk Distribution 7 514,400 24.0 0
Wiegman Associates Hayward, CA Industrial-Bulk Distribution 4 261,900 12.0 0
Baygreen Industrial Park Hayward, CA Industrial-Light Industrial 2 40,200 2.4 0
Sample/I-95 Business Park Pompano Beach, FL Industrial-Light Industrial 4 157,412 46.0 345,000
-----------------------------------------------------
24 1,485,249 110.9 345,000
Properties owned 100% by Copley subsequent to the February Exchanges.
- --------------------------------------------------------------------
Metro Business Park Phoenix, AZ Industrial-Service Center 5 188,743 12.7 0
Dominguez Properties (1) Los Angeles, CA Industrial-Bulk Distribution 1 261,500 11.8 0
Columbia Place Columbia, MD Office 1 115,273 11.5 57,500
------------------------------------------------------
7 565,516 36.0 57,500
Properties in which Copley will no longer have an ownership interest after the February Exchanges.
- --------------------------------------------------------------------------------------------------
Central Distribution Center Phoenix, AZ Industrial-Bulk Distribution 2 105,340 5.1 0
West Side Business Park Phoenix, AZ Industrial-Bulk Distribution 2 42,342 2.7 0
Carson Industrial Center Los Angeles, CA Industrial-Bulk Distribution 1 79,240 3.7 0
Dominguez Properties (1) Los Angeles, CA Industrial-Bulk Distribution 3 165,400 7.3 0
270 Technology Park Frederick, MD Research & Development 2 69,307 7.7 0
------------------------------------------------------
10 461,629 26.5 0
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TOTALS 41 2,512,394 173.5 402,500
====================================================================================================================================
</TABLE>
(1) As part of the February Exchanges, the Company relinquished its interest in
the three El Presidio buildings of Dominguez Properties and increased its
ownership in the East Dominguez building of Dominguez Properties to 100%.
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<PAGE>
Copley Properties, Inc.
- --------------------------------------------------------------------------------
Property Third-Party Debt Summary 12/31/95
Wholly Owned and Tenancy-in-Common Properties
<TABLE>
<CAPTION>
Maturity Interest Amortization
Property Lender Date Rate Period
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<S> <C> <C> <C> <C>
Properties of the Company
- -------------------------
Broadway Industrial Center None -- -- --
Kingsview Industrial Center None -- -- --
Los Angeles Corporate Center None -- -- --
University Business Center Connecticut General Life Insurance Co. 4/1/00 9.060% 20 years
Connecticut General Life Insurance Co. 1/1/97 9.370% interest only
Huntwood Associates Massachusetts Mutual Life Insurance Co. 6/1/96 9.875% interest only
Wells Fargo Bank, National Association 1/15/97 P+1;L+3.25 $4,775/month
Wiegman Associates Massachusetts Mutual Life Insurance Co. 6/1/96 9.875% interest only
Allstate Life Insurance Co. 10/1/97 8.750% 20 years
Baygreen Industrial Park None -- -- --
Sample/I-95 Business Park None -- -- --
<CAPTION>
Properties owned 100% by Copley subsequent to the February Exchanges.
<S> <C> <C> <C> <C>
Metro Business Park State Farm Life Insurance Co. 3/1/97 9.250% 30 years
Allstate Life Insurance Co. 4/1/98 8.000% 20 years
Dominguez Properties Allstate Life Insurance Co. 1/1/97 9.000% 25 years
Columbia Place American General Investment Corp. 12/31/09 8.875% 20 years
<CAPTION>
Properties in which Copley will no longer have an ownership interest after the February Exchanges.
<S> <C> <C> <C> <C>
Central Distribution Center Confederation Life Insurance Co. 10/1/98 8.625% 30 years
West Side Business Park Confederation Life Insurance Co. 10/1/98 8.625% 30 years
Carson Industrial Center State Farm Life Insurance Co. 3/1/97 9.250% 29.5 years
Dominguez Properties Aetna Life Insurance Co. 1/1/99 9.625% 30 years
Aetna Life Insurance Co. 1/1/99 9.500% 30 years
Aetna Life Insurance Co. 1/1/99 9.500% 30 years
270 Technology Park Mercantile-Safe Deposit & Trust Co. 12/31/95 80% of Prime (Note 1)
<CAPTION>
Balance
Outstanding Balance Due Prepayment
as of 12/31/95 at Maturity Provisions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Properties of the Company
- -------------------------
Broadway Industrial Center -- --
Kingsview Industrial Center -- --
Los Angeles Corporate Center -- --
University Business Center $9,353,947 $8,477,479 Prepayable after 10/1/97 at greater of 1% or Yield
Maintenance
$10,000,000 $10,000,000 Greater of 1% or Yield Maintenance
Huntwood Associates $10,000,000 $10,000,000 No penalty.
$2,292,993 $2,230,918 No penalty.
Wiegman Associates $6,700,000 $6,700,000 No penalty.
$986,409 $937,250 2% in 1996; 1% in 1997 until 7/31/97; 0% thereafter.
Baygreen Industrial Park -- --
Sample/I-95 Business Park -- --
<CAPTION>
Properties owned 100% by Copley subsequent to the February Exchanges.
<S> <C> <C> <C>
Metro Business Park $3,437,434 $3,373,341 The greater of 1% or 1% plus Yield Maintenance.
$1,779,965 $1,667,760 None permitted until 3/10/96, then Yield Maintenance.
Dominguez Properties $5,218,332 $5,137,608 1% of amounts prepaid in 1996.
Columbia Place $10,263,748 $4,508,804 1% if Prevailing Rate is greater than or equal to 8%; Yield
Maintenance if Prevailing Rate is less than 8%.
<CAPTION>
Properties in which Copley will no longer have an ownership interest after the February Exchanges.
<S> <C> <C> <C>
Central Distribution Center $2,340,285 $2,237,399 Yield Maintenance.
West Side Business Park $936,096 $894,942 Yield Maintenance.
Carson Industrial Center $2,092,780 $2,052,139 The greater of 1% or 1% plus Yield Maintenance.
Dominguez Properties $812,684 $705,822 No penalty.
$453,375 $390,928 No penalty.
$554,209 $477,874 No penalty.
270 Technology Park $3,713,011 (Note 1) No penalty.
- ----------------------------------------------------------------------------------------------------------------------------------
------------
Total Debt Balance per
Financial Statements $70,935,268
============
</TABLE>
- --------------------------------------------------------------------------------
All loans are non-recourse with exception of the guarantees discussed in Part I
and in the notes to consolidated financial statements.
Yield Maintenance: Usually requires a pre-payment penalty to be paid equal to
the present value of the loan's original payments due over
the return that could be earned by holding like maturity U.S.
Treasuries. The exact formula varies from loan to loan.
P = Prime Rate, L = LIBOR (London InterBank Offered Rate)
- --------------------------------------------------------------------------------
Note (1): Extension of this loan's maturity date is being negotiated.
Amortization was all excess cash flow after priority returns to
partners. The Company exchanged its interest in this project, and was
relieved of its obligations under this note, effective February 1,
1996 (see Item 1).
-13-
<PAGE>
Copley Properties, Inc.
- --------------------------------------------------------------------------------
Invested Capital Priorities 12/31/95
<TABLE>
<CAPTION>
Copley Properties, Inc.
------------------------------------------------------------------------------------------------
Interest Interest Preferred Return
Mortgage Accrual on Deficit Accrual on Priority Equity Accrual on Priority
Property Loans Mortgage Loans Loans Deficit Loans Investment Equity Investment
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
University Business Center 0 0 0 0 14,652 0
------------------------------------------------------------------------------------------------
Wiegman Associates 0 0 0 0 2,500,000 1,111,737
------------------------------------------------------------------------------------------------
Carson Industrial Center (1) 176,889 4,422 0 0 0 0
---------------------------------------------------------------------------------------------------
TOTALS $176,889 $4,422 $0 $0 $2,514,652 $1,111,737
================================================================================================
</TABLE>
(1) Effective February 2, 1996, the Company exchanged its tenancy-in-common
interest in Carson Industrial Center, including this note due from the co-
tenant, Central Distribution Center, West Side Business Park and the El Presidio
Properties to gain 100% ownership of Metro Business Park and the East Dominguez
Property.
The remaining properties of the Company are either wholly owned, in which
Invested Capital Priorities are not applicable, or tenancies-in-common in which
the Invested Capital Priorities and accrued interest have been contributed to
equity.
-14-
<PAGE>
Competitive Market Conditions
- -----------------------------
In 1995, market conditions generally improved in the markets in which the
Company's properties are located. However, the recovery has been uneven across
different regions and product types, reflecting changes in the regional
economies. Following is a description of the markets in which the Company
operates:
. Both the Hayward and Los Angeles, California industrial markets in which
the Company's industrial projects are located, improved over 1995 with
vacancy rates on similar space declining and rental rates strengthening.
. The San Gabriel Valley, California office market, in which the Company's
Los Angeles Corporate Center project is located, weakened slightly over
1995, with net absorption slightly negative. However, in January 1996, the
Company executed a 38,500 square foot lease with CashFlex, L.P. for the
only vacant space in the project. The leases of the other two tenants in
the project expire in 2000.
. The Santa Barbara, California market for research and development space, in
which the Company's University Business Center project is located, remained
healthy as a result of its location, land prices and developmental controls
imposed by the city. Vacancy rates remained low and rental rates were
stable.
. Both the Phoenix and Southwest Tempe, Arizona industrial markets in which
the Company's industrial projects are located, improved over 1995 with
vacancy rates on similar space declining and rental rates strengthening.
. Both the suburban Frederick and Columbia, Maryland markets, in which the
company's R&D and Office projects are located, improved slightly in 1995
with vacancy rates declining and rental rates remaining stable.
. The Pompano Beach, Florida industrial market, in which the Company's
Sample/I-95 Business Park is located, remained solid in 1995. Vacancy rates
for similar space remained low and rental rates were stable.
The Company believes that the information concerning the market conditions
discussed above is accurate and that the sources from which it was obtained are
reliable; however, the Company can not guarantee the accuracy of this
information.
- 15 -
<PAGE>
Item 2. Properties.
------------
- 16 -
<PAGE>
Copley Properties, Inc.
- --------------------------------------------------------------------------------
Percentage Leased and 10% Tenants
The following table sets forth the occupancy rates for each of the last five
years, the number of tenants occupying 10% or more of the developed square feet
at the property as of the end of the year and the principal business of such
tenants in the Company's properties at 12/31/95:
<TABLE>
<CAPTION>
% of space occupied/# of tenants occupying 10% or more of the developed square feet.
PROPERTY: 1991 1992 1993 1994
---- ---- ---- ----
% # % # % # % #
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Properties of the Company
- -------------------------
Broadway Industrial Center N/A N/A N/A N/A N/A N/A 100% 4
Kingsview Industrial Center N/A N/A N/A N/A N/A N/A N/A N/A
Los Angeles Corporate Center 100% 3 100% 3 100% 3 100% 3
University Business Center 100% 1 97% 1 95% 3 100% 3
Huntwood Associates 82% 4 81% 2 98% 3 100% 3
Wiegman Associates 69% 4 84% 4 100% 4 100% 3
Baygreen Industrial Park N/A N/A N/A N/A 88% 2 50% 2
Sample/I-95 Business Park 72% 2 92% 2 100% 2 100% 2
Properties owned 100% by Copley subsequent to the February Exchanges.
- ---------------------------------------------------------------------
Metro Business Park 95% 2 95% 3 96% 3 100% 3
Dominguez Properties (1) 100% 1 100% 1 100% 1 100% 1
Columbia Place 100% 1 100% 1 100% 1 100% 1
Properties in which Copley will no longer have an ownership interest after the February Exchanges.
- --------------------------------------------------------------------------------------------------
Central Distribution Center 100% 4 88% 3 69% 3 100% 4
West Side Business Park 100% 3 100% 2 100% 2 100% 2
Carson Industrial Center 100% 1 100% 1 100% 1 100% 1
Dominguez Properties (1) 100% 3 100% 3 100% 3 100% 3
270 Technology Park 82% 2 93% 3 100% 3 100% 3
- -------------------------------------------------------------------------------------------------------
TOTAL AVERAGE OCCUPANCY: 87% 89% 93% 97%
======== ======== ======== ========
<CAPTION>
PROPERTY: 1995 Principal Businesses at 12/31/95
----
% #
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Properties of the Company
- -------------------------
Broadway Industrial Center 100% 4 Bakery, Moving & Storage, Data Forms and Furniture
Kingsview Industrial Center 100% 1 Furniture Welding
Los Angeles Corporate Center 50% 2 County Government & Import/Export Trading
University Business Center 99% 3 Medical R&D & Educational Software/Publishing
Huntwood Associates 100% 3 Food, Paper & Bath Products
Wiegman Associates 100% 3 Office Supply, Book Distribution & Laundry
Baygreen Industrial Park 100% 3 Furniture Supply & Metal Working
Sample/I-95 Business Park 100% 3 Furniture, Home Health & Electronics
Properties owned 100% by Copley subsequent to the February Exchanges.
- ---------------------------------------------------------------------
Metro Business Park 96% 3 Electronics, Medical Equipment Supply and Church
Dominguez Properties (1) 100% 1 Freight Forwarding & Warehousing
Columbia Place 100% 1 Payroll Services & Radio Ratings
Properties in which Copley will no longer have an ownership interest after the February Exchanges.
- --------------------------------------------------------------------------------------------------
Central Distribution Center 100% 3 Door & Window, Tires and Records Storage
West Side Business Park 100% 2 Woodworking, Doors & Windows
Carson Industrial Center 100% 1 Liquor Distribution
Dominguez Properties (1) 100% 3 Freight Forwarding & Warehousing
270 Technology Park 95% 3 Electronics & Telemarketing
- ------------------------------------------------------------------------------------------------------
TOTAL AVERAGE OCCUPANCY: 98%
========
</TABLE>
(1) As part of the February Exchanges, the Company relinquished its interest in
the three El Presidio buildings of Dominguez Properties and increased its
ownership in the East Dominguez building of Dominguez Properties to 100%.
- 17 -
<PAGE>
Lease Expirations
The following table sets forth for all of the Company's properties for each of
the next ten years (i) the number of leases that expire in each year (ii) the
square feet covered by such leases expiring (iii) the annual rental represented
by such leases and (iv) the percentage of total gross annual rental income
expiring.
<TABLE>
<CAPTION>
# of lease Total Annual % of total
Date expirations square feet rental(1) annual rental(2)
- ---- ----------- ----------- --------- ----------------
<S> <C> <C> <C> <C>
1996 19 650,664 $ 2,881,870 20%
1997 18 458,587 2,235,071 15%
1998 14 190,310 896,715 6%
1999 6 119,987 1,205,856 8%
2000 5 165,372 1,152,732 8%
2001 3 208,470 656,957 5%
2002 2 73,000 305,832 2%
2003 5 231,711 2,130,076 15%
2004 2 53,250 492,018 3%
2005 4 162,972 941,583 7%
------ --------- ----------- -------
TOTAL 78 2,314,323 $12,898,710 89%
Thereafter 2 149,951 $ 1,584,636 11%
</TABLE>
(1) Represents annual straight-line rental revenue recognized in accordance
with Generally Accepted Accounting Principles for leases expiring in each
year shown.
(2) Represents the annual rental of leases expiring in each year as a
percentage of the total annual rental of all leases currently in place.
- 18 -
<PAGE>
Significant Properties
- ----------------------
The following tables show, as of December 31, 1995, tenant lease expirations for
the next ten years at properties representing approximately 10% or more of the
total 1995 rental income of the Company's properties or approximately 10% or
more of the total gross land and building assets of the Company's properties.
