<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------------------------------------------------------------------
For Quarter Ended June 30, 1996 Commission File Number 0-15430
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Massachusetts 04-2893293
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
399 Boylston Street, 13th Fl.
Boston, Massachusetts 02116
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(617) 578-1200
- -----------------------------------------------------------------------
Former name, former address and former fiscal year if changed since last
report
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve (12) months (or for such
shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
<PAGE>
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED JUNE 30, 1996
PART I
FINANCIAL INFORMATION
----------------------
<PAGE>
BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
ASSETS
<S> <C> <C>
Real estate investments:
Property, net $ 7,517,874 $ 13,441,466
Joint ventures 4,803,644 8,971,192
----------- -----------
12,321,518 22,412,658
Cash and cash equivalents 1,340,796 449,092
Short-term investments 415,928 1,465,991
Deferred rent receivable 361,544 558,730
----------- -----------
$ 14,439,786 $ 24,886,471
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Mortgage loan $ - $ 4,238,857
Accounts payable 191,074 276,581
Accrued management fee 29,986 51,820
Deferred disposition fee 343,488 -
----------- -----------
Total liabilities 564,548 4,567,258
----------- -----------
Partners' capital (deficit):
Limited partners ($823 and
$1,000 per unit,
respectively; 100,000
units authorized, 34,581
units issued and
outstanding) 13,981,413 20,422,156
General partners (106,175) (102,943)
------------ -----------
Total partners' capital 13,875,238 20,319,213
------------ -----------
$ 14,439,786 $ 24,886,471
============ ===========
<FN>
(See accompanying notes to financial statements)
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended Quarter Ended Six Months Ended
June 30, 1996 June 30, 1996 June 30, 1995 June 30, 1995
------------- --------------- ------------- ---------------
INVESTMENT ACTIVITY
<S> <C> <C> <C> <C>
Property rentals $ 331,847 $ 1,009,242 $ 536,619 $ 1,171,663
Property operating expenses (27,196) (53,344) - -
Depreciation and amortization (68,002) (123,967) (123,420) (246,839)
Interest and other expenses (10,907) (115,150) (107,663) (218,473)
------------ ------------ ------------- -------------
225,742 716,781 305,536 706,351
Joint venture earnings 84,321 156,234 122,407 269,719
Investment valuation allowance - (250,000) - -
------------ ------------ ------------- -------------
Total real estate operations 310,063 623,015 427,943 976,070
Interest on cash equivalents
and short term investments 35,556 58,131 28,074 55,200
------------ ------------ ------------- -------------
Total investment activity 345,619 681,146 456,017 1,031,270
------------ ------------ ------------- -------------
Portfolio Expenses
Management fee 29,987 64,533 51,820 112,276
General and administrative 37,095 66,493 33,319 65,126
------------ ------------ ------------- -------------
67,082 131,026 85,139 177,402
------------ ------------ ------------- -------------
Net Income $ 278,537 $ 550,120 $ 370,878 $ 853,868
============ ============ ============= =============
Net income per
limited partnership unit $ 7.97 $ 15.75 $ 10.62 $ 24.44
============ ============ ============= =============
Cash distributions per
limited partnership unit $ 187.00 $ 202.00 $ 17.50 $ 35.00
============ ============ ============= =============
Number of limited partnership
units outstanding during the period 34,581 34,581 34,581 34,581
============ ============ ============= =============
<FN>
(See accompanying notes to financial statements)
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended Quarter Ended Six Months Ended
June 30, 1996 June 30, 1996 June 30, 1995 June 30, 1995
-------------------- -------------------- --------------------- --------------------
General Limited General Limited General Limited General Limited
Partners Partners Partners Partners Partners Partners Partners Partners
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
beginning of
period $(105,467) $20,172,308 $(102,943) $20,422,156 $(71,688) $23,516,305 $ (70,405) $ 23,643,312
Cash
distributions (3,493) (6,466,647) (8,733) (6,985,362) (6,113) (605,167) (12,226) (1,210,334)
Net income 2,785 275,752 5,501 544,619 3,709 367,169 8,539 845,329
-------- --------- --------- --------- ---------- ----------- ---------- -----------
Balance at
end of period $(106,175) $13,981,413 $(106,175) $13,981,413 $(74,092) $23,278,307 $ (74,092) $ 23,278,307
======== ========== ======== ========= ========= ========== ========= ===========
<FN>
(See accompanying notes to financial statements)
</TABLE>
<PAGE>
SUMMARIZED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------
1996 1995
---- ----
<S> <C> <C>
Net cash provided by operating
activities $ 891,815 $ 1,361,477
----------- -----------
Cash flows from investing activities:
Net proceeds from sale of property 10,805,224 -
Deposit on sale of property 100,000 -
Increase in deferred disposition fees 343,488 -
Investment in property (1,043,192) -
Repayment of loan by joint venture - 9,329
Decrease (increase) in short-
term investments, net 1,027,321 (409,281)
---------- ----------
Net cash provided by (used in)
investing activities 11,232,841 (399,952)
---------- ----------
Cash flows from financing activities:
Repayment of mortgage loan (4,238,857) (63,284)
Distributions to partners (6,994,095) (1,222,560)
---------- ----------
Net cash used in financing
activities (11,232,952) (1,285,844)
---------- ---------
Net increase (decrease) in cash
and cash equivalents 891,704 (324,319)
Cash and cash equivalents:
Beginning of period 449,092 1,638,294
---------- ----------
End of period $ 1,340,796 $ 1,313,975
=========== ===========
<FN>
Non-cash transaction:
Effective January 1, 1996, the Partnership's joint venture investment in
East Anaheim Distribution Center Associates was converted to a wholly-
owned property. The carrying value of this investment at conversion was
$3,763,820.
