<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 March 31, 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 MARCH 31, 1996
PART I
FINANCIAL INFORMATION
----------------------
<PAGE>
BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
------------------ -----------------
ASSETS
<S> <C> <C>
Real estate investments:
Property, net $ 17,123,593 $ 13,441,466
Joint ventures 4,954,604 8,971,192
------------ ------------
22,078,197 22,412,658
Cash and cash equivalents 1,389,038 449,092
Short-term investments 679,256 1,465,991
Deferred rent receivable 493,756 558,730
----------- -----------
$ 24,640,247 $ 24,886,471
=========== ===========
LIABILITIES AND PARTNERS'
CAPITAL
Mortgage loan $ 4,215,073 $ 4,238,857
Accounts payable 323,787 276,581
Accrued management fee 34,546 51,820
----------- -----------
Total liabilities 4,573,406 4,567,258
------------ ------------
Partners' capital (deficit):
Limited partners ($1,000
per unit; 100,000 units
authorized, 34,581
units issued and
outstanding) 20,172,308 20,422,156
General partners (105,467) (102,943)
------------- ------------
Total partners' capital 20,066,841 20,319,213
------------- ------------
$ 24,640,247 $ 24,886,471
============= ============
<FN>
(See accompanying notes to financial statements)
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31,
1996 1995
---------- -----------
INVESTMENT ACTIVITY
<S> <C> <C>
Property rentals $ 677,395 $ 635,044
Property operating expenses (26,148) -
Depreciation and amortization (55,965) (123,419)
Interest and other expenses (104,243) (110,810)
------------ -----------
491,039 400,815
Joint venture earnings 71,913 147,312
Investment valuation allowance (250,000) -
------------ -----------
Total real estate operations 312,952 548,127
Interest on cash equivalents
and short term investments 22,575 27,126
------------ -----------
Total investment activity 335,527 575,253
------------ -----------
Portfolio Expenses
Management fee 34,546 60,456
General and administrative 29,398 31,807
------------ -----------
63,944 92,263
------------ -----------
Net Income $ 271,583 $ 482,990
============ ===========
Net income per
limited partnership unit $ 7.77 $ 13.83
============ ===========
Cash distributions per
limited partnership unit $ 15.00 $ 17.50
============ ===========
Number of limited partnership
units outstanding during the
period 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 March 31,
1996 1995
-------------------- --------------------
General Limited General Limited
Partners Partners Partners Partners
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance at
beginning of
period $(102,943) $20,422,156 $ (70,405) $ 23,643,312
Cash
distributions (5,240) (518,715) (6,113) (605,167)
Net income 2,716 268,867 4,830 478,160
--------- ---------- --------- ----------
Balance at
end of period $(105,467) $20,172,308 $ (71,688) $ 23,516,305
========== =========== ========= ===========
<FN>
(See accompanying notes to financial statements)
</TABLE>
<PAGE>
SUMMARIZED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31,
----------------------------
1996 1995
----- -----
<S> <C> <C>
Net cash provided by operating
activities $ 715,884 $ 588,528
---------- ----------
Cash flows from investing activities:
Repayment of loan by joint venture - 4,601
Decrease (increase) in short-
term investments, net 771,801 (206,695)
--------- ---------
Net cash provided by (used in)
investing activities 771,801 (202,094)
--------- ---------
Cash flows from financing activities:
Reduction of mortgage loan (23,784) (32,662)
Distributions to partners (523,955) (611,280)
--------- ---------
Net cash used in financing
activities (547,739) (643,942)
--------- ---------
Net increase (decrease) in cash
and cash equivalents 939,946 (257,508)
Cash and cash equivalents:
Beginning of period 449,092 1,638,294
---------- ---------
End of period $1,389,038 $1,380,786
=========== =========
<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 March 31, 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 March 31, 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 four 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.
The following is a summary of the Partnership's investments in
property:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Land $ 9,252,731 $ 7,973,584
Buildings and improvements 14,542,055 12,085,214
Investment valuation allowance (2,571,667) (2,600,000)
Other net assets 133,948 156,818
Accumulated depreciation (4,233,474) (4,174,150)
------------ ------------
Net carrying value $17,123,593 $ 13,441,466
============ ============
</TABLE>
The net carrying value at March 31, 1996 was comprised of Zehntel,
United Exposition and East Anaheim at $9,574,058, $3,868,926 and
$3,680,609, 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.
<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, the net proceeds from which approximated its
carrying value. (See Note 4)
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
----------------------
March 31, 1996 December 31, 1995
--------------- -----------------
Assets
<S> <C> <C>
Real property, at cost less
accumulated depreciation
of $2,525,554 and $3,469,239 $ 8,005,977 $ 11,520,507
Other 403,375 352,804
----------- -----------
8,409,352 11,873,311
Liabilities 83,726 104,215
------------ -----------
Net Assets $ 8,325,626 $ 11,769,096
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Results of Operations
----------------------
Quarter ended March 31,
--------------------------
1996 1995
----- -----
<S> <C> <C>
Revenue
Rental income $ 320,174 $ 438,307
Other 588 1,592
----------- ------------
320,762 439,899
----------- ------------
Expenses
Depreciation and amortization 111,867 137,355
Operating expenses 79,907 98,982
----------- ------------
191,774 236,337
----------- ------------
Net income $ 128,988 $ 203,562
=========== ============
</TABLE>
<PAGE>
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
March 31, 1996 were made on April 25, 1996 in the aggregate amount of
$349,303 ($10.00 per limited partnership unit).