The tables set forth for each property specified below for each of the next ten
years (i) the number of leases that expire in that year, (ii) the square feet
covered by such leases expiring, (iii) the annual rental represented by such
leases and (iv) percentage of total gross annual rental income expiring for the
property based on December 31, 1995 rents.
University Business Center:
- -----------------------------
<TABLE>
<CAPTION>
% of Total
No. of Approximate Annualized Annualized Rent
Leases Leased Area in Rent Under Represented by
Date Expiring Square Feet Expiring Leases(1) Expiring Leases(2)
-------- ----------- ------------------ ------------------
<S> <C> <C> <C> <C>
1996 0 0 $0 0%
1997 4 39,259 537,432 15%
1998 2 11,445 167,040 5%
1999 3 63,987 1,022,784 28%
2000 0 0 0 0%
2001 0 0 0 0%
2002 0 0 0 0%
2003 3 92,311 1,610,628 42%
2004 1 21,050 367,260 10%
2005 0 0 0 0%
----- ------- ---------- -----
TOTAL 13 228,052 $3,705,144 100%
<CAPTION>
Huntwood Associates:
- --------------------
% of Total
No. of Approximate Annualized Annualized Rent
Leases Leased Area in Rent Under Represented by
Date Expiring Square Feet Expiring Leases(1) Expiring Leases(2)
-------- ----------- ------------------ ------------------
<S> <C> <C> <C> <C>
1996 0 0 $0 0%
1997 2 88,100 303,396 16%
1998 1 22,700 88,560 4%
1999 2 31,400 96,096 5%
2000 1 41,200 150,996 8%
2001 1 100,000 394,188 20%
2002 1 37,000 144,192 7%
2003 2 139,400 519,448 26%
2004 0 0 0 0%
2005 1 54,600 272,196 14%
----- ------- ---------- -----
TOTAL 11 514,400 $1,969,072 100%
</TABLE>
- 19 -
<PAGE>
Significant Properties (Continued)
- ----------------------------------
<TABLE>
<CAPTION>
Sample/I-95 Business Park:
- ----------------------------
% of Total
No. of Approximate Annualized Annualized Rent
Leases Leased Area in Rent Under Represented by
Date Expiring Square Feet Expiring Leases(1) Expiring Leases(2)
-------- ----------- ------------------ ------------------
<S> <C> <C> <C> <C>
1996 6 45,829 $288,551 31%
1997 2 7,650 35,820 4%
1998 2 8,123 58,929 6%
1999 0 0 0 0%
2000 0 0 0 0%
2001 1 41,810 241,188 26%
2002 1 36,000 161,640 18%
2003 0 0 0 0%
2004 0 0 0 0%
2005 1 18,000 138,640 15%
----- ------- ---------- -----
TOTAL 13 157,412 $924,768 100%
</TABLE>
(1) Represents annual straight-line rental revenue recognized in accordance
with Generally Accepted Accounting Principles for leases expiring in each
year shown.
(2) Represents the annual rental of leases expiring in each year as a
percentage of the total annual rental of all leases currently in place at
the property.
- 20 -
<PAGE>
The following table sets forth the principal provisions of leases which
represent more than 10% of the gross leasable area (GLA) of each property and
the realty taxes for each property for the year ended December 31, 1995.
<TABLE>
<CAPTION>
ANNUAL # OF TENANTS SQ. FT. OF DEC. 31, 1995
REAL ESTATE WITH 10% OR PROJECT EACH STRAIGHT-LINE LEASE RENEWAL
PROPERTY TAXES MORE OF GLA SQ. FT. TENANT (GAAP) RENT EXPIRATION OPTIONS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Properties of the Company
- -------------------------
Broadway Industrial Center $80,351 4 121,463 14,803 $3.36 Aug-98 None
- -------------------------- 13,332 $3.96 Sep-96 None
26,668 $3.46 May-98 1-5 Year Option
66,660 $3.88 Nov-01 2-5 Year Options
Kingsview Industrial Center $37,426 1 82,920 82,920 $5.51 Mar-05 None
- ---------------------------
Los Angeles Corporate Center $78,002 2 76,542 8,500 $9.00 Jan-00 1-5 Year Option
- ---------------------------- 29,542 $17.17 Nov-00 1-5 Year Option
University Business Center $296,883 3 230,412 24,020 $13.17 Apr-97 None
- -------------------------- 20,154 $18.32 Jun-99 2-5 Year Options
31,013 $15.78 Dec-99 1-5 Year Option
82,132 $16.26 Apr-03 1-5 Year Option
Huntwood Associates $262,331 3 514,400 100,000 $3.94 Sep-01 None
- ------------------- 139,400 $3.73 Jun-03 1-5 Year Option
54,600 $4.99 Feb-05 None
Wiegman Associates $118,550 3 261,900 125,700 $3.64 Jul-96 1-5 Year Option
- ------------------ 40,000 $4.28 Jun-97 None
71,600 $4.19 Sep-97 1-5 Year Option
Baygreen Industrial Park $10,940 3 40,200 7,500 $3.84 Jun-96 None
- ------------------------ 7,500 $4.56 Jun-97 None
25,200 $3.51 Sep-98 1-5 Year Option
Sample/1-95 Business Park $211,868 3 157,412 41,810 $5.77 May-01 None
- ------------------------- 36,000 $4.49 Jan-02 2-5 Year Options
18,000 $7.70 Jan-05 2-3 Year Options
</TABLE>
<PAGE>
The following table sets forth the principal provisions of leases which
represent more than 10% of the gross leasable area (GLA) of each property and
the realty taxes for each property for the year ended December 31, 1995.
<TABLE>
<CAPTION>
ANNUAL # OF TENANTS SQ. FT. OF DEC. 31, 1995
REAL ESTATE WITH 10% OR PROJECT EACH STRAIGHT-LINE LEASE RENEWAL
PROPERTY TAXES MORE OF GLA SQ. FT. TENANT (GAAP) RENT EXPIRATION OPTIONS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Properties owned 100% by Copley subsequent to the February Exchanges.
- ---------------------------------------------------------------------
Metro Business Park $166,364 3 188,743 22,000 $5.67 Aug-96 3-3 Year Options
- --------------------------- 75,620 $5.22 Sep-96 2-5 Year Options
30,000 $5.58 Jul-98 2-3 Year Options
Dominquez Properties (1) $78,517 1 261,500 261,500 $3.89 Dec-96 None
- ---------------------------
Columbia Place $168,381 1 115,273 115,273 $11.08 Dec-09 4-5 Year Options
- ---------------------------
Properties in which Copley will no longer have an ownership interest after the February Exchanges.
- -------------------------------------------------------------------------------------------------
Central Distribution Center $77,895 3 105,340 42,940 $3.99 Jun-97 None
- --------------------------- 30,200 $4.15 Nov-97 None
32,200 $3.87 Oct-04 None
West Side Business Park $34,737 2 42,342 8,380 $4.29 Mar-96 None
- --------------------------- 33,962 $2.48 Feb-98 None
Carson Industrial Center $39,996 1 79,240 79,240 $4.32 Oct-00 1-5 Year Option
- ---------------------------
Dominquez Properties (1) $60,672 3 165,400 46,600 $4.20 Jan-96 None
- --------------------------- 53,600 $3.36 Mar-97 None
65,200 $3.99 May-97 None
270 Technology Park $51,827 3 69,307 10,218 $9.30 Oct-97 1-2 Year Option
- --------------------------- 7,452 $9.95 Aug-05 None
34,678 $8.85 Jan-11 None
-----------
TOTAL SQUARE FEET 2,512,394
===========
</TABLE>
(1) As part of the February Exchanges, the Company relinquished its interest in
the three El Presidio buildings of Dominquez Properties and increased its
ownership in the East Dominquez building of Dominquez Properties to 100%
<PAGE>
The following table sets forth the average effective annual rent psf, for each
of the last five years, for each of the Company's properties.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Recognized Net Effective
Existing Square Year-End Rental Rent
Properties Feet Occupancy Revenue ($/sq/yr)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Properties of the Company
- -------------------------------
Broadway Industrial Center
- -------------------------------
1991 N/A N/A N/A N/A
1992 N/A N/A N/A N/A
1993 N/A N/A N/A N/A
1994 (1) 121,463 100% 277,175 $3.04
1995 121,463 100% 542,897 $4.47
Kingsview Industrial Center
- -------------------------------
1991 N/A N/A N/A N/A
1992 N/A N/A N/A N/A
1993 N/A N/A N/A N/A
1994 N/A N/A N/A N/A
1995 (2) 82,920 100% 233,381 $2.80
Los Angeles Corporate Center
- -------------------------------
1991 76,542 100% 1,170,945 $15.30
1992 76,542 100% 1,150,767 $15.03
1993 76,542 100% 1,181,416 $15.43
1994 76,542 100% 1,258,939 $16.45
1995 76,542 50% 757,245 $13.19
University Business Center
- -------------------------------
1991 232,347 100% 3,759,000 $16.26
1992 232,347 97% 3,592,000 $15.70
1993 232,347 95% 3,968,000 $17.79
1994 230,412 100% 4,562,000 $20.22
1995 230,412 99% 4,572,353 $19.94
Huntwood Associates
- -------------------------------
1991 449,000 82% 2,272,924 $5.56
1992 508,800 81% 1,866,257 $4.50
1993 508,800 98% 1,736,333 $3.81
1994 512,600 100% 1,864,893 $3.69
1995 514,400 100% 2,160,670 $4.21
Wiegman Associates
- -------------------------------
1991 261,900 69% 860,970 $4.27
1992 261,900 84% 813,401 $4.06
1993 261,900 100% 924,421 $3.84
1994 261,900 100% 1,200,213 $4.58
1995 261,900 100% 1,151,581 $4.40
Baygreen Industrial Park
- -------------------------------
1991 N/A N/A N/A N/A
1992 N/A N/A N/A N/A
1993 80,400 88% 51,603 $3.72
1994 (3) 40,200 50% 216,886 $3.26
1995 40,200 100% 118,244 $2.94
Sample/1-95 Business Park
- -------------------------------
1991 102,000 72% 316,880 $4.31
1992 139,412 92% 520,906 $4.56
1993 139,412 100% 968,775 $7.24
1994 139,412 100% 1,021,894 $7.33
1995 157,412 100% 1,083,211 $7.30
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-23-
<PAGE>
The following table sets forth the average effective annual rent psf, for each
of the last five years, for each of the Company's properties.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Recognized Net Effective
Existing Square Year-End Rental Rent
Properties Feet Occupancy Revenue ($/sq/yr)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Properties owned 100% by Copley subsequent to the February Exchanges.
- ----------------------------------------------------------------------
Metro Business Park
- ---------------------------------
1991 188,635 95% 690,510 $4.91
1992 188,635 95% 999,422 $5.58
1993 188,635 96% 1,216,604 $6.75
1994 188,743 100% 1,442,425 $7.80
1995 188,743 96% 1,387,215 $7.50
Dominquez Properties
- ---------------------------------
1991 426,900 100% 1,579,049 $3.70
1992 426,900 100% 1,699,710 $3.98
1993 426,900 100% 1,750,067 $4.10
1994 426,900 100% 1,708,341 $4.00
1995 (4) 426,900 100% 1,861,329 $4.36
Columbia Place
- ---------------------------------
1991 115,273 100% 1,698,630 $14.74
1992 115,273 100% 1,690,514 $14.67
1993 115,273 100% 1,705,109 $14.79
1994 (5) 115,273 100% 1,748,450 $15.17
1995 115,273 100% 1,837,740 $15.94
Properties in which Copley will no longer have an ownership interest after the February Exchange.
- -------------------------------------------------------------------------------------------------
Central Distribution Center
- ---------------------------------
1991 105,340 100% 378,369 $3.82
1992 105,340 88% 311,685 $3.15
1993 105,340 69% 410,064 $4.96
1994 105,340 100% 372,979 $4.19
1995 105,340 100% 476,743 $4.53
Westside Distribution Center
- ---------------------------------
1991 42,342 100% 108,897 $3.06
1992 42,342 100% 81,002 $1.91
1993 42,342 100% 116,059 $2.74
1994 42,342 100% 127,233 $3.00
1995 42,342 100% 142,338 $3.36
Carson Industrial Center
- ---------------------------------
1991 79,240 100% 423,806 $5.35
1992 79,240 100% 325,201 $4.10
1993 79,240 100% 383,069 $4.83
1994 79,240 100% 407,323 $5.14
1995 79,240 100% 405,301 $5.11
270 Technology Park
- ---------------------------------
1991 69,307 82% 507,575 $9.15
1992 69,307 93% 603,482 $9.95
1993 69,307 100% 681,066 $10.18
1994 69,307 100% 743,001 $10.72
1995 69,307 95% 716,456 $10.60
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) As property was acquired on March 31, 1994, Net Effective Rent calculated
from April through December.
(2) As property was acquired in July 1995, Net Effective Rent calculated from
July through December.
(3) As two buildings were sold in early December 1994, Net Effective Rent is
calculated as follows:
$216,886/[((50%*40,200)/12)+((88%*80,400)*11/12)]
(4) The Recognized Rental Revenue includes income from the three El Presidio
buildings of $754,816 in 1995.
(5) Does not include impact of BDM lease termination payments.
Net effective rent is calculated as:
Recognized Rental Revenue/Average Square Feet Occupied during the year.
Average Square Feet Occupied equals: square feet x((beginning year
occupancy + year end occupancy)/2)
Recognized rental revenue is the rental revenue recognized for financial
statement purposes including operating expense reimbursements.
-24-
<PAGE>
Federal Tax Basis Information for Copley Properties, Inc.
The following table sets forth for each of the Company's significant properties
the tax information as follows: (i) Federal tax bisis as of December 31, 1995;
(ii) 1995 annual rate of depreciation; (iii) method of depreciation; and (iv)
life claimed, with respect to each property or component thereof for purposes of
depreciation for tax purposes.
<TABLE>
<CAPTION>
Federal Rate of Life
Property Tax Basis Depreciation Method in years
- --------------------------------- ------------- ---------------- -------------- ------------
<S> <C> <C> <C> <C>
University Business Center
- ---------------------------------
Building $9,808,100 3.18% Straight Line 31.5
Improvements 5,923,487 3.18% Straight Line 31.5
Improvements 5,094,510 2.56% Straight Line 39.0
------------- ----------------
Total Depreciable Assets $20,826,097
Huntwood Associates
- ---------------------------------
Building & Improvements $12,603,951 2.50% Straight Line 40.0
------------- ----------------
Total Depreciable Assets $12,603,951
Sample/I - 95 Business Park
- ---------------------------------
Building & Improvements $242,063 28.57% 200% DB (1) 7.0
Building & Improvements 553,788 10.00% 150% DB (1) 15.0
Building & Improvements 3,695,997 3.18% Straight Line 31.5
Building & Improvements 978,340 2.56% Straight Line 39.0
------------- ----------------
Total Depreciable Assets $5,470,188
Total Depreciable Assets for
tax purposes: $38,900,236
=============
</TABLE>
(1) DB = Declining Balance
- 25 -
<PAGE>
Item 3. Legal Proceedings.
-----------------
The Company is not a party to, nor are any of its properties subject
to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this Annual Report on Form 10-K.
- 26 -
<PAGE>
Item 4a. Executive Officers of the Registrant
------------------------------------
The executive officers of the Company and their respective positions with the
Company, principal occupations and business experience during the last five
years and ages as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Principal Occupations and
Name and Position Business Experience Year Elected
with the Company During Last Five Years to Office Age
---------------- ----------------------- --------- ---
<S> <C> <C> <C>
Joseph W. O'Connor (1) President and Chief Executive 1985 49
Chairman of the Board Officer of the Advisor since 1982.
