<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. 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
incorporation or organization) Identification No.)
399 BOYLSTON STREET, 13TH FLOOR
BOSTON, MASSACHUSETTS 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:
None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
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 (Section 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]
No voting stock is held by nonaffiliates of the
Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
None
Page ______ of ______ pages (including exhibits). Exhibit Index on Page ______.
<PAGE>
PART I
------
Item 1. Business.
--------
Copley Realty Income Partners 1; A Limited Partnership (the "Partnership")
was organized under the Uniform Limited Partnership Act of the Commonwealth of
Massachusetts on November 20, 1985, to invest primarily in newly constructed and
existing income-producing real properties.
The Partnership was initially capitalized with contributions of $2,000 in
the aggregate from First Income Corp. (the "Managing General Partner") and CCOP
Associates Limited Partnership (the "Associate General Partner") (collectively,
the "General Partners") and $10,000 from Copley Real Estate Advisors, Inc. (the
"Initial Limited Partner"). The Partnership filed a Registration Statement on
Form S-11 (the "Registration Statement") with the Securities and Exchange
Commission on December 5, 1985, with respect to a public offering of 40,000
units of limited partnership interest at a purchase price of $1,000 per unit
(the "Units") with an option to sell up to an additional 60,000 Units (an
aggregate of $100,000,000). The Registration Statement was declared effective
on March 27, 1986.
The first sale of Units occurred on August 7, 1986, at which time the
Initial Limited Partner withdrew its contribution from the Partnership.
Investors were admitted to the Partnership thereafter at monthly closings; the
offering terminated and the last group of initial investors was admitted to the
Partnership on April 9, 1987. As of April 9, 1987, a total of 34,581 Units had
been sold, a total of 2,188 investors had been admitted as limited partners (the
"Limited Partners") and a total of $34,322,210 had been contributed to the
capital of the Partnership.
As of December 31, 1995 the Partnership had invested in the four real
property investments described below. In 1990, a fifth real estate investment
was foreclosed on by the lender. The Partnership has no current plan to
renovate, improve or further develop any of its real property. In the opinion
of the Managing General Partner of the Partnership, the properties are
adequately covered by insurance.
The Partnership has no employees. Services are performed for the
Partnership by the Managing General Partner and affiliates of the Managing
General Partner.
A. Research and Development Buildings in Walnut Creek, California.
--------------------------------------------------------------
On September 11, 1986, the Partnership acquired for $14,434,054 an
11.1-acre parcel of land in Walnut Creek, California, improved by two single-
story research and development buildings of 85,000 square feet and 60,000
square feet. In connection with the acquisition, the Partnership assumed an
existing first mortgage loan made by John Hancock Mutual Life Insurance Company
bearing interest at the rate of 10% per annum. This loan is amortized in level
payments of principal and interest, based on a 30-year amortization schedule,
and matures on April 1, 1996, at which time the projected outstanding principal
balance of $4,215,073 will be due. As of December 31, 1995 the loan had an
outstanding principal balance of $4,238,857. In February 1996, the Partnership
entered into a contract to sell the two buildings to a third party for an amount
that approximated the carrying value at December 31, 1995.
The Partnership has entered into a lease (the "Original Lease") for
both buildings to a single tenant (the "Tenant") which, as amended, calls for a
current annual rent of $1,744,677 for a 10-year term ending in June 1996. Under
the terms of the Original Lease, the lessee is responsible for substantially all
operating expenses. The Tenant has subleased the 85,000 square foot building to
a third party until the end of the Original Lease term. The sublessee has
entered into a direct lease (the "Direct Lease") for this building with the
Partnership upon the expiration of the Original Lease. The Direct Lease, as
amended, will have a term of six years and will provide for annual rent of
$739,500 for the first eighteen months of the lease, $794,964 for the second
eighteen months, and $856,800 for the subsequent twelve month period.
Thereafter, annual increases will be based on the increase in the Consumer Price
Index "CPI" or 3%, whichever is higher. In addition, the Tenant
<PAGE>
has entered into a new lease (the "New Lease") for the 60,000 square foot
building for an annual rental of $540,000, which increases in February 1998
based upon changes in the CPI. The lease has a 69-month term ending in December
2000, and two five-year renewal options, each renewal option to be at market
rent but, in no event, less than the rent paid immediately prior to the option
period in question.