(See accompanying notes to financial statements)
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the
Partnership's financial position as of June 30, 1996 and December 31, 1995
and the results of its operations, its cash flows and changes in partners'
capital (deficit) for the interim periods ended June 30, 1996 and 1995.
These adjustments are of a normal recurring nature.
See notes to financial statements included in the Partnership's 1995
Annual Report on Form 10-K for additional information relating to the
Partnership's financial statements.
NOTE 1 - ORGANIZATION AND BUSINESS
- ----------------------------------
Copley Realty Income Partners 1; A Limited Partnership (the
"Partnership") is a Massachusetts limited partnership organized for the
purpose of investing primarily in newly-constructed and existing income-
producing real properties. It commenced operations in August 1986, and
acquired the three real estate investments it currently owns prior to the
end of 1987. The Partnership has intended to dispose of its investments
within nine years of their acquisition, and then liquidate; however, the
managing general partner expects to extend the investment period at least
into 1998, having determined it to be in the best interest of the limited
partners.
NOTE 2 -PROPERTY
- ----------------
Effective January 1, 1996, the East Anaheim Distribution Center joint
venture was dissolved and the venture partner's ownership interest was
assigned to the Partnership. Accordingly, as of this date, the investment
is being accounted for as a wholly-owned property. The carrying value of
the joint venture investment at conversion ($3,763,820) was allocated to
land, building and improvements, and other net operating assets.
<PAGE>
The Partnership's Zehntel property, located in Walnut Creek,
California, was listed for sale during the third quarter of 1995. The
indication from the market was that the Partnership would not likely
recover its net carrying value over the shortened investment period.
Accordingly, during the third quarter of 1995, the Partnership recognized
an investment valuation allowance of $2,200,000 through a charge to
operations. The carrying value was further reduced by $400,000 in the
fourth quarter of 1995, with the refinement of the fair market value
estimate based on the terms of the pending sale transaction. The property
was sold on April 9, 1996 for $11,449,612, of which $4,215,073 was used to
repay the related mortgage loan and $555,000 was used to complete certain
improvements and pay certain costs, as conditions of the sale. After
closing costs, the Partnership received net proceeds of $6,378,639. A
disposition fee of $343,488 was accrued but not paid to the advisor. On
April 25, 1996, the Partnership made a capital distribution of $6,120,837
($177 per limited partnership unit) from the proceeds of the Zehntel sale.
The following is a summary of the Partnership's investments in
property:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Land $ 2,475,002 $ 7,973,584
Buildings and improvements 6,450,035 12,085,214
Investment valuation allowance - (2,600,000)
Other net assets (liabilities) (19,431) 156,818
Accumulated depreciation (1,387,732) (4,174,150)
------------ -----------
Net carrying value $ 7,517,874 $ 13,441,466
============ ===========
</TABLE>
<PAGE>
The net carrying value at June 30, 1996 was comprised of United
Exposition and East Anaheim at $3,842,265 and $3,675,609, respectively;
The net carrying value at December 31, 1995 was comprised of Zehntel and
United Exposition at $9,533,690 and $3,907,776, respectively.
The buildings and improvements of East Anaheim Distribution Center
are being depreciated over 30 years, beginning January 1, 1996.