Steven E. Wheeler (1) Managing Director of the Advisor 1993 48
President and Chief since July 1993; from 1991 to 1993,
Executive Officer Chairman and Chief Executive Officer
of Hancock Realty Investors; from
1990 to 1991, Executive Vice
President of Bank of New England;
from 1989 to 1990, consultant to
real estate developers, institutions
and corporations; from 1986 to 1989,
Managing Director of Morgan Stanley
Group, Inc.
Mary L. Lentz Managing Director of the Advisor and 1993 41
Vice President and Chief Vice President since July 1993; from
Operating Officer 1986 to 1993, responsible for the
leasing activities at the Chiofaro
Company.
Daniel C. Mackowiak Vice President and Chief Accounting 1994 44
Vice President and Officer of the Advisor since 1989;
Treasurer previously, senior manager with
Price Waterhouse.
Peter P. Twining General Counsel of the Advisor since 1994 49
Vice President and 1994; member of the Advisor's law
Secretary department since 1987.
Daniel J. Coughlin Managing Director of the Advisor 1994 43
Vice President since 1987; responsible for the
Advisor's Investment Management and
Services Group.
</TABLE>
(1)Effective February 29, 1996, Steven E. Wheeler resigned from the positions of
Director, President and Chief Executive Officer, and Joseph W. O'Connor assumed
the duties of President and Chief Executive Officer.
The executive officers will serve in their respective capacities until their
successors are elected and qualified.
- 27 -
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
---------------------------------------------------------------------
Stock Price and Dividend Record
The Company's Common Stock is traded on the American Stock Exchange
under the symbol "COP". As of December 31, 1995 there were approximately 2,500
beneficial shareholders with 652 shareholders of record of Common Stock and 1
shareholder of record of Class A Common Stock, Copley Real Estate Advisors, Inc.
The following table sets forth the high and low prices of the Company's Common
Stock for each fiscal quarter for the past eight quarters and dividends declared
during each such quarter:
<TABLE>
<CAPTION>
Stock Price Dividends
High Low Declared
-------------------------------------------------------------------------
Year Ended
December 31, 1995
- -----------------
Quarter
- -------
<S> <C> <C> <C>
First $10.250 $ 9.625 $.25
Second $11.500 $ 9.688 $.27
Third $12.000 $10.875 $.27
Fourth $13.375 $11.500 $.27
</TABLE>
Weighted Average Shares outstanding as of December 31, 1995 - 3,584,350
<TABLE>
<CAPTION>
Year Ended
December 31, 1994
- -----------------
Quarter
- -------
<S> <C> <C> <C>
First $10.75 $ 9.25 $.22
Second $10.375 $ 9.625 $.22
Third $10.625 $ 9.75 $.25
Fourth $10.75 $ 9.375 $.25
</TABLE>
Weighted Average Shares outstanding as of December 31, 1994 - 3,584,350
- 28 -
<PAGE>
Item 6. Selected Financial Data
-----------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Investment Results $4,797,501 $804,180 $615,552 ($719,213) $882,425
Portfolio Expenses ($2,408,201) ($1,341,125) ($926,534) ($803,525) ($878,728)
------------ ------------ ---------- ---------- ------------
Net Income (Loss) $2,389,300 ($536,945) ($310,982) ($1,522,738) $3,697
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Results Per Weighted
Average Share
<S> <C> <C> <C> <C> <C>
Net Income (Loss) $.67 ($0.15) ($0.09) ($0.42) $0.00
Cash From Operations $.96 $1.48 $1.28 $1.09 $1.15
Dividends $1.06 $0.94 $0.80 $0.80 $1.10
Balance Sheet
Total Assets $81,517,257 $99,384,812 $97,412,024 $53,470,974 $55,780,484
Total Liabilities $42,451,311 $58,908,834 $53,029,872 $5,910,398 $3,833,188
Net Book Value
Per Share $10.90 $11.29 $12.38 $13.27 $14.44
- ------------------------------------------------------------------------------------------------------------------------------------
Funds From Operations:
Total $4,584,029 $6,741,295 $4,671,714 $3,725,314 Not available
Per Share $1.28 $1.88 $1.30 $1.04
Excluding impact of BDM lease termination payments:
Total N/A $5,876,746
Per Share N/A $1.64
</TABLE>
- 29 -
<PAGE>
Item 7. Management's discussion and analysis of financial condition
-----------------------------------------------------------
and results of operations.
--------------------------
- 30 -
<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. At
December 31, 1995, several properties are owned directly by the Company; others
are owned by joint ventures in which the Company is the managing general partner
or structured as tenancies-in-common in which the Company is a co-tenant. As a
co-tenant in its tenancy-in-common investments and a general partner in its
joint venture investments, the Company is obligated to fund its proportionate
share of operating deficits.
At December 31, 1995, the Company had cash and cash equivalents totaling
$5,716,300. The Company also has a $5,000,000 bank line-of-credit which expires
on July 31, 1996. The average outstanding balance on the line-of-credit during
1995 and 1994 was $2,091,644 and $3,402,000, respectively.
Dividends will continue to be paid from cash generated by operations. As
more fully discussed under "Results of Operations" below, cash flow from
operations was $3,450,436 in 1995, $5,295,756 in 1994 and $4,596,582 in 1993.
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. The Company's policy is to
pay dividends based on cash flow from operations, which usually exceeds taxable
income. The quarterly dividend level was increased twice during 1994, from $.20
per share in the prior quarter to $.22 per share in January and raised again to
$.25 per share in September. In 1995, the dividend was increased to $.27 per
share in June.
In July 1995, the Company entered into an agreement to extend the maturity
of the mortgage notes payable to Massachusetts Mutual Life Insurance Company
which are secured by the Huntwood Associates and Wiegman Associates properties
from January 1, 1996 to June 1, 1996 on the same terms and conditions as the
original financings.
In June 1995, the Company entered into an agreement to extend the maturity
of a mortgage note payable to Wells Fargo Bank which is secured by another
portion of the Huntwood Associates property from June 15, 1995 to January 15,
1997 on the same terms and conditions as the original financing.
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 of $3,250,000
secured by the Peachtree Corners Distribution Center, which in turn was retired
as part of the closing when Peachtree was sold.
-31-
<PAGE>
During the second quarter of 1995, the Company retained Morgan Stanley &
Co. Incorporated (Morgan Stanley) as its financial advisor to assess the
strategic alternatives available to the Company in order to maximize shareholder
value. In September 1995, Morgan Stanley recommended that the Company solicit
the interest of third parties in merging with the Company or acquiring its stock
or assets. Morgan Stanley also assisted the Company in the solicitation of
interest of third parties. As discussed further in Note 14 to the accompanying
financial statements, in February 1996, the Company entered into an Agreement
and Plan of Merger under which the Company will be merged into EastGroup
Properties. In the merger, each share of the Company's common stock will be
converted into EastGroup shares of beneficial interest with a value of $15.60,
subject to the limitations described below. The merger is subject to several
conditions including approval by the shareholders of both the Company and
EastGroup and registration of the shares to be issued with the Securities and
Exchange Commission.
Results of Operations
Acquisitions and Dispositions
In November 1995, the Company sold its interest in the Peachtree Corners
Distribution Center investment for a purchase price of approximately
$10,000,000. After payment of selling expenses and the outstanding mortgage
loan, the Company received net cash proceeds of approximately $7,626,000,
including deposits of $125,000 and $1,165,000 received in March 1995 and June
1995. The outstanding principal balance of $2,250,000 on a $3,250,000 mortgage
note payable which the buyer issued to the Company in February 1995 was retired
as part of the closing. In July 1995, the Company made a payment to reduce the
outstanding principal of this note by $1,000,000. The Company recognized a gain
on the sale of approximately $1,806,000.
In July 1995, the Company purchased the Kingsview Industrial Center, an
83,000 square foot industrial building located in Carson, California, for
approximately $3,000,000 in cash.
In June 1995, the Company sold all of its interests and rights, including
its ground lease position, related to the Park North Business Center investment
for approximately $18,500,000. Proceeds from the sale of approximately
$12,900,000, net of the assumption of debt associated with the ground lease
property, were used to pay off the mortgage notes payable to Wells Fargo Realty
Advisors and the revenue bonds which were owed by the ground lessee and
guaranteed by the Company. After settlement of the debt and payment of selling
expenses, the Company received net cash proceeds of approximately $6,825,000,
including a deposit of $125,000 received in March 1995. The Company recognized
a gain of approximately $758,000.
In the fourth quarter of 1994, the Company sold two of the buildings at the
Baygreen Industrial Park in separate transactions for proceeds of $1,782,925 and
recognized gains totaling $626,931.
In March 1994, the Company purchased Broadway Industrial Park, an
industrial building located in Tempe, Arizona, for approximately $2,350,000.
-32-
<PAGE>
Restructurings
In September 1995, the Company paid approximately $100,000 to terminate an
incentive property management agreement related to Broadway Industrial Center
and paid approximately $200,000 in October 1995 to terminate an incentive
property management agreement related to Baygreen Industrial Park. The
incentive property management agreements represented a contingent equity
interest in the properties granted at the date of acquisition, payable upon
sale, refinancing, or termination. Therefore, the termination fees paid have
been recorded as acquisition costs and added to the Company's carrying value of
the investments.
In August 1995, the Company entered into agreements with certain of its co-
venture partners to restructure the ownership of the joint venture investments
as tenancies-in-common. Effective February 1, 1996, the Company exchanged its
co-tenant interest in the 270 Technology Park property to obtain 100% ownership
of the Columbia Place property. Effective February 2, 1996, the Company
exchanged its co-tenant interests in the Carson Industrial Center, Central
Distribution Center, West Side Business Park and the three El Presidio buildings
(comprising a portion of the Dominguez Properties) to obtain 100% ownership of
the Metro Business Park tenancy-in-common and the remaining building in the
Dominguez Properties tenancy-in-common. These transactions did not generate a
material gain or a loss or have an impact on shareholders' equity.
Effective January 1, 1994, the Company entered into a restructuring
agreement giving the Company a controlling interest in three partnerships in the
Park North Business Center investment (the "Parknorth Partnerships"). Under the
restructuring, 100% ownership of the property was transferred to the Company on
March 30, 1995. The remaining portion of the Park North Business Center
investment included land that was leased under a long-term ground lease
arrangement. As discussed above, the entire Park North Business Center
investment was sold on June 30, 1995.
Significant Lease Transaction
In September 1994, M.O.R. XXXVI Associates Limited Partnership, a
partnership in which the Company is a general partner (the "Partnership") and
the owner of Columbia Place, modified the existing terms of its sole lease and
mortgage loan agreements. BDM Federal, Inc. ("BDM"), the original tenant with a
lease expiring in March 1998, desired to vacate the building and Ceridian
Corporation ("Ceridian"), a new tenant, desired to occupy the building. BDM,
Ceridian, and the Partnership entered into a series of agreements (the
"Agreements") under which BDM is obligated for certain payments to the
Partnership through March 1998. The payments are contingent on future events and
are being recognized as income when the contingencies expire. In 1994,
approximately $864,000 was recognized as additional income from BDM as a result
of the transaction.
-33-
<PAGE>
Ceridian entered into a lease with the Partnership which commenced
September 1994 and expires December 2009, subject to earlier termination options
in December 2004 and December 2006. Ceridian was responsible for all of its
tenant improvements and chose to substantially re-fit this space. This resulted
in the write-off by the Partnership of approximately $2,635,000 of tenant
improvements and other capital costs.
In conjunction with the leasing transaction, the mortgage note payable to a
third-party lender of approximately $10,490,000 was restructured. The interest
rate was reduced from 10.125% to 8.875% per annum, effective December 1, 1994
and the maturity date was extended from May 1998 to December 2009. The maturity
date may be accelerated if Ceridian exercises its termination options. The
revised mortgage note requires monthly payments of principal and interest based
on a twenty-year amortization schedule.
The Partnership's costs of the transaction have been capitalized and are
being amortized over the life of the lease or loan as applicable.
Asset Valuation
The estimated net realizable value of the undeveloped land at Sample/I-95
Associates Business Park had declined significantly in prior years. In
accordance with the Company's policy, the carrying value was reduced to
approximate net realizable value, resulting in an investment valuation allowance
of $900,000 in 1993. The value has remained stable during 1994 and 1995.
Investment Performance
The overall leased percentage for the portfolio was 98% at December 31,
1995, up from 97% a year earlier. Leases for 16% of the Company's square footage
expired during 1995 and were largely renewed; leases for 26% of the Company's
square footage are scheduled to expire in 1996. Management expects that
occupancy will not be significantly affected by the upcoming expirations, as the
demand for industrial space strengthens with the recovering economy; however,
there can be no guarantee that the space will be leased or will be leased on
favorable terms.
Excluding the 1994 lease termination charges at Columbia Place and the
valuation allowance on Sample/I-95 in 1993, overall real estate operating
results were $2,193,768 in 1995; $1,867,745 in 1994; and $1,319,667 in 1993.
These changes between years reflect changes in the operating results of the
underlying properties, as well as property acquisitions.
-34-
<PAGE>
1995 Results of Operations Compared to 1994
The improvement from the prior year is primarily due to a decrease in
depreciation expense which resulted from the sale of the Park North Business
Center on June 30, 1995; lower interest expense due to debt reductions at
certain properties; income generated from Kingsview Industrial Center which was
purchased in July 1995; and increased rental revenue at certain properties due
to higher occupancy rates. These improvements were partially offset by a write-
off of approximately $71,000 in rent receivable from a former tenant of the
Huntwood Associates property; the expiration in the first quarter of 1995 of a
lease representing approximately one-half the rentable space at the Los Angeles
Corporate Center; and the loss of operating income generated from the Park North
Business Center and Peachtree Corners properties which were sold during the
year.
Cash flow from operations decreased by $1,845,320 between 1995 and 1994.
The decrease is due primarily to the following factors: 1) under the terms of
the new lease at Columbia Place, cash flow from rent in 1995 is less than in
previous years; 2) cash from operations in the first quarter of 1994 benefited
from the realization of cash 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; 3) a significant lease
expired at the Los Angeles Corporate Center in the first quarter of 1995; 4) the
Park North Business Center was sold in the second quarter of 1995; and 5)
professional fees increased as discussed below. These decreases in cash flow
were partially offset by general improvement in operations at the other
properties and the acquisition of Kingsview Industrial Center.
1994 Results of Operations Compared to 1993
A significant portion of the improvement in investment performance during
1994 is attributable to University Business Center and Peachtree Corners
Distribution Center. These properties experienced notable improvement due to
increases in occupancy as well as lease renewals in improved market conditions.
The acquisitions of Baygreen Industrial Park in late 1993 and Broadway
Industrial Center in early 1994 also contributed to the improvement. Interest
expense decreased at Sample/I-95 and Park North Business Center due to the
retirement at maturity during 1994 of certain mortgage notes totaling
approximately $6,600,000. Depreciation expense increased in 1994 primarily in
connection with property acquisitions.
Cash flow from operations increased by $699,174 between 1994 and 1993. This
increase, as with the increase in real estate operating results, is due mainly
to the improved operating results of the properties, particularly University
Business Center and Peachtree Corners Distribution Center. The difference
between the improvement in cash flow from operations and the smaller improvement
in real estate operating results is due to a number of factors including 1) the
timing of receipt of rents which may differ from the period in which revenue is
recognized, 2) the year-to-year change in depreciation expense which affects
real estate operating results but not cash flow from operations, and 3) the
year-to-year change in portfolio level expenses which affects cash flow from
operations but not real estate operating results.