B. Warehouse Building in Anaheim, California.
-----------------------------------------
On December 30, 1986, the Partnership acquired for $2,000,000 a 60%
interest in a joint venture formed with Davis Anaheim Distribution Center
Associates ("Davis Development") to construct a one-story warehouse building
containing approximately 106,000 square feet of space on a 4.9-acre parcel of
land in Anaheim, California. The building has been completed and was 100%
leased as of December 31, 1995. The joint venture agreement, as amended,
entitled the Partnership to receive a current preferred return on its capital
contribution at the rate of 10% per annum and to receive an additional return at
the rate of 0.5% per annum which could be accrued and paid out of sale or
refinancing proceeds if sufficient cash flow was not currently available
therefor. In addition, the Partnership was entitled to receive 60% of all cash
flow from operations, refinancing proceeds and net sale proceeds.
The Partnership contemporaneously made a non-recourse mortgage loan
commitment to the joint venture of up to $2,750,000, which was fully funded.
The loan bore interest at the rate of 11% per annum, payable (beginning January
1, 1991) in equal monthly payments of principal and interest, based on a 30-year
amortization schedule with a balloon payment at maturity in January, 1996. The
loan had a term of ten years, was not prepayable and was secured by a first
mortgage on the land and the building.
The Partnership increased its investment in the joint venture by
committing to make a deficit loan to the venture in the maximum amount of
$240,000, all of which was funded. Davis Development simultaneously committed
to make a deficit loan to the joint venture in the maximum amount of $160,000,
all of which was funded. As of May 5, 1989, the Partnership increased its
investment in the joint venture by committing to make an additional deficit loan
to the venture in the maximum amount of $132,000, all of which has been funded.
Davis Development simultaneously committed to make a deficit loan to the joint
venture in the maximum amount of $88,000, all of which was funded. As of April
6, 1990, the Partnership committed to make an additional deficit loan in the
maximum amount of $105,000. As of December 31, 1995, $64,276 of this loan had
been funded by the Partnership. Davis Development simultaneously committed to
make a deficit loan in the maximum amount of $70,000, of which $42,850 was
funded. The loans bore interest at a rate equal to the prime rate charged by
Wells Fargo Bank. As of June 4, 1993, the Partnership's interest was increased
from 60% to 61.6%, since Davis Development did not match its proportionate share
of a $30,000 operating deficit incurred during the month of May, 1993. The
joint venture agreement provided for the repayment of principal and interest on
deficit loans from cash flow to the extent that such cash is available after
payment of any accrued preferential returns.
Effective January 1, 1996, the joint venture was dissolved and ownership
of the joint venture assets was assigned to the Partnership.
C. Industrial Buildings in Las Vegas, Nevada.
-----------------------------------------
On October 28, 1987, the Partnership acquired for $5,000,000 two one-
story concrete industrial buildings, containing 128,178 square feet, located on
approximately 6.54 acres of land in Las Vegas, Nevada. The buildings are leased
to a single tenant on a triple net basis for 12 years ending in October 1999.
The initial annual rent was $536,000, with fixed rental increases of 20% every
five years. The current annual rent is $643,000 with the next increase
scheduled for November 1997.
<PAGE>
D. Warehouse/Service Center Buildings in Atlanta, Georgia.
------------------------------------------------------
On December 4, 1987, the Partnership acquired for a maximum capital
contribution of $1,932,300 a 34.2% interest in a joint venture formed with
Copley Realty Income Partners 2; A Limited Partnership, an affiliate of the
General Partners (the "Affiliate") which had a 25.8% interest, and Hill Limited
#10, an affiliate of Hill Properties, Inc., to acquire an approximately 14.9-
acre parcel of land in the Medlock Oaks Business Park in Atlanta, Georgia,
together with one service center and two warehouse buildings, totaling 115,000
square feet of space. The joint venture subsequently completed construction of
two additional warehouses containing an aggregate of 58,916 square feet of
space. In the aggregate, as of December 31, 1995, the five buildings were 95%
leased. Effective January 1, 1990, the joint venture agreement was amended to
increase the Partnership's ownership interest in the joint venture to 38.19% and
the Affiliate's interest to 28.81%. The joint venture agreement, as amended,
entitled the Partnership and the Affiliate to receive monthly preferential
payments on their respective invested capital at the rate of 10.25% per annum.
The joint venture agreement also entitled the Partnership to receive 38.19% of
the remaining cash flow after payment of the preferential returns and 38.19% of
sale and refinancing proceeds following the return of equity capital to the
Partnership and the Affiliate.
The Partnership, contemporaneously with the initial equity investment,
made a non-recourse mortgage loan commitment to the joint venture of up to
$4,622,700. On October 4, 1989, the Partnership increased its maximum
obligation from $4,622,700 to $4,964,700 of which $4,850,094 had been funded as
of December 31, 1995. The loan bears interest at the rate of 10.25% per annum,
has a term of ten years and is secured by a first mortgage on the land and the
buildings. The loan is prepayable at any time, subject to payment of a premium
designed to give the Partnership the equivalent yield as if the loan had been
outstanding until maturity. The Affiliate simultaneously made a mortgage loan
commitment of up to $3,487,300, increased on October 4, 1989 to $3,745,300, upon
the same terms and conditions as the loan from the Partnership, of which
$3,658,843 had been funded as of December 31, 1995. The loan from the Affiliate
is pari passu with the loan from the Partnership.
