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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-15748
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 06-1149695
(State of Organization) (I.R.S. Employer Identification No.)
900 Cottage Grove Road, South Building
Bloomfield, Connecticut 06002
(Address of principal executive offices)
Telephone Number: (860) 726-6000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
1
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PART I - FINANCIAL INFORMATION
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1996 1995
ASSETS (UNAUDITED) (AUDITED)
<S> <C> <C>
Property and improvements, at cost:
Land and improvements $ 9,557,012 $ 9,552,353
Buildings 27,323,577 27,323,577
Tenant improvements 5,290,988 5,257,538
Furniture and fixtures 826,755 820,904
--------------- ---------------
42,998,332 42,954,372
Less accumulated depreciation 14,129,000 13,104,206
--------------- ---------------
Net property and improvements 28,869,332 29,850,166
Cash and cash equivalents 3,492,956 3,227,503
Accounts receivable (net of allowance of $71,053 in 1996
and $15,158 in 1995) 317,657 300,941
Prepaid expenses and other assets 9,790 9,760
Deferred charges, net 436,872 492,190
--------------- ---------------
Total $ 33,126,607 $ 33,880,560
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses (including $60,663
in 1996 and $24,532 in 1995 due to affiliates) $ 439,109 $ 261,013
Tenant security deposits 118,425 113,188
Unearned income 19,831 25,032
Deferred acquisition fees due to affiliates 2,500,000 2,500,000
--------------- ---------------
Total liabilities 3,077,365 2,899,233
--------------- ---------------
Venture partner's equity in joint venture 2,752,841 2,679,392
--------------- ---------------
Partners' capital:
General Partner:
Capital contributions 1,000 1,000
Cumulative net income 53,795 42,670
--------------- ---------------
54,795 43,670
--------------- ---------------
Limited partners (200,000 Units):
Capital contributions, net of offering costs 45,463,209 45,463,209
Cumulative net income 5,325,691 4,224,350
Cumulative cash distributions (23,547,294) (21,429,294)
--------------- ---------------
27,241,606 28,258,265
--------------- ---------------
Total partners' capital 27,296,401 28,301,935
--------------- ---------------
Total $ 33,126,607 $ 33,880,560
=============== ===============
The Notes to Consolidated Financial Statements are an integral part of these statements.
2
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<CAPTION>
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Income:
Base rental income $ 1,115,848 $ 1,155,735 $ 3,391,878 $ 3,480,186
Other income 195,324 226,796 594,673 684,131
Interest income 38,284 43,523 113,954 125,498
------------- ------------- ------------- -------------
1,349,456 1,426,054 4,100,505 4,289,815
------------- ------------- ------------- -------------
Expenses:
Property operating expenses 417,802 423,170 1,294,968 1,229,371
General and administrative 103,587 91,492 311,229 273,866
Fees and reimbursements to affiliates 44,930 49,132 142,379 128,282
Provision for doubtful accounts 49,152 5,458 56,659 9,217
Depreciation and amortization 368,777 412,377 1,109,355 1,229,080
------------- ------------- ------------- -------------
984,248 981,629 2,914,590 2,869,816
------------- ------------- ------------- -------------
Income inclusive of venture
partner's share of venture operations 365,208 444,425 1,185,915 1,419,999
Venture partner's share of venture net income 33,696 39,010 73,449 123,142
------------- ------------- ------------- -------------
Net income $ 331,512 $ 405,415 $ 1,112,466 $ 1,296,857
============= ============= ============= =============
Net income:
General Partner $ 3,315 $ 4,055 $ 11,125 $ 12,969
Limited partners 328,197 401,360 1,101,341 1,283,888
------------- ------------- ------------- -------------
$ 331,512 $ 405,415 $ 1,112,466 $ 1,296,857
============= ============= ============= =============
Net income per Unit $ 1.64 $ 2.01 $ 5.51 $ 6.42
============= ============= ============= =============
Cash distribution per Unit $ 3.42 $ 3.75 $ 10.59 $ 11.70
============= ============= ============= =============
The Notes to Consolidated Financial Statements are an integral part of these statements.