-35-
<PAGE>
Portfolio Expenses
Management advisory fees decreased by 37% in 1995 compared to 1994 and
increased 19% in 1994 compared to 1993, which is consistent with the changes in
cash flow from operations, as discussed above, upon which the management fee
computation is based.
Professional fees for 1995 increased by approximately $756,000 compared to
1994 as a result of costs incurred by the Company related to its consideration
of various strategic alternatives aimed at maximizing shareholder value and
subsequent solicitation of proposals to acquire the Company or substantially all
of its assets. Included in professional fees for the year ended December 31,
1995 is approximately $352,000 of investment advisory fees earned by Morgan
Stanley and $324,000 in legal fees related to this process. Upon the
consummation of the merger, the Company has committed to pay Morgan Stanley a
transaction fee of $1.5 million, less the amounts previously paid.
Professional fees increased by $45,000 in 1994 over 1993 primarily due to
increased utilization of outside counsel for routine legal services and an
increase in auditing and accounting fees.
Fees paid to the Board of Directors in 1995, which are included in general
and administrative expenses, increased by approximately $94,000 over 1994 due to
increased frequency of meetings and an increase in the per meeting fee payable
to each director which became effective during the second quarter of 1995.
General and administrative expenses increased by approximately $46,000 in
1994 compared to 1993, due primarily to an increase in franchise taxes.
Interest expense for 1995 and 1994 was $184,562 and $210,241, respectively.
The decrease in interest expense is the result of lower borrowings under the
Company's line-of-credit. There were no borrowings or interest expense in 1993.
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. Discussions with
potential investors did not produce an agreement on the terms of an equity
investment and the Company wrote-off the Deferred Financing Costs in the quarter
ended March 31, 1995.
Inflation
By their nature, real estate investments tend not to be adversely affected
by inflation. Inflation may cause appreciation in the value of the Company's
real estate investments over time if rental rates and replacement costs of
properties increase. Declines in property values, over the past several years,
due to market and economic conditions, have overshadowed the positive effect
inflation may have on the value of the Company's investments.
-36-
<PAGE>
Item 8. Financial Statements and Supplementary Data.
--------------------------------------------
- 37 -
<PAGE>
COPLEY PROPERTIES, INC.
-----------------------
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
-------------------------------------------
Report of Independent Accountants . . . . . . . . . . . . . . . 39
Financial Statements:
Consolidated Balance Sheets - December 31, 1995 and 1994 . .40
Consolidated Statements of Operations and Cumulative Deficit -
Years ended December 31, 1995, 1994 and 1993 . . . . . . . 41
Consolidated Statements of Cash Flows -
Years ended December 31, 1995, 1994 and 1993 . . . . . . .42
Notes to Consolidated Financial Statements . . . . . . . . .43
Financial Statements Schedules:
Schedule III - Real Estate and Accumulated Depreciation
at December 31, 1995 . . . . . . . . . . . . . . . . . . .59
Schedule IV - Mortgage Loans on Real Estate
at December 31, 1995 . . . . . . . . . . . . . . . . . . . 61
All other schedules have been omitted because they are inapplicable, not
required or the information is included in the financial statements or notes
thereto.
- 38 -
<PAGE>
Report of Independent Public Accountants
To the Board of Directors
Copley Properties, Inc.:
We have audited the accompanying consolidated balance sheets of Copley
Properties, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1995 and 1994, and the related statements of operations and cumulative deficit
and cash flows for each of the three years in the period ended December 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Copley Properties,
Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedules III and IV are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic consolidated financial
statements. These schedules have been subjected to the auditing procedures
applied in our audits of the basic consolidated financial statements and, in our
opinion, fairly state, in all material respects, the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.
/s/ Arthur Andersen LLP
Boston, Massachusetts
March 15, 1996
-39-
<PAGE>
COPLEY PROPERTIES, INC.
- ------------------------------------------------------------------------
Consolidated Balance Sheets
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1995 1994
------------- -------------
<S> <C> <C>
Assets
Real estate investments (Notes 3 and 4):
Property, net $ 72,396,765 $ 88,640,489
Joint ventures - 1,037,178
Investment in tenancies-in-common 2,310,781 -
Loans to joint ventures - 4,859,903
Ground lease - 1,187,000
Notes receivable 895,963 1,000,966
Other - 681,356
------------ ------------
Total real estate investments 75,603,509 97,406,892
Cash and cash equivalents 5,716,300 1,491,554
Deferred financing costs (Note 10) - 486,366
Other assets 197,448 -
------------ ------------
Total assets $ 81,517,257 $ 99,384,812
============ ============
Liabilities and Shareholders' Equity
Liabilities:
Losses of joint ventures
in excess of investment $ - $ 3,261,463
Accounts payable and other liabilities 544,045 436,478
Accrued management advisory fees (Notes 9 and 14) 2,573,917 2,491,445
Line of credit borrowings - 3,500,000
Mortgage notes payable (Notes 2 and 5) 39,333,349 49,219,448
------------ ------------
Total liabilities 42,451,311 58,908,834
------------ ------------
Commitments (Note 3)
Shareholders' Equity (Note 8):
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 (29,671,273) (28,261,241)
Class A common stock 1 1
------------ ------------
Total shareholders' equity 39,065,946 40,475,978
------------ ------------
Total liabilities and
shareholders' equity $ 81,517,257 $ 99,384,812
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-40-
<PAGE>
COPLEY PROPERTIES, INC.
- ------------------------------------------------------------------------
Consolidated Statements of Operations and Cumulative Deficit
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Investment Activity (Notes 2, 3 and 6):
Property operations, net $ 1,445,701 $ 1,452,003 $ 1,128,334
Share of real estate investment earnings
Operations 748,067 415,742 191,333
Lease termination charges (Note 6) - (1,770,471) -
Investment valuation allowance - - (900,000)
------------ ------------ ------------
Total real estate operations 2,193,768 97,274 419,667
Gain on sales of Properties 2,564,478 626,931 -
------------ ------------ ------------
Total real estate activity 4,758,246 724,205 419,667
Interest on short-term investments
and cash equivalents 39,255 79,975 195,885
------------ ------------ ------------
Total investment activity 4,797,501 804,180 615,552
------------ ------------ ------------
Portfolio Expenses:
Management advisory fee 451,863 714,761 601,535
General and administrative 371,941 273,974 227,758
Professional fees (Note 13) 898,608 142,149 97,241
Interest expense 184,562 210,241 -
Write-off of deferred financing costs (Note 10) 501,227 - -
------------ ------------ ------------
2,408,201 1,341,125 926,534
------------ ------------ ------------
Net Income (Loss) 2,389,300 (536,945) (310,982)
Common stock dividends (3,799,332) (3,369,229) (2,867,442)
Cumulative Deficit:
Beginning of year (28,261,241) (24,355,067) (21,176,643)
------------ ------------ ------------
End of year $(29,671,273) $(28,261,241) $(24,355,067)
============ ============ ============
Per Share Data:
Net Income (Loss) $ .67 $ (.15) $ (.09)
============ ============ ============
Dividends $ 1.06 $ .94 $ .80
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-41-
<PAGE>
COPLEY PROPERTIES, INC.
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
------------- ------------ ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,389,300 $ (536,945) $ (310,982)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Joint venture and tenancy-in-common operations (673,799) (352,606) 16,832
Lease termination charges - 1,770,471 -
Cash distributions from joint ventures
and tenancies-in-common 807,255 1,632,460 3,136,357
Property depreciation and amortization 3,735,914 3,999,341 810,305
Write-off of deferred financing costs 501,227 - -
Gain on sales of Property (2,564,478) (626,931) -
Investment valuation allowance - - 900,000
Increase in investment income receivable - (30,365) (211,559)
Increase in deferred leasing commissions (404,330) (519,173) (33,153)
(Increase) decrease in property working capital (374,311) (358,974) 133,263
Increase in accounts payable and
accrued management advisory fees 109,795 318,478 228,202
Other, net (76,137) (72,683) -
------------ ----------- -----------
Net cash provided by operating
activities 3,450,436 5,295,756 4,596,582
------------ ----------- -----------
Cash flows from investing activities:
Increase in loans to joint ventures (6,436) (191,037) (42,290)
Reduction of loans to joint ventures - - 551,895
Investment in joint ventures (31,346) (143,494) (3,336,120)
Return of capital from joint ventures - - 25,119
Investment in Property (4,553,172) (3,928,552) (2,291,721)
Proceeds from sale of Property 22,864,250 1,082,925 -
Decrease (increase) in short-term investments, net - 1,967,451 (979,408)
Increase in other assets (280,570) - -
Decrease in notes receivable 109,426 2,444,619 -
------------ ----------- -----------
Net cash provided by (used in) investing
activities 18,102,152 1,231,912 (6,072,525)
------------ ----------- -----------
Cash flows from financing activities:
Increase (decrease) in line of credit borrowings, net (3,500,000) 3,500,000 -
Proceeds from third-party mortgage note 3,250,000 - -
Principal payments on mortgage notes (13,136,099) (6,801,089) -
Dividends paid (3,799,332) (3,369,229) (2,867,442)
Financing costs (142,411) (267,586) -
------------ ----------- -----------
Net cash used in financing activities (17,327,842) (6,937,904) (2,867,442)
------------ ----------- -----------
Net increase (decrease) in cash and cash
equivalents 4,224,746 (410,236) (4,343,385)
Cash and cash equivalents:
Beginning of year 1,491,554 1,901,790 6,245,175
------------ ----------- -----------
End of year $ 5,716,300 $ 1,491,554 $ 1,901,790
============ =========== ===========
Supplementary disclosure of cash flow information:
Cash paid during the year for interest $ 4,827,630 $ 4,784,473 $ 358,177
============ =========== ===========
</TABLE>
Noncash investing and financing activities (Notes 3 and 12)
The accompanying notes are an integral part of these consolidated financial
statements.
-42-
<PAGE>
COPLEY PROPERTIES, INC.
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1 Organization and Business
Copley Properties, Inc. (the Company), 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
tenancy-in-common arrangements, 15 properties totaling over 2.5 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.
As described in Note 14, in February 1996, the Company entered into an
Agreement and Plan of Merger, under which the Company will be merged into
EastGroup Properties.
2 Summary of Significant Accounting Policies
Basis of Presentation
---------------------
The accompanying consolidated financial statements include the accounts of the
Company and its consolidated joint ventures as of and subsequent to the date on
which the Company acquired a controlling ownership interest therein. The Company
has several tenancies-in-common, and previously had several other joint
ventures, which are presented in these financial statements using the equity
method, since control of the business is shared with the respective co-tenant.
All interentity balances and transactions have been eliminated.
Under circumstances arising from the inability of certain of its venture
partners to perform under joint venture agreements, the Company assumed control
over the respective businesses. Upon restructuring, these investments have been
classified as Properties in the consolidated balance sheets and any third-party
mortgage financing is separately presented, and operating revenues and expenses
are separately classified in property operations. Prior to restructuring, the
real estate assets and third-party mortgage loans of joint ventures are
considered in the investment balances and operating results are reported as
share of investment earnings. The restructuring transactions do not affect the
Company's net income (loss) or shareholders' equity.
-43-
<PAGE>
Property
--------
Property includes land and buildings wholly owned by the Company or owned by
consolidated joint ventures. These investments are referred to herein as
"Properties" and are stated at cost less accumulated depreciation. The
Company's cost of a Property previously owned by a joint venture equals the
Company's carrying value of the prior investment on the conversion date. It is
the Company's policy to estimate the remaining useful life of real estate assets
at the conversion date. This balance sheet caption also includes deferred
leasing costs, incidental working capital items related to Properties, and the
minority interest related to a consolidated joint venture.
Tenancies-in-Common, Joint Ventures and Secured Loans
-----------------------------------------------------
The Company accounts for its investments in unconsolidated tenancies-in-common
using the equity method, under which the cost of the investment is adjusted by
the Company's share of the respective tenancy-in-common's results of operations
and reduced by certain cash distributions received.
The Company has had investments in unconsolidated joint ventures which were
also accounted for using the equity method as described above. In addition, the
Company made loans to joint ventures in which the Company had an ownership
interest.
Share of real estate investment earnings (losses) in the accompanying
consolidated statements of operations includes tenancy-in-common and joint
venture earnings (losses) allocated to the Company. Allocations of tenancy-in-
common earnings (losses) are made in accordance with the ownership interests of
the respective co-tenants. Allocations of joint venture earnings (losses) were
made to the Company's joint venture partners in accordance with the terms of the
respective joint venture agreements as long as they had economic equity in the
project. A joint venture partner is determined to have economic equity if the
appraised value of the property exceeds the Company's total cash investment plus
accrued preferential returns and interest thereon, or if the venture partner is
entitled to current operating cash distributions.
Depreciation and Capitalization
-------------------------------
Maintenance and repair costs are charged to operations as incurred.
Significant improvements and renewals are capitalized. Depreciation is computed
using the straight-line method based on the estimated useful lives of the
buildings and improvements. Leasing and financing costs are also capitalized and
amortized over the related agreement terms.
-44-
<PAGE>
Rental Revenues
---------------
Rental revenues from certain operating leases with fixed rent increases or
rent credits are recognized on a straight-line basis over the terms of the
leases. The difference between straight-line rental revenues and cash rents
received in accordance with the terms of the leases is recorded as accounts
receivable.
Realizability of Real Estate Investments
----------------------------------------
The carrying value of the Company's real estate investments is reduced to net
realizable value, if lower. Since the Company's intention is to hold properties
for long-term investment, net realizable value is measured by the recoverability
of the investment carrying value through expected undiscounted future cash
flows, net of the cost of third-party financing associated with the investment.
As of December 31, 1995 and 1994, the estimated net realizable value of each
real estate investment either exceeded or approximated its carrying value.
In March 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" (SFAS 121), which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. As required, the Company will adopt SFAS
121 in the first quarter of 1996. Based upon current circumstances, management
believes adoption will not have any effect on the financial position of the
Company.
Cash Equivalents and Short-term Investments
-------------------------------------------
Cash equivalents and short-term investments are stated at cost, plus accrued
interest, which approximates market. Such investments consist primarily of
certificates of deposit and commercial paper. The Company considers all highly
liquid debt instruments purchased with a maturity of 90 days or less to be cash
equivalents; otherwise, they are classified as short-term investments.
Financial Instruments
---------------------
Mortgage notes payable and notes receivable are considered the Company's most
significant financial instruments at December 31, 1995. Based on the interest
rates on these notes, some of which are variable and several of which have
recently been negotiated, the fair value of these instruments approximates their
carrying values.
Per Share Computations
----------------------
Net income (loss) per share is computed by dividing net income (loss), after
deducting any Class A dividends, by the weighted average number of shares
outstanding during each year (3,584,350 in 1995, 1994 and 1993).
-45-
<PAGE>
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
-----------------
Certain reclassifications have been made to prior year amounts to conform with
the 1995 presentation. There is no effect on net income (loss) or cash flow
from operations.
3 Real Estate Investments
The Company's real estate investments are either owned in their entirety or
jointly through tenancies-in-common or joint ventures. Wholly owned property
operations are under the oversight of local management companies. For jointly
owned property, the Company's co-tenants or venture partners are responsible for
day-to-day operating activities under separate property management agreements,
and they are entitled to fees for such services. The joint venture agreements
provide for the funding of cash flow deficits by the venture partners in
proportion to ownership interests, and for the dilution of ownership interest in
cases where a partner does not so contribute. Under the tenancy-in-common
agreements, each co-tenant is responsible for funding its proportionate share of
cash flow deficits.