NOTE 3 - REAL ESTATE JOINT VENTURES
- -----------------------------------
The following summarized financial information is presented in the
aggregate for the investments in joint ventures:
<TABLE>
<CAPTION>
Assets and Liabilities
----------------------
June 30, 1996 December 31, 1995
--------------- -----------------
Assets
<S> <C> <C>
Real property, at cost less
accumulated depreciation
of $2,627,390 and $3,469,239 $ 7,904,142 $ 11,520,507
Other 260,752 352,804
------------ ------------
8,164,894 11,873,311
Liabilities 97,904 104,215
------------ ------------
Net Assets $ 8,066,990 $ 11,769,096
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Results of Operations
----------------------
Six Months ended June 30,
--------------------------
1996 1995
----- -----
<S> <C> <C>
Revenue
Rental income $ 647,972 $ 864,833
Other 1,116 3,142
----------- ------------
649,088 867,975
----------- ------------
Expenses
Depreciation and amortization 222,809 280,865
Operating expenses 146,537 203,060
----------- ------------
369,346 483,925
----------- ------------
Net income $ 279,742 $ 384,050
=========== ============
</TABLE>
Liabilities and expenses exclude amounts owed and attributable to the
Partnership and (with respect to one joint venture) its affiliate on
behalf of their various financing arrangements with the joint ventures.
Effective January 1, 1996, the East Anaheim joint venture was
dissolved, and the property became wholly-owned by the Partnership.
Accordingly, the 1996 amounts relate only to the Medlock Oaks joint
venture.
NOTE 4 - SUBSEQUENT EVENT
- -------------------------
Distributions of cash from operations relating to the quarter ended
June 30, 1996 were made on July 25, 1996 in the aggregate amount of
$303,195 ($8.68 per limited partnership unit).
<PAGE>
Management's Discussion and Analysis of Financial Condition
- -----------------------------------------------------------
and Results of Operations
- -------------------------
Liquidity and Capital Resources
- -------------------------------
The Partnership completed its offering of units of limited
partnership interest in April 1987, and a total of 34,581 units were sold.
The Partnership received proceeds of $30,812,718, net of selling
commissions and other offering costs, which have been invested in real
estate, used to pay related acquisition costs or retained as working
capital reserves.
On April 9, 1996, the Partnership sold the Zehntel property for
$11,449,612, of which $4,215,073 was used to pay off the related mortgage
loan and $555,000 was used to complete certain improvements. Net proceeds
to the Partnership, after closing costs, were $6,378,639. A disposition
fee of $343,488 was accrued but not paid to the advisor. On April 25,
1996, the Partnership made a capital distribution of $177 per limited
partnership unit ($6,120,837) which reduced the adjusted capital
contribution to $823 per unit.
At June 30, 1996, the Partnership had $1,756,724 in cash, cash
equivalents, and short-term investments, of which $303,195 was used for
cash distributions to partners on July 25, 1996; the remainder is being
retained for working capital reserves. The source of future liquidity and
cash distributions to partners will be cash generated by the Partnership's
real estate and short-term investments. Distributions of cash from
operations relating to the first two quarters of 1995 were made at an
annualized rate of 7.0% and 6%, respectively, on a capital contribution of
$1,000 per unit. Distributions of cash from operations were made at an
annualized rate of 4.0% for the first two quarters of 1996; the second
quarter distribution was based on a weighted average adjusted capital
contribution. The cash distribution rate was decreased to 6.0% in the
second quarter of 1995 due to the restructuring and extension of a lease
at the Zehntel property, as discussed below. The distribution rate was
further decreased to 4.0% in 1996 in anticipation of cash flow decreases
resulting from the sale of the Zehntel and United Exposition investments.
The carrying value of real estate investments in the financial
statements at June 30, 1996 is at depreciated cost, or if the investment's
carrying value is determined not to be recoverable through expected
undiscounted future cash flows, the carrying value is reduced to estimated
fair market value. The fair market value of such investments is further
reduced by the estimated costs of sale for properties held for sale.
Carrying value may be greater or less than current appraised value. At
June 30, 1996, the aggregate appraised value of the Partnership's
investments was approximately $1,600,000 greater than their aggregate
carrying value. The current appraised value of real estate investments
has been estimated by the managing general partner and is generally based
on a combination of traditional appraisal approaches performed by the
Partnership's advisor, Copley Real Estate Advisors, Inc., and independent
appraisers. Because of the subjectivity inherent in the valuation
process, the current appraised value may differ significantly from that
which could be realized if the real estate were actually offered for sale
in the marketplace.
<PAGE>
Results of Operations
Form of Real Estate Investments
The United Exposition investment is a wholly-owned property. The
tenant is responsible for substantially all property operating expenses.
The Medlock Oaks investment is structured as a joint venture with an
affiliate of the Partnership. The East Anaheim investment was structured
as a joint venture with a real estate management/development firm.
Effective January 1, 1996, however, the venture was dissolved and all of
its assets and liabilities were transferred to the Partnership, whereby it
became a wholly-owned property. The Zehntel investment, which was sold in
April 1996, was a wholly-owned property.