3
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<CAPTION>
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,112,466 $ 1,296,857
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred rent credits 15,894 14,738
Provision for doubtful accounts 56,659 9,217
Depreciation and amortization 1,109,355 1,229,080
Venture partner's share of venture's operations 73,449 123,142
Accounts receivable (73,375) 70,942
Accounts payable 198,828 271,392
Other, net 20,314 16,806
--------------- ---------------
Net cash provided by operating activities 2,513,590 3,032,174
--------------- ---------------
Cash flows from investing activities:
Distribution to joint venture partner -- (521,600)
Purchases of property and improvements (82,050) (112,375)
Payment of leasing commissions (45,137) (9,171)
--------------- ---------------
Net cash used in investing activities (127,187) (643,146)
--------------- ---------------
Cash flows from financing activities:
Cash distribution to limited partners (2,120,950) (2,342,030)
--------------- ---------------
Net increase in cash and cash equivalents 265,453 46,998
Cash and cash equivalents, beginning of year 3,227,503 3,404,809
--------------- ---------------
Cash and cash equivalents, end of period $ 3,492,956 $ 3,451,807
=============== ===============
The Notes to Consolidated Financial Statements are an integral part of these statements.
4
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CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Readers of this quarterly report should refer to CIGNA INCOME REALTY-I
LIMITED PARTNERSHIP'S ("the Partnership") audited financial statements for the
year ended December 31, 1995 which are included in the Partnership's 1995 Annual
Report, as certain footnote disclosures which would substantially duplicate
those contained in such audited financial statements have been omitted from this
report.
1. BASIS OF ACCOUNTING
A) BASIS OF PRESENTATION: The accompanying financial statements were prepared
in accordance with generally accepted accounting principles, and reflect
management's estimates and assumptions that affect the reported amounts. It
is the opinion of management that the financial statements presented
reflect all the adjustments necessary for a fair presentation of the
financial condition and results of operations.
B) RECENT ACCOUNTING PRONOUNCEMENT: In 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" (the "Statement"). The Statement requires a
writedown to fair value when long-lived assets to be held and used are
impaired. Long-lived assets to be disposed of, including real estate held
for sale, must be carried at the lower of cost or fair value less costs to
sell. In addition, the Statement prohibits depreciation of long-lived
assets to be disposed. Adoption of the Statement in the first quarter of
1996 had no effect on the Partnership's results of operations, liquidity
and financial condition.
C) CASH AND CASH EQUIVALENTS: Short-term investments with a maturity of three
months or less at the time of purchase are reported as cash equivalents.
2. CONSOLIDATED JOINT VENTURE - SUMMARY INFORMATION
The Partnership owns a 73.92% interest in the Westford Office Venture which
owns the Westford Corporate Center in Westford, Massachusetts. The general
partner of the Partnership's joint venture partner is an affiliate of the
General Partner.
<TABLE>
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Venture operations information:
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Total income of venture $ 465,585 $ 478,526 $ 1,346,746 $ 1,452,241
Net income of venture 129,203 149,575 281,630 472,168
</TABLE>
<TABLE>
<CAPTION>
Venture balance sheet information:
September 30, December 31,
1996 1995
<S> <C> <C>
Total assets $ 11,549,208 $ 11,280,276
Total liabilities 739,300 751,999
</TABLE>
The Venture paid a distribution to the venturers of $2,000,000 in 1995, of
which the Partnership's share was $1,478,400.
5
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CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
<TABLE>
<CAPTION>
3. DEFERRED CHARGES
Deferred charges consist of the following:
September 30, December 31,
1996 1995
<S> <C> <C>
Deferred leasing commissions $ 1,104,145 $ 1,059,008
Accumulated amortization (688,963) (604,402)
--------------- ----------------
415,182 454,606
Deferred rent credits 21,690 37,584
--------------- ---------------
$ 436,872 $ 492,190
=============== ===============
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<TABLE>
<CAPTION>
4. TRANSACTIONS WITH AFFILIATES
An affiliate of the General Partner provided investment property
acquisition services to the Partnership for fees of $2,500,000 which will be
payable from adjusted cash from operations after priority distributions to the
Partners or, if necessary, from sales proceeds.