The Company's cash investments in joint ventures are in two forms: a capital
contribution generally subject to preferential cash distributions at a specified
rate and to priority distributions with respect to sale or refinancing proceeds;
and secured, interest-bearing loans to certain ventures. When converted to
tenancy-in-common ownership, these loans and the corresponding accrued interest
were classified as part of the Company's contribution to the capital of the new
entity.
Acquisitions
------------
In July 1995, the Company purchased the Kingsview Industrial Center, an 83,000
square foot industrial building located in Carson, California. The total
purchase price was approximately $3,000,000.
The Company purchased an industrial building located in Tempe, Arizona, on
March 31, 1994, which is referred to as Broadway Industrial Center. The total
purchase price was approximately $2,350,000.
-46-
<PAGE>
Sales
-----
In November 1995, the Company sold its interest in the Peachtree Corners
Distribution Center investment for a purchase price of approximately
$10,000,000. After payment of selling expenses and the outstanding mortgage
loan, the Company received net cash proceeds of approximately $7,626,000,
including deposits of $125,000 and $1,165,000 received in March 1995 and June
1995. The outstanding principal balance of $2,250,000 on a $3,250,000 mortgage
note payable which the buyer issued to the Company in February 1995 was retired
as part of the closing. The loan had been secured by a first mortgage on the
Peachtree Corners Distribution Center and bore interest at the rate of 10% per
annum. In July 1995, the Company made a payment to reduce the outstanding
principal by $1,000,000. The Company recognized a gain on the sale of
approximately $1,806,000.
In June 1995, the Company sold all of its interests and rights, including its
ground lease position, related to the Park North Business Center investment for
approximately $18,500,000. Proceeds from the sale of approximately $12,900,000,
net of the assumption of debt associated with the ground lease property, were
used to pay off the mortgage notes payable to Wells Fargo Realty Advisors and
the revenue bonds, which were owed by the ground lessee and guaranteed by the
Company (Note 5). After settlement of the debt and payment of selling expenses,
the Company received net cash proceeds of approximately $6,825,000, including a
deposit of $125,000 received in March 1995. The Company recognized a gain of
approximately $758,000.
During 1994, the Company sold two buildings at the Baygreen Industrial Park.
Proceeds from the sales totaled $1,782,925, including a $700,000 purchase money
mortgage note. Under the terms of this note, interest only is due monthly at
the rate of 9% per annum, and the note matures January 1, 1997. The note is
included in Notes Receivable in the accompanying consolidated balance sheet at
December 31, 1995 and 1994. The Company recognized a gain on these sales of
approximately $627,000 in 1994.
Restructurings
--------------
In September 1995, the Company paid approximately $100,000 to terminate an
incentive property management agreement related to Broadway Industrial Center
and paid approximately $200,000 in October 1995 to terminate an incentive
property management agreement related to Baygreen Industrial Park. The
incentive property management agreements represented a contingent equity
interest in the properties granted at the date of acquisition, payable upon
sale, refinancing, or termination. Therefore, the termination fees paid have
been recorded as acquisition costs and added to the Company's carrying value of
the investments.
-47-
<PAGE>
In August 1995, the Company entered into agreements with certain of its co-
venture partners to restructure the ownership of their joint venture investments
as tenancies-in-common between the Company and the respective co-ventures.
Certain amounts previously recorded by the Company as loans to the joint
ventures and corresponding accrued interest have been reclassified at book
value, as part of the Company's capital contribution to its ownership interest
in the tenancies-in-common. These transactions did not generate a gain or loss
or have an impact on shareholders' equity. Subsequent to the establishment of
the tenancies-in-common, the respective ownership interests of the Company and
its co-tenants-in-common are substantially as follows:
<TABLE>
<CAPTION>
Company Co-tenant
--------------------------
<S> <C> <C>
Central Distribution Center 57.38% 42.62%
West Side Business Park 75.49% 24.51%
Metro Business Park 69.03% 30.97%
Dominguez Properties 55.00% 45.00%
Columbia Place 78.00% 22.00%
270 Technology Park 61.00% 39.00%
</TABLE>
As discussed further in Note 14, subsequent to December 31, 1995, the Company
entered into agreements with its various co-tenants to exchange ownership
interests such that the Company would have a 100% ownership interest in certain
of the properties owned by the tenancies-in-common and no ownership interest in
the others.
As of January 1, 1994, the ownership of three partnerships that were formed to
own a portion of the Park North Business Center investment (the "Parknorth
Partnerships") was restructured whereby the Company became the controlling
venturer and increased its legal ownership percentage. On March 30, 1995, 100%
ownership of the property owned by the Parknorth Partnerships was transferred to
the Company. In addition, on March 30, 1995, the Company restructured its long-
term ground lease arrangement within the Park North Business Center. As
discussed under "Sales," the entire Park North Business Center investment was
sold on June 30, 1995.
-48-
<PAGE>
The following is a summary of the real estate investment structures at
December 31, 1995:
<TABLE>
<CAPTION>
Date
Consolidated Date
Legal or Converted Converted
Ownership from Joint to Tenancy-
Investment Share Venture in-Common
- --------------------------- ------ ------- ---------
<S> <C> <C> <C>
Broadway Industrial Center 100.00% 03/31/94 --
Central Distribution Center 57.38% -- 8/16/95
West Side Business Park 75.49% -- 8/16/95
Metro Business Park 69.03% -- 8/16/95
Carson Industrial Center (1) 50.00% -- 3/29/90
Dominguez Properties 55.00% -- 8/16/95
Los Angeles Corporate Center 100.00% 12/18/90 --
University Business Center 80.00% 11/01/93 --
Huntwood Associates 100.00% 12/31/93 --
Wiegman Associates (2) 80.00% 12/31/93 --
Baygreen Industrial Park 100.00% 10/26/93 --
Columbia Place 78.00% -- 8/16/95
270 Technology Park 61.00% -- 8/16/95
Sample\I-95 Business Park 100.00% 12/31/93 --
Kingsview Industrial Center 100.00% 07/14/95 --
</TABLE>
(1) The Company has a note receivable of approximately $177,000 from its
co-tenant which bears interest at 10% and is secured by the
co-tenant's interest in the property.
(2) The Company has a preferred capital investment which bears interest at 12%.
4 Real Estate Assets and Liabilities
The following is a summary of the assets and liabilities underlying the
Company's real estate investments:
<TABLE>
<CAPTION>
December 31,
1995 1994
------------ --------------
<S> <C> <C>
Property
Land $21,655,181 $24,018,575
Buildings and improvements 52,400,189 66,402,879
Accumulated depreciation (5,752,574) (5,079,353)
Deferred leasing costs and other assets, net 1,162,722 1,332,458
Minority interest 1,509,970 1,471,483
----------- -----------
Total real estate assets 70,975,488 88,146,042
Accounts receivable 2,048,357 2,254,603
Accounts payable and other liabilities (627,080) (1,760,156)
----------- -----------
$72,396,765 $88,640,489
=========== ===========
Mortgage notes payable to third-parties (Note 5) $39,333,349 $49,219,448
=========== ===========
</TABLE>
-49-
<PAGE>
<TABLE>
<CAPTION>
Investments in Tenancies-in-Common and Joint Ventures
<S> <C> <C>
Land $ 8,246,048 $ 8,246,048
Buildings and improvements 33,965,653 35,542,264
Accumulated depreciation (11,791,003) (12,370,021)
Cash 511,717 346,176
Other, net 2,921,034 3,521,924
------------ ------------
Total assets 33,853,449 35,286,391
------------ ------------
Mortgage notes payable to third-parties (Note 5) 31,601,919 32,127,307
Other 632,950 1,913,431
------------ ------------
Total liabilities 32,234,869 34,040,738
------------ ------------
Net assets $ 1,618,580 $ 1,245,653
============ ============
Company's share:
Loans to joint ventures $ - $ 4,859,903
Capital 2,310,781 (2,224,285)
------------ ------------
$ 2,310,781 $ 2,635,618
============ ============
</TABLE>
As of December 31, 1994 assets of joint ventures exclude capitalized interest
or preferred returns to the Company and liabilities of joint ventures exclude
amounts owed to the Company in connection with secured loans, accrued interest
thereon, or accrued preferred returns. As part of the conversion to tenancies-
in-common as discussed in Note 3, these items were converted at book value to
the Company's ownership interest.
-50-
<PAGE>
5 Mortgage Notes Payable
Mortgage notes payable on Properties are summarized below. They are
collateralized by real estate and, in certain cases, the assignment of rents.
The mortgage notes are generally non-recourse to the other assets of the
Company.
<TABLE>
<CAPTION>
December 31,
1995 1994
----------- ------------
<S> <C> <C>
University Business Center
--------------------------
CIGNA; interest at 9.06%, payable monthly; principal
payments based on a 20-year amortization schedule;
remainder due April 1, 2000 $ 9,353,947 $13,000,000
CIGNA; interest at 9.37%, payable monthly; principal
due January 1, 1997 10,000,000 10,000,000
Huntwood Associates
--------------------
Wells Fargo Bank; interest is a fixed rate option with
interest based on LIBOR plus 3.25% and a variable
rate option with interest based on the prime rate plus
1% (the effective interest rate was 9.5% at December
31, 1995); principal due January 15, 1997 2,292,993 2,350,292
Massachusetts Mutual Life Insurance Company;
interest at 9.875%, payable monthly; principal due
June 1, 1996 10,000,000 10,000,000
Wiegman Associates
------------------
Massachusetts Mutual Life Insurance Company;
interest at 9.875%, payable monthly; principal due
June 1, 1996 6,700,000 6,700,000
Allstate Insurance Company; interest at 8.75%, payable
monthly; principal due October 1, 1997 986,409 1,011,311
Park North Business Center
--------------------------
Wells Fargo Realty Advisors; interest at .65% over the
prime rate or 1.75% over LIBOR, payable monthly.
Principal balance was paid at maturity on
June 30, 1995 -- 3,362,692
Wells Fargo Realty Advisors; interest at .65% over the
prime rate or 1.75% over LIBOR, payable monthly.
Principal balance was paid at maturity on
June 30, 1995 -- 2,795,153
---------- -----------
$39,333,349 $49,219,448
=========== ===========
</TABLE>
-51-
<PAGE>
Mortgage notes payable to third-parties, based on contractual terms in
existence as of December 31, 1995, mature as follows:
<TABLE>
<CAPTION>
Year ended
December 31, Properties(1) Tenancies-in-Common (2)
- ------------ -------------- -----------------------
<S> <C> <C>
1996 $16,974,870 $ 4,280,310
1997 13,403,318 10,997,500
1998 228,070 5,203,115
1999 249,613 1,854,579
2000 8,477,478 309,903
Thereafter -- 8,956,512
----------- -----------
$39,333,349 $31,601,919
=========== ===========
</TABLE>
(1) Includes 100% of the joint venture debt.
(2) Amounts represent 100% of the tenancies-in-common debt. The Company's share
of notes payable is consistent with its respective ownership interest (Note 3)
except at West Side Business Park where the Company's share of the obligation
under the notes payable is 57.38%.
Mortgage notes payable at December 31, 1994 do not include revenue bonds at
Park North Business Center owed by the ground lessee, repayment of which was
guaranteed by the Company. The ground lease arrangement resulted from a
transaction in which the Company purchased land in a portion of Park North
Business Center for lease back to the seller for a term of 60 years.
Contractual rent was $142,440 per annum. The Company's guarantee of the revenue
bonds was extinguished in connection with the sale of the property in June 1995.
The Company guaranteed 50% of the outstanding obligation of the revenue bonds
at 270 Technology Park up to a maximum of $2,000,000. The outstanding principal
balance of the bonds at December 31, 1995 and 1994 was $3,713,011. As discussed
in Note 14, subsequent to December 31, 1995, the Company exchanged its ownership
interest in the 270 Technology Park property, and its guarantee of the revenue
bonds was extinguished.
-52-
<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:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1995 1994 1993
-------------- ------------ ------------
<S> <C> <C> <C>
Property
Rentals $12,679,060 $13,338,097 $ 3,128,332
Operating expenses (3,030,306) (3,072,560) (821,215)
Interest expense (4,348,126) (4,696,303) (358,177)
Depreciation and amortization (3,735,914) (3,999,341) (810,305)
Minority interest (119,013) (117,890) $ (10,301)
----------- ----------- -----------
$ 1,445,701 $ 1,452,003 $ 1,128,334
=========== =========== ===========
Investments in Tenancies-in-Common
and Joint Ventures
Rentals $ 6,856,262 $ 7,442,165 $14,850,192
Operating expenses (1,223,767) (1,136,267) (2,749,486)
Interest expense (2,857,655) (2,931,718) (7,615,524)
Depreciation and amortization (1,921,274) (4,551,781) (4,551,489)
----------- ----------- -----------
$ 853,566 $(1,177,601) $ (66,307)
=========== =========== ===========
Company share:
Interest on loans to joint ventures $ 74,268 63,136 $ 208,165
Equity in net income (losses) 673,799 (1,417,865) (16,832)
----------- ----------- -----------
$ 748,067 (1,354,729) $ 191,333
=========== =========== ===========
</TABLE>
Future minimum rentals under non-cancelable operating leases are as follows:
<TABLE>
<CAPTION>
Year ended
December 31, Properties Tenancies-in-Common
------------ ---------- -------------------
<S> <C> <C>
1996 $ 9,051,444 $ 4,551,838
1997 8,702,558 2,833,264
1998 7,728,819 2,526,885
1999 6,890,149 2,389,048
2000 6,022,828 2,265,552
Thereafter 16,546,140 9,180,224
----------- -----------
$54,941,938 $23,746,811
=========== ===========
</TABLE>
Investment Valuation Allowance
------------------------------
The estimated net realizable value of the undeveloped land at Sample/I-95
Business Park declined significantly in 1993. In accordance with the Company's
policy, the carrying value was reduced to approximate estimated net realizable
value, resulting in an investment valuation allowance of $900,000 in 1993.
-53-
<PAGE>
Significant Lease Transactions
------------------------------
In September 1994, M.O.R. XXXVI Associates Limited Partnership, a partnership
in which the Company is a general partner (the "Partnership") and the owner of
Columbia Place, modified the existing terms of its sole lease and mortgage loan
agreements. BDM Federal, Inc. ("BDM"), the original tenant with a lease
expiring in March 1998, desired to vacate the building and Ceridian Corporation
("Ceridian"), a new tenant, desired to occupy the building. BDM, Ceridian, and
the Partnership entered into a series of agreements (the "Agreements") under
which BDM is obligated for certain payments to the Partnership through March
1998. The payments are contingent on future events and are being recognized as
income when the contingencies expire. In 1994, approximately $864,000 was
recognized as additional income from BDM as a result of the transaction.
Ceridian entered into a lease with the Partnership which commenced September
1994 and expires December 2009, subject to earlier termination options in
December 2004 and December 2006.
Ceridian was responsible for the cost of all of its tenant improvements and
chose to substantially re-fit this space. This resulted in the write-off by the
Partnership of approximately $2,635,000 of tenant improvements and other capital
costs in 1994.
In conjunction with the leasing transaction, the mortgage note payable to a
third-party lender of approximately $10,490,000 was restructured. The interest
rate was reduced from 10.125% to 8.875% per annum, effective December 1, 1994,
and the maturity date was extended from May 1998 to December 2009. The maturity
date may be accelerated if Ceridian exercises its termination options. The
revised mortgage note requires monthly payments of principal and interest based
on a 20-year amortization schedule.
The Partnership's costs of these transactions have been capitalized and are
being amortized over the life of the lease or loan as applicable.
In January 1996, the Company executed a lease agreement which increased the
occupancy of the Los Angeles Corporate Center property from 50% to 100%.