On April 9, 1996, the Partnership sold the Zehntel property for gross
proceeds of $11,500,000. A portion of the proceeds was used to repay the
related mortgage loan of $4,215,073, and another portion was being used to
complete certain improvements and pay certain costs, as conditions of the
sale. On April 25, 1996, the Partnership made a capital distribution to
the Limited Partners totaling $6,120,837 ($177.00 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.
At March 31, 1996, the Partnership had $2,068,294 in cash, cash
equivalents, and short-term investments, of which $349,303 was used for
cash distributions to partners on April 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 quarter of 1995 were made at an
annualized rate of 7.0% on a capital contribution of $1,000 per unit.
Distributions of cash from operations were made at an annualized rate of
4.0% for the first quarter of 1996. 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 in the second quarter.
On April 9, 1996, the Partnership sold the Zehntel property for a
gross sales price of $11,500,000. A portion of the sales proceeds was
used to repay the mortgage loan, which had a principal balance of
$4,215,073 at March 31, 1996. In addition, as a condition of the sale,
the Partnership committed to make certain repairs and improvements at the
property. On April 25, 1996, the Partnership made a capital distribution
to the limited partners totaling $6,120,837 ($177 per unit).
The carrying value of real estate investments in the financial
statements at March 31, 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, which is the case for the Zehntel and Medlock Oaks properties.
Carrying value may be greater or less than current appraised value. At
March 31, 1996, the aggregate appraised value of the Partnership's
investments was approximately $1,400,000 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 and Zehntel investments are wholly-owned
properties. The tenants are 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.
Operating Factors
The Zehntel property, which is comprised of two R&D buildings
totaling 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 is retroactive to April 1,
1995, and is at a lower rental rate than under the previous lease. This
same tenant has been subleasing the 85,000 square foot building. During
the third quarter of 1995, with the decision to sell the Zehntel property,
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 a pending sale
transaction.
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.
Occupancy at Medlock Oaks increased to 98% during the first quarter
of 1996. (Occupancy was 95% at December 31, 1995 and 93% at March 31,
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 this quarter, with a revised estimate of fair market value based
on a contemplated sales transaction.
Occupancy at Anaheim Distribution Center has remained at 100% since
September 30, 1994.
Investment Results
Exclusive of the valuation allowance related to Medlock Oaks, total
real estate operations for the first three months of 1996 increased by 3%
as compared to the same period of 1995. Lower rental revenue due to the
restructuring of the Zehntel lease was largely offset by the
discontinuance of depreciation and amortization at Zehntel as of September
30, 1995, with the decision to sell the property and the attendant write-
down to estimated fair market value. Operating income at Anaheim and
Medlock Oaks increased slightly.
<PAGE>
Interest on cash equivalents and short-term investments decreased by
approximately $5,000, or 17% between the two three-month periods due to
lower short-term yields, partially offset by higher average invested
balances.
Cash flow provided by operations increased by approximately $127,000
between the two three-month periods, primarily due to an increase in
operating liabilities in the first quarter of 1996, caused by the timing
of interest and property tax payments at Zehntel.
Portfolio Expenses
General and administrative expenses primarily consist of real estate
appraisal, legal, accounting, printing and servicing agent fees. These
expenses for the first three months of 1996 decreased by approximately
$2,000 or 8% as compared to the same period in 1995 primarily due to a
decrease in legal fees, partially offset by increased appraisal fees. The
Partnership management fee is 9% of distributable cash flow from
operations after any increase or decrease in working capital reserves as
determined by the managing general partner. Management fees decreased
between the two three-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 MARCH 31, 1996
PART II
OTHER INFORMATION
-------------------
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: None.
b. Reports on Form 8-K: No Current Reports on
Form 8-K were filed during the quarter ended
March 31, 1996. Subsequent to March 31, 1996,
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)
May 14, 1996
/s/ Peter P. Twining
-------------------------------
Peter P. Twining
Managing Director and General Counsel
of Managing General Partner,
First Income Corp.
May 14, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,389,038
<SECURITIES> 679,256
<RECEIVABLES> 493,756
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,562,050
<PP&E> 22,078,197
<DEPRECIATION> 4,233,474
<TOTAL-ASSETS> 24,640,247
<CURRENT-LIABILITIES> 358,333
<BONDS> 4,215,073
0
0
<COMMON> 0
<OTHER-SE> 20,066,841
<TOTAL-LIABILITY-AND-EQUITY> 24,640,247
<SALES> 749,308
<TOTAL-REVENUES> 771,883
<CGS> 26,148
<TOTAL-COSTS> 26,148
<OTHER-EXPENSES> 119,909
<LOSS-PROVISION> 250,000
<INTEREST-EXPENSE> 104,243
<INCOME-PRETAX> 271,583
<INCOME-TAX> 0
<INCOME-CONTINUING> 271,583
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 271,583
<EPS-PRIMARY> 7.77
<EPS-DILUTED> 7.77
</TABLE>