Other fees and expenses incurred by the Partnership related to the General
Partner or its affiliates are as follows:
Three Months Ended Nine Months Ended Unpaid at
September 30, September 30, September 30,
------------- ------------ -------------
1996 1995 1996 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Property management fees(a)(b) $ 26,849 $ 29,406 $ 83,143 $ 88,421 $ 18,581
Reimbursement (at costs)
for out-of-pocket expenses 18,081 19,726 59,236 39,861 42,082
------------ ------------- ----------- ------------ ------------
$ 44,930 $ 49,132 $ 142,379 $ 128,282 $ 60,663
============ ============= =========== ============ ============
</TABLE>
(a) Included in property management fees is $3,501 and $3,613 for the three
months ended September 30, 1996 and 1995 respectively, and $10,499 and
$11,026 for the nine months ended September 30, 1996 and 1995,
respectively, attributable to the venture partner's share of the Westford
Office Venture.
(b) Does not include on-site management fees earned by independent property
management companies of $45,040 and $50,102 for the three months ended
September 30, 1996 and 1995, respectively, and $142,220 and $149,012 for
the nine months ended September 30, 1996 and 1995, respectively. On-site
property management services have been contracted by an affiliate of the
General Partner on behalf of the Partnership and are paid directly by the
Partnership to the third party companies.
5. SUBSEQUENT EVENTS
On November 15, 1996, the Partnership paid a distribution of $624,000 to
the limited partners.
6
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CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Partnership's cash and cash equivalents and the
Partnership's share of cash and cash equivalents from the Westford Office
Venture totaled $1,721,611 and $1,309,378, respectively. The Partnership's cash
and cash equivalents were available for working capital requirements, cash
reserves and distributions to partners. The Partnership paid the first quarter
cash distribution of $684,000 or $3.42 per Unit on May 15, 1996, the second
quarter cash distribution of $684,000 or $3.42 per Unit on August 15, 1996, and
the third quarter cash distribution of $624,000 or $3.12 per Unit on November
15, 1996, representative of each quarter's adjusted cash from operations,
inclusive of adjustments to cash reserves. The Partnership's distributions from
operations for the remainder of the year should reflect actual operating results
subject to changes in reserves for liabilities or leasing risk.
Piedmont Plaza Shopping Center produced adjusted cash from operations for
the third quarter of $119,000 after $5,400 of leasing costs. During the quarter,
the property signed a renewal for 1,200 square feet and two new leases
representing 4,600 square feet, increasing leased space to 97%. In reaction to
the reluctance of the property's anchor, Builders Square, to pay 100% of its
billed common area maintenance (CAM) charges, the Partnership has set up a
reserve for Builders Square CAM accounts receivable and has adjusted the CAM
billing accrual for 1996. The total impact of the CAM receivable adjustments to
the third quarter income statement was approximately $53,000. The Partnership
plans to hold the property for the short-term to allow the retail market and
K-Mart (the parent company of the property's anchor tenant) to show signs of
improvement. The Partnership also plans to remain open to opportunities to sell
the property if investor interest returns.
At Westford Corporate Center, adjusted cash from operations for the second
quarter was $270,000 ($199,600 attributable to the Partnership's interest). The
property remains 100% occupied. No capital expenditures have been planned for
the year. During the first quarter, a portion of the 1995 capital expenditures
was reimbursed by the tenants. In addition, adjustments were made to reduce
other income (and the portion of account receivable representing 1995 tenant
reimbursement billings) based on the final calculation of actual 1995 tenant
reimbursable operating expenses. The 1996 estimated billings for tenant expense
reimbursement are based on the annual budget.