7 Line-of-Credit
At December 31, 1995, the Company had an unsecured line-of-credit agreement
with a bank which was due to expire on January 31, 1996. Under its terms, the
Company could borrow up to $5,000,000 at the prime rate of interest or LIBOR
plus 1.5%. The average outstanding balance on the line-of-credit during 1995 and
1994 was $2,091,644 and $3,402,000, respectively, and the weighted average
interest rate was 7.85% and 6.18%, respectively. There were no borrowings in
1993.
Subsequent to December 31, 1995, the bank agreed to extend the line-of-credit
agreement to July 31, 1996. All other terms and conditions are unchanged.
-54-
<PAGE>
8 Shareholders' Equity
Increase in Authorized Shares
-----------------------------
The total number of authorized shares of the Company was increased from
8,000,000 to 20,000,000 effective June 14, 1994.
Class A Common Stock
--------------------
On June 3, 1985, the Company sold one share of Class A Common Stock (par value
of one dollar) to the Advisor for $50,000. As the holder of such share, the
Advisor is entitled to receive 10% of the Company's net gain (as defined) from
the disposition of properties, reduced by any accumulated net losses. Upon
termination of the Advisory Agreement, the Company will have an option to
purchase the share of Class A Common Stock for an amount equal to 10% of the net
gain which would be realized by the Company had all of the real estate owned by
the Company as of the date of termination been sold at its fair market value.
If the Company does not elect to purchase the Class A Common Stock, such share
will automatically convert to shares of common stock of the Company. See Note
14 for further discussion of the Class A Common Stock.
Shareholders' Rights Plan
-------------------------
The Company's Board of Directors unanimously adopted a shareholders' rights
plan on June 28, 1990 applicable to shareholders of record on July 19, 1990.
The plan, as amended on September 20, 1995, provides for the dividend of a right
to buy one share of common stock for a stated amount determined in accordance
with the provisions of the plan for each share of common stock outstanding.
Rights would initially become exercisable on the earlier of (1) the tenth day
after the date on which a person has acquired beneficial ownership of 15% or
more of the Company's common stock or (2) the tenth business day after a person
commences a tender or exchange offer, the consummation of which would result in
such person owning 30% or more of the Company's common stock.
-55-
<PAGE>
9 Management Advisory Fees
The Company has an agreement with the Advisor, pursuant to which the Advisor
provides investment management and administrative services to the Company. Fees
for these services totaled $451,863, $714,761 and $601,535 for 1995, 1994 and
1993, respectively, and are determined as:
a. A base fee of 7.5% of net cash flow (as defined in the Advisory
Agreement) from sources other than short-term assets, as defined.
b. An incentive fee of 5% of net cash flow (as defined in the Advisory
Agreement) from sources other than short-term assets, as defined.
c. A short-term investment fee of 0.25% of average annual short-term
assets, as defined.
At December 31, 1995 and 1994, payments of the incentive fees totaling
$2,573,917 and $2,473,054, respectively, have been deferred and become payable
only after the Company has achieved a specified return to shareholders, or
refinancing or sale proceeds are distributed to shareholders. Payment of the
deferred fee would also become payable upon termination or resignation of the
Advisor. See Note 14 for further discussion of the management advisory fee.
10 Deferred Financing Costs
In 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. Discussions with
potential investors did not produce an agreement on the terms of an equity
investment and the Company wrote off the Deferred Financing Costs in 1995.
11 Income Taxes
The Company believes that it continues to qualify as a real estate investment
trust under the Internal Revenue Code of 1986, as amended. The Company has
distributed all of its taxable income for 1995, 1994 and 1993. Accordingly, no
provision for income taxes has been made in the accompanying consolidated
financial statements. For federal income tax purposes, the amounts distributed
as dividends were ordinary income, except for $1.06 per share, $.17 per share
and $.06 per share in 1995, 1994 and 1993, respectively, which relate to capital
gains. No portion of the dividend in any of the years presented relate to a
return of capital.
-56-
<PAGE>
12 Noncash Investing and Financing Activities
The restructuring of certain joint ventures, as more fully described in Note
3, resulted in the following noncash investing and financing activities:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ------------ --------------
<S> <C> <C> <C>
Conversion of loans to joint ventures and
accrued interest to Property and
tenancies-in-common $4,999,071 $ 4,109,037 $ 265,694
Conversion of investments in joint ventures
to Property -- -- 14,424,483
Conversion of losses of joint ventures in
excess of investment to Property -- (2,095,608) --
Recording of third party mortgage notes -- 9,310,914 46,864,843
---------- ----------- -----------
Total converted assets $4,999,071 $11,324,343 $61,555,020
========== =========== ===========
</TABLE>
13 Professional Fees
Certain professional fees are costs incurred by the Company related to its
consideration of various strategic alternatives aimed at maximizing shareholder
value and subsequent solicitation of proposals to acquire the Company. Included
in professional fees for the year ended December 31, 1995 is approximately
$352,000 of investment advisory fees earned by Morgan Stanley and Co.
Incorporated (Morgan Stanley) and legal fees of $324,000 associated with this
process.
14 Subsequent Events
Merger Agreement
----------------
In February 1996, the Company entered into an Agreement and Plan of Merger
under which the Company will be merged into EastGroup Properties (EastGroup).
In the merger, each share of the Company's common stock will be converted into
EastGroup shares of beneficial interest with a value of $15.60, subject to the
limitations described below.
-57-
<PAGE>
The value of EastGroup shares for purposes of calculating the ratio at which
the Company's shares will be converted into EastGroup shares in the merger will
be the average of the closing price of EastGroup shares on the New York Stock
Exchange on the 20 trading days immediately preceding the fifth trading day
prior to the effective date of the merger (the "EastGroup Stock Price");
however, the EastGroup Stock Price will be deemed to equal $20.25 if the average
price of EastGroup shares calculated above is less than or equal to $20.25, and
$23.00 if the average price of EastGroup shares is greater than or equal to
$23.00. The Company has the right, waivable by it, to terminate the merger
agreement without liability if the average closing price of EastGroup shares on
the New York Stock Exchange on the 20 trading days immediately preceding the
fifth trading day prior to (i) the date on which the Securities and Exchange
Commission declares EastGroup's Registration Statement with respect to the
merger effective or (ii) the date on which the Company's stockholders' meeting
with respect to the merger is held, is equal to or less than $18.25.
The merger is subject to several conditions including approval by the
shareholders of both the Company and EastGroup and registration of the shares to
be issued in the merger with the Securities and Exchange Commission. Upon the
consummation of the merger, the Company has committed to pay Morgan Stanley a
transaction fee equal to $1.5 million, against which approximately $350,000 of
other fees and expenses previously paid to Morgan Stanley will be credited.
Upon the event of merger, the Advisor agrees to the termination of the
Advisory Agreement and relinquishment of its right to, and interest in, the
Class A share in consideration of payment by the Company of 95% of the amount of
the unpaid incentive advisory fees.
February Exchange of Interests
------------------------------
Effective February 1, 1996, the Company exchanged its co-tenant interest in
the 270 Technology Park property to obtain 100% ownership of the Columbia Place
property. In addition, the Company received $50,000 in cash and a secured
promissory note of $180,000 bearing interest at 9.56% and maturing on February
1, 2000, with annual interest and principal payments of $56,250. The note is
secured by a second deed of trust on the 270 Technology Park property.
Effective February 2, 1996, the Company exchanged its co-tenant interests in
the Carson Industrial Center, Central Distribution Center, West Side Business
Park and the three El Presidio buildings (comprising a portion of the Dominguez
Properties) to obtain 100% ownership of the Metro Business Park tenancy-in-
common and the remaining building in the Dominguez Properties tenancy-in-common.
As part of the exchange, the Company paid $138,000 in cash and forgave its note
receivable from its co-tenant in the Carson Industrial Center property of
approximately $177,000.
-58-
<PAGE>
COPLEY PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
SCHEDULE III
<TABLE>
<CAPTION>
Buildings and
Description Encumbrances (a) Land Improvements Total
- ----------------------------- --------------- ------------ ------------------ -------------
<S> <C> <C> <C> <C>
Investment in Property
Broadway Industrial Center
Industrial - Bulk Distribution Building
Tempe, Arizona $ 743,600 $ 2,248,016 $ 2,991,616
Kingsview Industrial Center
Industrial - Bulk Distribution Building
Carson, CA 1,077,000 2,025,712 3,102,712
Los Angeles Corporate Center
Office Building
Monterey Park, California 2,861,000 6,235,120 9,096,120
University Business Center
Research & Developement Buildings
Santa Barbara, California $ 19,353,947 3,679,870 17,000,555 20,680,425
Huntwood Associates
Industrial - Bulk Distribution Buildings
Hayward, California 12,292,993 5,487,508 12,750,719 18,238,227
Wiegman Associates
Industrial - Bulk Distribution Buildings
Hayward, California 7,686,409 2,535,994 5,244,158 7,780,152
Baygreen Industrial Park
Industrial - Light Industrial Buildings
Hayward, California 167,223 1,189,212 1,356,435
Sample/I-95 Business Park
Land, Industrial - Light Industrial Buildings
Pompano Beach, Florida 5,102,986 5,706,697 10,809,683
--------------- ------------- ---------------- --------------
$ 39,333,349 $ 21,655,181 $ 52,400,189 $ 74,055,370
--------------- ------------- ---------------- --------------
<CAPTION>
Date
Accumulated Acquired or Depreciable
Description Depreciation Constructed Life
- ----------------------------- -------------------- ------------------- ----------------
<S> <C> <C> <C>
Investment in Property
Broadway Industrial Center
Industrial - Bulk Distribution Building
Tempe, Arizona $ 207,367 1994 5-25 years
Kingsview Industrial Center
Industrial - Bulk Distribution Building
Carson, CA 37,757 1995 5-25 years
Los Angeles Corporate Center
Office Building
Monterey Park, California 1,261,250 1986 5-25 years
University Business Center
Research & Developement Buildings
Santa Barbara, California 1,572,880 1987-1988(b) 5-25 years
Huntwood Associates
Industrial - Bulk Distribution Buildings
Hayward, California 1,402,309 1987-1988(b) 5-25 years
Wiegman Associates
Industrial - Bulk Distribution Buildings
Hayward, California 494,344 1986-1987(b) 5-25 years
Baygreen Industrial Park
Industrial - Light Industrial Buildings
Hayward, California 91,943 1993 5-25 years
Sample/I-95 Business Park
Land, Industrial - Light Industrial Buildings
Pompano Beach, Florida 684,724 1989-1995(b) 5-25 years
------------------
$ 5,752,574
------------------
</TABLE>
-59-
<PAGE>
COPLEY PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
SCHEDULE III
(Continued)
<TABLE>
<CAPTION>
Date
Buildings and Accumulated Acquired or Depreciable
Description Encumbrances (a) Land Improvements Total Depreciation Constructed Life
- ----------------------------------- ---------------- ---- ------------- ----- ------------ ----------- -----------
Properties owned 100% by Copley subsequent to the February Exchanges.
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Metro Business Park
Industrial- Service Center Buildings
Phoenix, Arizona 5,217,399 1,982,562 8,998,208 10,980,770 4,784,918 1985 24 years
Dominguez Properites
Industrial- Bulk Distribution Buildings
Los Angeles, California 5,218,332 1,476,232 5,600,737 7,076,969 2,581,997 1985 22.9 years
Columbia Place
Office Building
Columbia, Maryland 10,263,748 2,179,802 6,718,923 8,898,725 94,277 1988 5-50 years
------------- ------------ ------------ ------------ ------------
20,699,479 5,638,596 21,317,868 26,956,464 7,461,192
------------- ------------ ------------ ------------ ------------
<CAPTION>
Properties in which Copley will no longer have an ownership interest after the February Exchanges.
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Central Distribution Center
Industrial- Bulk Distribution Buildings
Phoenix, Arizona 2,340,285 578,370 2,419,466 2,997,836 1,132,682 1985 24.7 years
West Side Business Park
Industrial- Bulk Distribution Buildings
Phoenix, Arizona 936,096 275,310 1,329,393 1,604,703 698,633 1985 25 years
Carson Industrial Center
Industrial- Bulk Distribution Building
Los Angeles, California 2,092,780 547,715 2,099,115 2,646,830 805,420 1985 27 years
Dominguez Properites
Industrial- Bulk Distribution Buildings
Los Angeles, California 1,820,268 933,550 3,617,151 4,550,701 1,662,872 1985 22.9 years
270 Technology Park
Research & Developement Buildings
Frederick, Maryland 3,713,011 272,507 3,182,660 3,455,167 30,203 1985-1986 2-50 years
----------- ----------- ----------- ------------ -----------
10,902,440 2,607,452 12,647,785 15,255,237 4,329,810
----------- ----------- ----------- ------------ -----------
----------- ----------- ----------- ------------ -----------
Total $70,935,268 $29,901,229 $86,365,842 $116,267,071 $17,543,576
=========== =========== =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
1995
Property Cost Accumulated Depreciation
------------- ------------------------
<S> <C> <C> <C>
Balance at beginning of year 135,396,766 Balance at beginning of year 17,449,374
Dispositions (23,531,256) Dispositions (5,145,485)
Additions 4,401,561 Depreciation Expenses 5,239,688
------------- -------------
Balance at Close of Year $116,267,071 Balance at Close of Year $17,543,577
============= =============
1994
Property Cost Accumulated Depreciation
------------- ------------------------
Balance at beginning of year 136,268,468 Balance at beginning of year 15,238,165
Conversions (703,735) Conversions (2,335,423)
Dispositions (4,020,537) Dispositions (2,928,729)
Additions 3,852,570 Depreciation Expenses 7,475,361
------------- -------------
Balance at Close of Year $135,396,766 Balance at Close of Year $17,449,374
============= =============
1993
Property Cost Accumulated Depreciation
------------- ------------------------
Balance at beginning of year 134,360,214 Balance at beginning of year 20,097,444
Conversions (759,216) Conversions (9,673,801)
Dispositions Dispositions
Additions 2,667,470 Depreciation Expenses 4,814,522
------------- -------------
Balance at Close of Year $136,268,468 Balance at Close of Year $15,238,165
============= =============
1992
Property Cost Accumulated Depreciation
------------- ------------------------
Balance at beginning of year 156,502,217 Balance at beginning of year 16,919,673
Transfer (10,962,007) Transfer (1,608,049)
Dispositions (11,990,574) Dispositions (1,304,109)
Additions 810,578 Depreciation Expenses 6,089,929
------------- -------------
Balance at Close of Year $134,360,214 Balance at Close of Year $20,097,444
============= =============
</TABLE>
(a) Represents liabilities to third-party lenders.
(b) These Properties were converted to wholly owned properties during
the fourth quarter of 1993 or the first quarter of 1994.
Accumulated depreciation numbers are amounts from the date of
conversion through December 31, 1995.
-60-
<PAGE>
COPLEY PROPERTIES, INC.
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
SCHEDULE IV
<TABLE>
<CAPTION>
Carrying Amount
Interest Maturity Payment Terms of Mortgages
Description Rate Date (Note a) (Note b)
- -------------------------------------------- -------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
MORTGAGE LOANS
- --------------
Carson Industrial Center (1) 10% December 31, 2050 Interest due monthly; $176,889
Industrial - Bulk Distribution Building principal due in full at
Carson, California maturity
---------------
TOTAL MORTGAGE LOANS $176,889
===============
DEFICIT AND CONTRIBUTION LOANS
- ------------------------------
---------------
TOTAL DEFICIT AND CONTRIBUTION LOANS $0
===============
---------------
Total $176,889
===============
</TABLE>
(a) The carrying amounts of this mortgage for both book and federal income
tax purposes are the same as the amount listed above. The carrying amount
of the mortgages approximates its face amount.