Operating Factors
The Zehntel property, which is comprised of two R&D buildings
totaling approximately 145,000 square feet, was fully leased to a single
tenant through June, 1996. During the third quarter of 1995, however, the
Partnership signed a lease extension with the lessee for the 60,000 square
foot building through December, 2000. The extension was retroactive to
April 1, 1995, and was at a lower rental rate than under the previous
lease. During the third quarter of 1995, after deciding to market the
Zehntel property for sale, the managing general partner determined that
the Partnership would not likely recover its carrying value over the
shortened investment period. Accordingly, the Partnership reduced the
carrying value to its estimated net fair market value with a charge to
operations of $2,200,000. The carrying value was further reduced by
$400,000 in the fourth quarter, with the refinement of the estimate based
on the terms of the sale transaction discussed above.
The United Exposition property also consists of two buildings which
have been 100% leased to one tenant since 1987. The Partnership has
entered into an agreement to sell the property at a price which exceeds
its carrying value.
<PAGE>
Occupancy at Medlock Oaks remained at 98% during the second quarter
of 1996. (Occupancy was 95% at December 31, 1995 and 97% at June 30,
1995.) The managing general partner determined in 1994 that the carrying
value of this investment would likely not be recoverable, and reduced the
carrying value to estimated net realizable value with a charge to
operations of $200,000. The carrying value was further reduced by
$250,000 in the first quarter of 1996, with a revised estimate of fair
market value based on a then contemplated sales transaction.
Occupancy at Anaheim Distribution Center remained at 100% at June 30,
1996 as a tenant occupying 24% of the building vacated, and the space was
re-leased during the quarter. Occupancy was also 100% at December 31,
1995 and June 30, 1995.
Investment Results
Exclusive of the valuation allowance related to Medlock Oaks in 1996
and the operating results from Zehntel of $323,468 in 1996 and $483,538 in
1995, total real estate operations for the first six months of 1996
increased by $57,000, or 12%, compared to the same period of 1995. This
improvement is primarily due to increases in rental income at Anaheim and
Medlock Oaks.
Interest on cash equivalents and short-term investments increased by
approximately $3,000, or 5%, between the two six-month periods due to
higher average invested balances, partially offset by lower short-term
yields.
Cash flow provided by operating activities decreased by $470,000
between the first six months of 1996 and 1995. This change was primarily
caused by the Zehntel sale, including a net reduction of approximately
$423,000 due to lower revenue and interest expense, as well as the payment
of $77,000 for lease commissions, and the payment of $153,000 held by the
Partnership as various deposits. The Zehntel decreases were partially
offset by increases in cash flow from both Medlock Oaks and East Anaheim.
<PAGE>
Portfolio Expenses
General and administrative expenses primarily consist of real estate
appraisal, legal, accounting, printing and servicing agent fees. These
expenses were virtually unchanged for the first six months of 1996 as
compared to the same period in 1995. The Partnership management fee is 9%
of distributable cash flow from operations after any increase or decrease
in working capital reserves as determined by the managing general partner.
Management fees decreased between the two six-month periods due to the
decrease in distributable cash flow.
<PAGE>
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED JUNE 30, 1996
PART II
OTHER INFORMATION
-------------------
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: None.
b. Reports on Form 8-K: The Partnership filed
one current report on Form 8-K dated April 9,
1996, reporting on Item No. 2. (Acquisition or
Disposition of Assets).
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
(Registrant)
August 13, 1996
/s/ Peter P. Twining
-------------------------------
Peter P. Twining
Managing Director and General Counsel
of Managing General Partner,
First Income Corp.
August 13, 1996
/s/ Daniel C. Mackowiak
--------------------------------
Daniel C. Mackowiak
Principal Financial and Accounting
Officer of Managing General Partner,
First Income Corp.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1340796
<SECURITIES> 415928
<RECEIVABLES> 361544
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2118268
<PP&E> 12321518
<DEPRECIATION> 1387732
<TOTAL-ASSETS> 14439786
<CURRENT-LIABILITIES> 221060
<BONDS> 343488
0
0
<COMMON> 0
<OTHER-SE> 13875238
<TOTAL-LIABILITY-AND-EQUITY> 14439786
<SALES> 1165476
<TOTAL-REVENUES> 1223607
<CGS> 53344
<TOTAL-COSTS> 53344
<OTHER-EXPENSES> 254993
<LOSS-PROVISION> 250000
<INTEREST-EXPENSE> 115150
<INCOME-PRETAX> 550120
<INCOME-TAX> 0
<INCOME-CONTINUING> 550120
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 550120
<EPS-PRIMARY> 15.75
<EPS-DILUTED> 15.75
</TABLE>