Adjusted cash from operations at Woodlands Tech for the third quarter was
$85,000 after $61,700 of capital improvements and tenant leasing costs, and a
$40,000 reduction to cash reserves for leasing costs. After factoring in the
quarter's leasing activity, the property's leased occupancy ended the quarter at
93%. During the third quarter, the property met its leasing goal by leasing the
10,069 square foot vacancy from the first quarter as well as executing a renewal
with a tenant occupying 3,321 square feet. Also, operations for the third
quarter benefitted from the move in of a new 7,522 square foot tenant on July 1,
1996. The lease was executed during the second quarter. Leasing costs estimates
for the remainder of the year have been estimated at approximately $63,000.
Overlook's average occupancy dropped from 98% for the second quarter to 92%
for the third quarter. Year-to-date occupancy averaged 96% for both 1996 and for
the same period of the prior year. The drop in occupancy has been attributed to
heavy competition from new projects currently in lease-up, as well as the timing
of tenant turnover. Adjusted cash from operations for the third quarter totaled
approximately $239,000 including $14,000 of capital expenditures and a $5,000
reduction to cash reserves for capital improvements. Capital expenditures have
been estimated to total approximately $18,000 to $22,000 for the year. The
market in which Overlook operates continues to expand, adding high-end
multi-family, new single family developments and retail. Six properties in the
North Scottsdale market are currently in the lease-up phase and competition from
home ownership is strong as single family home development continues to
increase. In addition to completed projects, approximately 600 multi-family
units are under construction and approximately 1,100 more units are planned. The
Partnership is currently reviewing the property's current and estimated future
operations, rental rate trends in the market, as well as the property's position
in the market, to determine the best window
7
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CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
of opportunity to time a sale of the property. Considering that the planned
liquidation of the Partnership's properties is relatively short-term, the
Partnership may conclude to pursue a sale as early as the first half of 1997.
RESULTS OF OPERATIONS
Rental income decreased approximately $40,000 and $88,000 for the three and
nine months ended September 30, 1996, respectively, as compared with the same
periods of 1995. Woodland Tech lost a large tenant in the first quarter of 1996
and received a $22,000 lease termination fee in the second quarter of 1995,
leading to the $19,000 and $86,000 decrease in rental income for the three and
nine months, respectively. A tenant change at Westford that included a lower
base rate contributed approximately $23,000 and $52,000 to the decrease.
Overlook recorded a $41,000 increase for the nine months, offsetting a portion
of the rental income decrease. The rental rate increases implemented throughout
the year at Overlook accounted for the improvement over the nine-month period,
and also compensated for the third quarter drop in average occupancy.
Other income decreased for the three and nine months ended September 30,
1996, as compared with the same periods of 1995. At Westford, a $42,000
adjustment was recorded in the first quarter of 1996 because the calculation of
actual 1995 billable tenant expense recoveries for common area maintenance (CAM)
was less than the estimated amount accrued and billed throughout 1995. In
addition, the amount billed to tenants for property taxes declined $14,000 as a
result of Westford's lower tax expense. At Piedmont, the calculation of actual
billable CAM was completed during the third quarter 1996 and an adjustment was
recorded to reduce other income and accounts receivable. Based on the adjustment
for 1995 CAM billings, the Partnership reduced the 1996 CAM accrual during the
third quarter. The two CAM adjustments reduced other income at Piedmont Plaza by
$23,000 for the three and nine months ending September 30, 1996.
Interest income decreased for the three and nine months ended September 30,
1996, as compared with the same periods of 1995, due to a decrease in interest
rates on short term investments.