(b) Reconciliation of the carrying value of mortgage loans:
<TABLE>
<S> <C>
Balance at December 31, 1994 $12,069,687
New loans during 1995 $6,437
Collection of principal ($127,585)
Collected as part of a sale ($7,677,895)
Contributed to Equity ($4,093,755)
--------------
Balance at December 31, 1995 $176,889
==============
</TABLE>
(1) Effective February 2, 1996, the Company exchanged its tenancy-in-common
interest in Carson Industrial Center, including the note due from the co-tenant,
Central Distribution Center, West Side Business Park and the El Presidio
Properties to gain 100% ownership of Metro Business Park and the East Dominguez
Property.
-61-
<PAGE>
COPLEY PROPERTIES INC.
INDEX TO JOINT VENTURE FINANCIAL STATEMENTS
Page
Columbia Place (a)..............................................63
(a) These financial statements are for the year ended December 31, 1995.
-62-
<PAGE>
COLUMBIA PLACE
(A TENANCY-IN-COMMON)
FINANCIAL REPORT
DECEMBER 31, 1995
-63-
<PAGE>
COLUMBIA PLACE (A TENANCY-IN-COMMON)
------------------------------------
CONTENTS
--------
DECEMBER 31, 1995
-----------------
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS 65
FINANCIAL STATEMENTS
Balance Sheet 66
Statement of Income 67
Statement of Partners' Equity 68
Statement of Co-Tenants' Equity 68
Statement Cash Flows 69-70
Notes to Financial Statements 71-75
-64-
<PAGE>
WOLPOFF & COMPANY, LLP
To the Tenants
Columbia Place (A Tenancy-in-Common)
Columbia, Maryland
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS
----------------------------------------------------
We have audited the balance sheet of Columbia Place (A Tenancy-in-Common) as of
December 31, 1995, and M.O.R. XXXVI Associates Limited Partnership as of
December 31, 1994, and the related statements of income, co-tenants' equity and
cash flows for the years then ended (see Note 1). These financial statements
are the responsibility of the tenants' management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Columbia Place (A Tenancy-in-
Common) as of December 31, 1995, and M.O.R. XXXVI Associates Limited Partnership
as of December 31, 1994, and the results of its operations and cash flows for
the years then ended (see Note 1), in conformity with generally accepted
accounting principles.
/s/ Wolpoff & Company, LLP
WOLPOFF & COMPANY,LLP
Baltimore, Maryland
January 23, 1996
-65-
<PAGE>
COLUMBIA PLACE (A TENANCY-IN-COMMON)
------------------------------------
BALANCE SHEET
-------------
ASSETS
------
<TABLE>
<CAPTION>
December 31,
----------------------------------
1995 1994*
--------------- ---------------
PROPERTY, AT COST - Notes 1 and 2
<S> <C> <C>
Building and Improvements $ 6,671,958 $ 7,784,767
Land 2,179,802 2,179,802
Predevelopment Costs 46,965 46,965
Deferred Costs 673,554 730,983
--------------- ---------------
9,572,279 10,742,517
Less Accumulated Depreciation
and Amortization (30 Years) (94,277) (1,057,364)
--------------- ---------------
PROPERTY, NET 9,478,002 9,685,153
--------------- ---------------
OTHER ASSETS
Cash and Cash Equivalents - Note 1 -0- 4,228
Cash Held in Escrow - Note 2 15,000 15,000
Deferred Rent Receivable - Note 1 1,080,778 365,574
Sublease Fee Receivable -0- 250,000
Receivable from Tenant 3,541 -0-
--------------- ---------------
TOTAL OTHER ASSETS 1,099,319 634,802
--------------- ---------------
$10,577,321 $10,319,955
=============== ===============
</TABLE>
LIABILITIES AND TENANTS' EQUITY
-------------------------------
<TABLE>
<CAPTION>
LIABILITIES
<S> <C> <C>
Mortgage Payable - Note 2 $10,263,748 $10,462,658
Mortgage Payable, Undeveloped
Land - Note 2 -0- 1,400,000
Accrued Interest Payable 75,909 118,794
Accounts Payable and Accrued Expenses 6,500 244,327
Payable, Affiliates - Note 3 46,277 18,810
--------------- ---------------
TOTAL LIABILITIES 10,392,434 12,244,589
PARTNERS' CAPITAL (DEFICIT) -0- (1,924,634)
CO-TENANTS' EQUITY - Note 4 184,887 -0-
--------------- ---------------
* See Note 1 regarding presentation. $10,577,321 $10,319,955
_______________
</TABLE>
The notes to financial statements are an
integral part of this statement.
-66-
<PAGE>
COLUMBIA PLACE (A TENANCY-IN-COMMON)
------------------------------------
STATEMENT OF INCOME
-------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1995/*/ 1994/*/
--------------- --------------
REVENUE
<S> <C> <C>
Rental Income - Notes 1 and 7 $ 1,277,736 $ 1,561,782
Sublease Fee Income - Note 7 560,004 1,051,217
Interest Income 313 900
--------------- --------------
TOTAL REVENUE 1,838,053 2,613,899
--------------- --------------
OPERATING EXPENSES
Management Fee - Note 3 21,600 15,353
General and Administrative 10,405 11,507
Real Property Taxes - Note 1 -0- 49,352
Real Property Taxes, Undeveloped
Land - Note 1 -0- 8,778
--------------- --------------
TOTAL OPERATING EXPENSES 32,005 84,990
--------------- --------------
OPERATING INCOME 1,806,048 2,528,909
--------------- --------------
DEBT SERVICE - Notes 2 and 4
Mortgage 1,119,509 1,158,804
Interest Expense,
Undeveloped Land 82,911 105,583
--------------- --------------
1,202,420 1,264,387
--------------- --------------
FUNDS GENERATED BY OPERATIONS 603,628 1,264,522
-------------- --------------
ADJUSTMENTS TO ARRIVE AT NET INCOME (LOSS)
Mortgage Principal Payments, Added Back 198,910 105,429
Depreciation and Amortization - Note 1 (236,518) (352,489)
Loss on Disposal of Tenant
Improvements - Note 1 -0- (2,516,787)
-------------- --------------
(37,608) (2,763,847)
-------------- --------------
NET INCOME (LOSS) - Note 5 $ 566,020 $(1,499,325)
============== ==============
* See Note 1 regarding presentation.
</TABLE>
_______________
The notes to financial statements are an
integral part of this statement.
-67-
<PAGE>
M.O.R. XXXVI ASSOCIATES LIMITED PARTNERSHIP
-------------------------------------------
STATEMENT OF PARTNERS' EQUITY
-----------------------------
<TABLE>
<CAPTION>
Period Ended Year Ended
August 15, December 31,
1995 1994
-------------- --------------
CAPITAL CONTRIBUTIONS
<S> <C> <C>
Prior Years $ 1,226,000 $ 1,226,000
Current Year 1,543,501 -0-
-------------- --------------
2,769,501 1,226,000
-------------- --------------
ACCUMULATED INCOME (LOSS)
Prior Years (373,738) 1,125,587
Current Period 359,703 (1,499,325)
-------------- --------------
(14,035) (373,738)
-------------- --------------
DISTRIBUTIONS - Note 4
Prior Years (2,776,896) (2,584,848)
Current Year -0- (192,048)
-------------- --------------
(2,776,896) (2,776,896)
-------------- --------------
TOTAL PARTNERS' EQUITY (DEFICIT) $ (21,430) $(1,924,634)
============== =============
</TABLE>
COLUMBIA PLACE (A TENANCY-IN-COMMON)
------------------------------------
STATEMENT OF CO-TENANTS' EQUITY
-------------------------------
<TABLE>
<S> <C> <C>
BEGINNING EQUITY $ (21,430) ---
ADD: NET INCOME FOR PERIOD 8/16/95 - 12/31/95 206,317 ---
---------------
ENDING EQUITY $ 184,887 ---
===============
</TABLE>
- ------------
The notes to financial statements are an
integral part of this statement.
-68-
<PAGE>
COLUMBIA PLACE (A TENANCY-IN-COMMON)
------------------------------------
STATEMENT OF CASH FLOWS
-----------------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1995* 1994*
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES.
Net Income (Loss) $ 566,020 $(1,499,325)
-------------- --------------
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating Activities
Depreciation and Amortization 236,518 352,489
Loss on Disposal of Tenant Improvements -0- 2,516,787
Change in Tenant Receivables (3,541) 6,877
Increase in Deferred Rent (715,204) (365,574)
Increase in Accrued Interest Payable 81,815 28,094
Change in Accounts Payable and Accrued Expenses (237,827) 239,180
Change in Sublease Fee Receivable 250,000 (250,000)
-------------- --------------
Total Adjustments (388,239) 2,527,853
-------------- --------------
Net Cash Provided by Operating Activities 177,781 1,028,528
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Deferred Costs -0- (730,633)
Additions to Building (29,367) -0-
Increase in Cash Held in Escrow -0- (15,000)
-------------- --------------
Net Cash Used by Investing Activities (29,367) (745,633)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Mortgage Principal Payments (198,910) (105,429)
Distributions -0- (173,238)
Capital Contributions 18,801 -0-
Affiliate Loans 27,467 -0-
-------------- --------------
Net Cash Used by Financing Activities (152,642) (278,667)
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,228) 4,228
CASH AND CASH EQUIVALENTS, BEGINNING 4,228 -0-
-------------- --------------
CASH AND CASH EQUIVALENTS, ENDING $ -0- $ 4,228
============== ==============
(Continued)
* See Note 1 regarding presentation.
</TABLE>
______________
The notes to financial statements are an integral part of this statement.
-69-
<PAGE>
COLUMBIA PLACE (A TENANCY-IN-COMMON)
------------------------------------
STATEMENT OF CASH FLOWS
-----------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1995* 1994*
-------------- ---------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<S> <C> <C>
Cash Paid During the Year for Interest $ 920,599 $1,130,863
============== ===============
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Conversion of Mortgage Payable and Accrued
Interest to Capital
Mortgage Payable $1,400,000 $ -0-
Accrued Interest 124,692 -0-
-------------- ---------------
$1,524,692 $ -0-
=============== ===============
* See Note 1 regarding presentation.
</TABLE>
_______________
The notes to financial statements are an integral part of this statement.
-70-
<PAGE>
COLUMBIA PLACE (A TENANCY-IN-COMMON)
------------------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
DECEMBER 31, 1995
-----------------
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
------------
The financial information presented herein represents the accounts of
Columbia Place (the "Property"). On August 16, 1995, the partners of
M.O.R. XXXVI Associates Limited Partnership entered into a tenancy-in-
common agreement which effectively terminated the Partnership.
Simultaneously, Copley Properties, Inc. and Manekin 36 Limited
Partnership (collectively known as the "co-tenants") formed a co-
tenancy and each own an interest in the property known as Columbia
Place. The tenancy-in-common agreement provides for ownership interest
of 78% for Copley Properties, Inc. and 22% for Manekin 36 Limited
Partnership. Prior to August 16, 1995, Copley Properties, Inc. and
Manekin 36 Limited Partnership were each 50% partners in M.O.R. XXXVI
Associates Limited Partnership.
Presentation
------------
The balance sheet as of December 31, 1994, is that of M.O.R. XXXVI
Associates Limited Partnership and is presented for comparative
purposes. Likewise, the operating statements for the limited
partnership for 1994 are presented for comparative purposes. The 1995
operating statements for Columbia Place include the operations of the
limited partnership through August 15, 1995.
Property
--------
The tenants own and operate an office/warehouse building in Columbia,
Maryland containing approximately 115,000 square feet of leasable area,
leased to the BDM Corporation. The building became operational in April
1988. In September 1994, BDM vacated and subleased the building to
Ceridian Corporation. Ceridian has an option to lease contiguous
property; this expansion parcel can accommodate a building of 54,000
square feet. See Note 7 for the terms of the sublease with Ceridian.
Rental Income
-------------
Rental income is being recognized on a straight-line basis over the
term of the lease. Excess of the rental income recognized over the
amount stipulated in the lease is shown as deferred rent receivable.
Expansion Parcel Costs and Related Interest and Taxes
-----------------------------------------------------
Certain preliminary costs incurred pertaining to the expansion parcel
of land described above were capitalized, and the amount is reflected
as predevelopment costs. Interest and real property tax expenses
pertaining to the undeveloped expansion parcel are being expensed as
incurred. See Note 2 for related debt.
Depreciation
------------
Building costs and tenant improvements were depreciated using the
straight-line method over the estimated useful lives of 50 years
through August 15, 1995. Effective August 16, 1995, depreciation is
based on an estimated useful life of 30 years.
Effective August 16, 1995, M.O.R. XXXVI Associates Limited Partnership
was terminated upon execution of the tenancy-in-common agreement. As a
result of this termination, the building and improvements were restated
on the books to their net book value, and depreciation commenced as if
the restated amount was placed in service on August 16, 1995.
Tenant Expenses/Reimbursements
------------------------------
Certain reimbursed expenses such as property taxes, cleaning, utilities
and HVAC are reflected net of tenant reimbursement.
-71-
<PAGE>
COLUMBIA PLACE (A TENANCY-IN-COMMON)
-----------------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
DECEMBER 31, 1995
-----------------
Note 1 - Cash and Cash Equivalents
-------------------------
(Cont.) Columbia Place considers all highly liquid debt instruments purchased
with a maturity of 3 months or less to be cash equivalents.
Amortization
------------
Various deferred costs are being amortized using the straight-line
method as follows:
<TABLE>
<CAPTION>
Amount Amortization Period
--------- -----------------------
<S> <C> <C>
Leasing Costs $506,905 12 Years (Lease Term)
Mortgage Costs 166,649 15 Years
---------
$673,554
=========
</TABLE>
Income Taxes
------------
Prior to August 16, 1995, the Property was owned by M.O.R. XXXVI
Associates Limited Partnership. Partnerships, as such, are not subject
to income taxes. The individual partners and co-tenants are required to
report their respective shares of income or loss and other tax items on
their income tax returns.
Loss on Disposal of Tenant Improvements
---------------------------------------
Loss on disposal of tenant improvements of $2,516,787 in 1994
represents the estimated net book value of tenant improvements removed
to prepare the space for Ceridian Corporation (see Note 7).
Note 2 - MORTGAGES PAYABLE
American General Investment Corporation
---------------------------------------
The property is encumbered by a nonrecourse mortgage held by American
General Investment Corporation in the amount of $11,000,000. The terms
of the loan were modified by an agreement effective December 1, 1994.
Pertinent terms of the loan are as follows:
Mortgage Amount $11,000,000
Outstanding Balance, 12/31/95 $10,263,748
Principal Amortization to Date $736,252
Origination Date April 28, 1988
Annual Payment $1,171,500 - Old
$1,119,509 - New
Interest Rate 10.125% - Old
8.875% - New
Maturity Date (20-Year Amortization) December 31, 2009
Balloon Payment Upon Maturity $4,508,804
-72-
<PAGE>
COLUMBIA PLACE (A TENANCY-IN-COMMON)
------------------------------------
NOTES TO FINANCIAL STATEMENT - CONTINUED
----------------------------------------
DECEMBER 31, 1995
-----------------
Note 2 - Under the terms of the loan modification agreement, a deposit of
(Cont.) $15,000 was made into an interest bearing escrow account; additional
deposits are required in an amount equal to all 1995 funds in excess of
normal operating expenses and required principal and interest payments.
This escrow account is to be used for payment of required principal and
interest payments if operating cash flow is insufficient. Any funds
remaining in the escrow account in excess of $15,000 plus accrued
interest at January 1, 1996, will be applied to the outstanding
principal balance.