Property operating expenses decreased slightly for the three months and
increased for the nine months ended September 30, 1996, as compared with the
same periods of 1995. In the first quarter, a harsh winter caused snow removal
and maintenance costs to increase at both Westford and Woodlands Tech. Also in
the first quarter, a landscaping project that was previously capitalized was
reclassified to an expense account at Westford. Partially offsetting the first
quarter increase was a decrease in maintenance expense at Piedmont Plaza due to
a first quarter 1995 exterior painting project. During the second quarter, an
HVAC project at Westford and a tax refund recorded in 1995 at Woodlands led to
further increases. In general, fewer carpet replacements at Overlook Apartments
partially offset the increase during the first half of the year and heavily
contributed to the decrease for the third quarter. For the three and nine
months, real estate taxes are up at Piedmont and Overlook and down at Westford
resulting in an overall increase.
General and administrative expenses increased for the three and nine months
ended September 30, 1996, as compared with the previous year, primarily due to
an increase in payroll costs at Overlook Apartments and legal costs at Piedmont.
The increase in fees and reimbursements to affiliates for the nine months
ended September 30, 1996, as compared with the same period of 1995, was due to
higher reimbursable expenses than the previous year. The decrease for the three
months ended September 30, 1996 was due to timing of reimbursable expenses.
The decrease in depreciation and amortization for the three and nine months
ended September 30, 1996, as compared with the previous year, was primarily the
result of the expiration of useful lives of certain assets at Overlook
Apartments, Woodlands Tech, and Piedmont Plaza. Offsetting the decrease for the
three months at Woodlands Tech was depreciation on tenant
8
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CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
improvements placed in service in 1996 and late 1995.
The decrease in the venture partner's share of Venture's operation in 1996,
as compared with 1995, was the result of a decrease in Westford's overall
results as described herein.
Provision for doubtful accounts increased for the three and nine months
ended September 30, 1996, as compared with the same periods of 1995. The anchor
at Piedmont Plaza has not yet paid its 1995 CAM billing and the Partnership's
property manager has estimated that 100% of the billing may not be collectible.
Based on the problem with the 1995 Piedmont Plaza anchor tenant CAM billing, the
Partnership has established a reserve for both the 1995 billed amount and the
1996 accrued amounts.
<TABLE>
<CAPTION>
OCCUPANCY
The following is a listing of approximate physical occupancy levels by
quarter for the Partnership's investment properties:
1995 1996
------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
At 3/31 At 6/30 At 9/30 At 12/31 At 3/31 At 6/30 At 9/30
------- ------- ------- -------- ------- ------- -------
1. Woodlands Tech Center
St. Louis, Missouri 94% 96% 96% 92% 82% 82% 83%
2. Westford Corporate Center
Westford, Massachusetts(a) 100% 100% 100% 100% 100% 100% 100%
3. Piedmont Plaza Shopping Center
Apopka, Florida 95% 95% 95% 95% 95% 94% 94%
4. Overlook Apartments
Scottsdale, Arizona 98% 93% 97% 97% 99% 97% 92%
</TABLE>
(a) See the Notes to Consolidated Financial Statements for information on the
joint venture partnership through which the Partnership has made this real
property investment. The Partnership owns a 73.92% interest in the joint
venture which owns the property.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedules.
(b) No Form 8-Ks were filed during the three months ended September 30,
1996.
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CIGNA INCOME REALTY-I LIMITED PARTNERSHIP
By: CIGNA Realty Resources, Inc. - Tenth,
General Partner
Date: November 13, 1996 By: /s/ John D. Carey
----------------- -----------------
John D. Carey, President
(Principal Executive Officer)
Date: November 13, 1996 By: /s/ Josephine C. Donofrio
----------------- -------------------------
Josephine C. Donofrio, Controller
(Principal Accounting Officer)
10
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<PERIOD-TYPE> 9-MOS
<CASH> 3492956
<SECURITIES> 0
<RECEIVABLES> 388710
<ALLOWANCES> 71053
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 42998332
<DEPRECIATION> 14129000
<TOTAL-ASSETS> 33126607
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 33126607
<SALES> 0
<TOTAL-REVENUES> 4100505
<CGS> 0
<TOTAL-COSTS> 1748576
<OTHER-EXPENSES> 1182804
<LOSS-PROVISION> 56659
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 1112466
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1112466
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