Principal maturities for the mortgage during the succeeding 5 years are
as follows :
1996 $217,299
1997 237,388
1998 259,335
1999 283,311
2000 309,903
Copley Properties, Inc. (CPI)
-----------------------------
The second mortgage previously held by Mercantile-Safe Deposit & Trust
Company in the amount of $1,400,000 was assigned to Copley Properties,
Inc. on October 31, 1986. In conjunction with the tenancy-in-common
agreement dated August 16, 1995, CPI contributed the note and accrued
interest as capital. Interest was payable monthly at the prime rate
plus .5% per annum. The note was secured by a first mortgage lien on
approximately 4.18 acres of land known as the "expansion parcel" which
is adjacent to the office building. Interest incurred during 1995 and
1994 of $82,911 and $105,583, respectively, has been charged to
operations. As of December 31, 1994, accrued interest payable on the
second mortgage amounted to $41,781.
Note 3 - RELATED PARTY TRANSACTIONS
The co-tenants have various arrangements under contract with Manekin
Corporation, an entity affiliated with Manekin 36 Limited Partnership.
Management Fee
--------------
The co-tenants have entered into an agreement with Manekin Corporation
to act as management agent for the property. The management agreement,
which expires on December 31, 1996, provides for a management fee equal
to $1,800 per month.
Payable, Affiliates
-------------------
Columbia Place participates in a central disbursing cash account with
various affiliated entities. As of December 31, 1995, funds used by the
co-tenancy in excess of its cash balance amounted to $27,467. Also,
distributions payable to Manekin 36 Limited Partnership amounted to
$18,810 as of December 31, 1995 and 1994.
Note 4 - TENANTS' EQUITY
Capital Investment
------------------
During 1988, Copley Properties, Inc. provided equity in the amount of
$1,225,000, in exchange for a 50% interest in M.O.R. XXXVI Limited
Partnership. On August 15, 1995, Copley Properties, Inc. contributed
the second mortgage of $1,400,000 plus accrued interest of $124,692.
-73-
<PAGE>
COLUMBIA PLACE (A TENANCY-IN-COMMON)
------------------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
DECEMBER 31, 1995
-----------------
Note 5 - TAX ACCOUNTING
Tax accounting varies from financial accounting. The following is a
reconciliation of financial accounting income to tax basis income:
<TABLE>
<CAPTION>
Current Prior
Year Years Total
----------- ----------- -----------
<S> <C> <C> <C>
Net Income (Loss),
Financial Accounting $ 566,020 $ (373,738) $ 192,282
Additional Depreciation (121,194) (814,831) (936,025)
Amortization of Construction
Period Interest and Taxes -0- (246,797) (246,797)
Transfer and Recording
Taxes and Other Items -0- (42,418) (42,418)
Loss on Disposal of
Tenant Improvements -0- 2,516,787 2,516,787
Deferred Rent (715,204) (365,574) (1,080,778)
----------- ----------- ------------
Taxable Income $(270,378) $ 673,429 $ 403,051
=========== =========== ============
</TABLE>
Note 6 - ALLOCATION OF INCOME (LOSS)
The 1995 net income (loss) was allocated between the partnership and
the co-tenancy.
Note 7 - LEASES
The building was 100% leased to BDM Corporation under a 10-year lease
term which commenced in April 1988. On September 1, 1994, BDM amended
its lease and executed a lease/sublease agreement which provided for
the sublease of the building to Ceridian Corporation (Ceridian) for the
remainder of its lease term. Upon expiration of BDM's lease term,
Ceridian will continue to lease the building under the lease/sublease
agreement. The lease/sublease agreement requires BDM to make payments
to the co-tenants as follows:
Reimbursement of outlays made
or to be made on behalf of BDM $ 841,777
-------------
Sublease Fee:
Up-front payments 864,549
Monthly payments of $46,667 from
9/1/94 to 3/31/98 2,006,681
-------------
2,871,230
-------------
Total $3,713,007
=============
The $864,549 payment was recognized as income in 1994 along with the 4
monthly payments for September through December 1994 ($186,668)
totaling $1,051,217. Sublease fee payments made by BDM in 1995 totaled
$560,004.
-74-
<PAGE>
COLUMBIA PLACE (A TENANCY-IN-COMMON)
------------------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
DECEMBER 31, 1995
-----------------
Note 7 - Ceridian's lease term is for a period of 15 years commencing on
(Cont.) September 18, 1994, with free rent through December 31, 1994, and a
cancellation option on December 31, 2006. The average annual rent
(straight-line) for the term of the lease is $1,277,736.
The following is a schedule of future minimum lease payments to be
received from Ceridian under the noncancelable operating
lease/sublease:
1996 $ 1,056,669
1997 1,152,730
1998 1,371,461
1999 1,444,371
2000 1,444,371
2001 - 2006 8,666,224
--------------
$ 15,135,826
==============
-75-
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
--------------------
The Company has nothing to report under this Item.
- 76 -
<PAGE>
PART III
--------
Item 10. Directors of the Registrant.
---------------------------
The following table sets forth certain information as of December 31,
1995, with respect to each director, including offices of the Company held by
him, his principal occupation, the names of the other publicly-held companies
for which he serves as a director, his age, the number of shares of Common Stock
of the Company which he reported were beneficially owned by him and the
percentage of all outstanding shares of Common Stock owned by him. Each person,
other than Mr. Griefen and Mr. Wheeler, has been a director since 1985. Mr.
Griefen has been a director since January 1, 1991, and Mr. Wheeler had been a
director since July 14, 1993.
<TABLE>
<CAPTION>
Positions with the Company,
Principal Occupation(s) During Last Five Years Shares of Percentage of
Name and Directorships Age Common Stock Common Stock Outstanding
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stephen H. Anthony President of the Company from 1987 to 1993; 58 13,657(1) *
Managing Director of Copley Real Estate
Advisors, Inc. from 1987 to 1994.
M. Colyer Crum James R. Williston Professor of Investment 63 640.7526 *
Management at Harvard Graduate School
of Business Administration since 1971;
Director, Cambridge Bancorp, Sun Life
Assurance Company of Canada and serves
on the board of directors of numerous
investment companies sponsored by
Merrill Lynch.
R. John Griefen Formerly a principal in the firm of 81 1,000 *
Reynolds, Vickery, Messina &
Griefen; from 1976 to 1985,
Partner in Hines Industrial, an
affiliate of Gerald D. Hines
of Houston, Texas.
</TABLE>
- 77 -
<PAGE>
<TABLE>
<CAPTION>
Positions with the Company,
Principal Occupation(s) During Last Five Years Shares of Percentage of
Name and Directorships Age Common Stock Common Stock Outstanding
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William F. McCall, Jr. Chairman, McCall & Almy, Inc.; 61 1,000 *
formerly Chairman of the Board and
Chief Executive Officer of The Leggat
McCall Companies from its founding in
1965 through 1989; Director of Citizens
Bank of Massachusetts and Beacon
Properties Corporation
Joseph W. O'Connor (3) Chairman of the Board of Directors of 49 23,140.1377 (2) *
the Company since 1985; President of
the Company from 1985-1987; President and
Chief Executive Officer of Copley Real
Estate Advisors, Inc. since 1982.
Joseph F. Turley Former President and Chief Operating 70 2,000 *
Officer of The Gillette Company;
Director, The Gillette Company and
numerous investment companies
sponsored by New England Mutual Life
Insurance Company.
Steven E. Wheeler (3) President and Chief Executive Officer 48 -- (2) *
of the Company since July 1993;
Managing Director of Copley Real
Estate Advisors, Inc. since July 1993;
Director, Anika Research, Inc. (See Item
4a; Executive Officers of the Registrant)
* Less than 1%.
</TABLE>
(1) Does not include 2,400 shares beneficially owned by a charitable trust of
which Mr. Anthony is a trustee, as to which he disclaims beneficial
ownership.
(2) Does not include 7,500 shares of Common Stock and one share of Class A
Common Stock beneficially owned by Copley Real Estate Advisors, Inc., of
which Mr. O'Connor is an officer and director and Mr. Wheeler was an
officer on December 31, 1995.
(3) Effective February 29, 1996, Steven E. Wheeler resigned from the positions
of Director, President and Chief Executive Officer, and Joseph W. O'Connor
assumed the duties of President and Chief Executive Officer.
- 78 -
<PAGE>
Item 11. Executive Compensation.
----------------------
The officers of the Company receive no compensation for their services
as employees of the Company. Each Independent Director (as defined in the
Company's By-Laws) receives a fee of $12,500 per annum for services as a
director plus $2,500 for each meeting of the Board of Directors or a committee
of the Board attended in person, and $500 for each meeting of the Board of
Directors or a committee of the Board attended by telephone. Messrs. Anthony,
O'Connor and Wheeler received no compensation paid by Copley for their services
as directors of the Company. The Company reimburses the directors and officers
for their expenses incurred in connection with their duties as directors or
officers of the Company.
- 79 -
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following table sets forth, to best of the Company's knowledge,
the beneficial owners of more than 5% of the Company's Common Stock and the
stock ownership of all directors and officers of the Company as a group, both as
of December 31, 1995:
<TABLE>
<CAPTION>
Shares of Common Percentage of Common
Name and Address of Stock Beneficially Stock Outstanding as of
Beneficial Owner Owned December 31, 1995
- ---------------- ------------------ -----------------------
<S> <C> <C>
EastGroup Properties, Inc. (1) 529,000 14.76%
300 One Jackson Place
188 East Capitol Street
Jackson, Mississippi 39201
All directors and officers
as a group 51,339 (2) 1.44% (2)
</TABLE>
(1) According to the Schedule 13D filed by EastGroup Properties
("EastGroup") with the Company on September 15, 1995.
(2) Includes 7,500 shares of Common Stock and one share of Class A
Common Stock owned by Copley Real Estate Advisors, Inc., the Company's asset
management advisor, with which some of the Company's directors and all of its
officers are affiliated. Also includes 2,400 shares of Common Stock owned by a
charitable trust of which a director of the Company is a trustee, as to which he
disclaims beneficial ownership.
- 80 -
<PAGE>
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Messrs. O'Connor and Wheeler and all of the officers of the Company are
employees of Copley Real Estate Advisors, Inc. (the "Advisor"), which provides
the Company with advice with respect to the acquisition, holding and disposition
of investments, acts as the Company's agent in making and disposing of
investments and conducts the Company's day-to-day investment operations. During
the fiscal year ended December 31, 1995, the Advisor earned fees for these
services in the amount of $451,863; $272,579 was paid currently and $179,284 was
deferred and becomes payable only after the Company has achieved a specified
return to shareholders, or refinancing or sale proceeds are distributed to
shareholders. Payment of the deferred fee would also become payable upon
termination or resignation of the Advisor. Upon the event of Merger, the Advisor
agreed to the termination of the Advisory Agreement and relinquishment of its
right to, and interest in, the Class A share in consideration of payment by the
Company of 95% of the amount of the unpaid incentive advisory fees. In addition,
the Advisor was reimbursed $40,395 for out-of-pocket expenses.
- 81 -
<PAGE>
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
(a) The following documents are filed as part of this report:
(1) Financial Statements - The Financial Statements listed on
the accompanying Index to Financial Statements and Schedules are filed
as a part of this Annual Report.
(2) Financial Statement Schedules - The Financial Statement
Schedules listed on the accompanying Index to Financial Statements and
Schedules are filed as part of this Annual Report.
(3) Exhibits - The Exhibits listed in the accompanying
Exhibit Index are filed as a part of this Annual Report and
incorporated in this Annual Report as set forth in said Index.
(b) Reports on Form 8-K. On October 6, 1995, the Company filed one
current report on Form 8-K dated September 28, 1995, reporting item No.
5 "Other Events," in which the Company reported that on September 20,
1995 it had amended the rights agreement between the Company and State
Street Bank & Trust Company.
- 82 -
<PAGE>
COPLEY PROPERTIES, INC.
-----------------------
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
-------------------------------------------
(Information Required by Item 8 of Form 10-K)
FINANCIAL STATEMENTS
--------------------
The consolidated balance sheets as of December 31, 1995 and 1994, the related
statements of operations and cumulative deficit and statements of cash flows for
the years ended December 31, 1995, 1994, and 1993, together with the applicable
report of independent public accountants, are included in Item 8.
SCHEDULES
---------
Schedule III - Real Estate and Accumulated Depreciation -- December 31, 1995
Schedule IV - Mortgage Loans on Real Estate -- December 31, 1995
All other schedules have been omitted because they are inapplicable, not
required or the information is included in the financial statements or notes
thereto.
- 83 -
<PAGE>
Exhibit Index
-------------
Exhibit Page
Number Number
- ------- ------
2 Agreement and Plan of Merger dated as of *
February 12, 1996 between Copley Properties,
Inc. and EastGroup Properties.
3 (i) Articles of Incorporation. Restated *
Certificate of Incorporation of Copley
Properties, Inc. dated June 24, 1985;
Certificate of Amendment to the Certificate of
Incorporation of Copley Properties, Inc. dated
May 9, 1990; Certificate of Amendment to the
Restated Certificate of Incorporation of Copley
Properties, Inc. dated June 16, 1994.
3 (ii) By-Laws. By-Laws of Copley Properties, Inc. as *
amended to date.
4 Rights Agreement dated as of June 28, 1990 *
between Copley Properties, Inc. and State
Street Bank & Trust Company as amended
September 20, 1995.
* Previously filed and incorporated herein by reference.
- 84 -
<PAGE>
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.
COPLEY PROPERTIES, INC.
Date: March 15, 1996 By: /s/ Joseph W. O'Connor
-----------------------
Joseph W. O'Connor
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Joseph W. O'Connor President, Chief Executive March 15, 1996
- --------------------------
Joseph W. O'Connor Officer and Chairman of the Board
/s/ Daniel C. Mackowiak Vice President and Treasurer and March 15, 1996
- ---------------------------
Daniel C. Mackowiak Principal Financial and Accounting
Officer of the Company
/s/ Peter P. Twining Vice President and March 15, 1996
- --------------------------- Secretary
Peter P. Twining
/s/ Stephen H. Anthony Director of the Company March 15, 1996
- ---------------------------
Stephen H. Anthony
/s/ M. Colyer Crum Director of the Company March 15, 1996
- ---------------------------
M. Colyer Crum
/s/ R. John Griefen Director of the Company March 15, 1996
- ---------------------------
R. John Griefen
/s/ William F. McCall, Jr. Director of the Company March 15, 1996
- ---------------------------
William F. McCall, Jr.
/s/ Joseph F. Turley Director of the Company March 15, 1996
- ---------------------------
Joseph F. Turley
</TABLE>
- 85 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF COPLEY PROPERTIES, INC., FOR THE PERIOD
ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 5,716,300
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 74,055,370
<DEPRECIATION> 5,752,574
<TOTAL-ASSETS> 81,517,257
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 39,333,349
0
0
<COMMON> 4,007,500
<OTHER-SE> 35,058,446
<TOTAL-LIABILITY-AND-EQUITY> 81,517,257
<SALES> 0
<TOTAL-REVENUES> 19,574,577
<CGS> 0
<TOTAL-COSTS> 10,135,773
<OTHER-EXPENSES> 1,722,412
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,390,343
<INCOME-PRETAX> 2,389,300
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,389,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,389,300
<EPS-PRIMARY> .67
<EPS-DILUTED> .67
<FN>
<F1>NOT APPLICABLE AS THE COMPANY PRESENTS AN UNCLASSIFIED BALANCE SHEET DUE TO THE
NATURE OF ITS INDUSTRY.
</FN>
</TABLE>