As of September 3, 1991, as a result of the developer partner's
inability to fund its share of deficit contributions, the Partnership and the
Affiliate assumed 100% ownership of the property with the Partnership having a
57% interest. As of May 31, 1991, the Partnership and the Affiliate retained an
affiliate of Anderson & Senkbeil to provide leasing and management services for
the property. On October 1, 1992, the property management agreement was
assigned to Weeks Corporation and on August 1, 1994 the agreement was assigned
to Weeks Realty Services, Inc.
<PAGE>
Item 2. Properties
----------
The following table sets forth the annual realty taxes for the Partnership's
properties and information regarding tenants who occupy 10% or more of gross
leasable area (GLA) in the Partnership's properties:
<TABLE>
<CAPTION>
ESTIMATED NUMBER OF
1996 TENANTS SQUARE ANNUAL LINE OF
ANNUAL WITH 10% FEET OF CONTRACT BUSINESS
REALTY OR MORE NAME(S) OF EACH RENT LEASE RENEWAL OF PRINCIPAL
PROPERTY TAXES OF GLA * TENANT(S) TENANT PER S. F. EXPIRATION OPTIONS TENANTS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R&D Buildings in Walnut $150,013 2 Teradyne 60,000 $9.00 12/00 Two 5 Computer
Creek, CA year assembly
options
Fresenius USA 85,000 $8.70 6/02 One 5 Dialysis
year equipment
option assembly
Warehouse Building in $ 42,608 3 S & C Furniture 24,892 $3.48 4/96 None Distribution,
Anaheim, CA light assembly
Computer 28,224 $4.73 9/97 None
Transport, Inc.
Arroyo Plastics, 53,116 $4.51 3/97 None Distribution
Inc.
Industrial Bldgs in Las (1) 1 United 128,178 $5.02 10/99 None Distribution
Vegas, NV Exposition Co.
Warehouse/Service Center $ 90,422 2 Valmet-Sentrol, 22,727 $7.40 11/98 None Engineering
Bldgs in Atlanta, GA Ltd. industry
measurements
& controls
Allen-Bradley Co. 22,679 $7.27 7/98 None Industrial
automation
products
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Tenant responsible for real property taxes.
<PAGE>
The following table sets forth for each of the last five years the gross
leasable area, occupancy rates, rental revenue and net effective rent for the
Partnership's properties:
<TABLE>
<CAPTION>
Rental Net Effective
Gross Leasable Year-End Revenue Rent
PROPERTY Area Occupancy Recognized ($/sf/yr)*
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
R&D Buildings in Walnut Creek, CA
1991 145,000 100% $1,864,346 $12.86
1992 145,000 100% $1,867,766 $12.88
1993 145,000 100% $1,913,290 $13.20
1994 145,000 100% $1,918,366 $13.23
1995 145,000 100% $1,644,753 $11.34
Warehouse Building in Anaheim, CA
1991 106,232 100% $ 482,421 $ 4.54
1992 106,232 100% $ 533,216 $ 5.02
1993 106,232 100% $ 420,364 $ 3.96
1994 106,232 100% $ 437,045 $ 4.11
1995 106,232 100% $ 469,666 $ 4.42
Industrial Buildings in Las Vegas, NV
1991 128,178 100% $ 619,890 $ 4.84
1992 128,178 100% $ 619,890 $ 4.84
1993 128,178 100% $ 619,890 $ 4.84
1994 128,178 100% $ 619,890 $ 4.84
1995 128,178 100% $ 619,890 $ 4.84
Service Center Buildings in Atlanta, GA
1991 173,916 81% $ 945,502 $ 6.54
1992 173,916 88% $1,044,485 $ 6.71
1993 173,916 98% $1,025,068 $ 6.44
1994 173,916 100% $1,087,696 $ 6.30
1995 173,916 95% $1,101,894 $ 6.63
- -------------------------------------------------------------------------------------------------
</TABLE>
* Net Effective Rent Calculation is based on the average occupancy during the
respective year.
<PAGE>
Set forth below is a schedule of lease expirations for each of the next ten
years for the Partnership's properties based on the annual contract rent in
effect at December 31, 1995:
<TABLE>
<CAPTION>
TENANT AGING REPORT
TOTAL PERCENTAGE OF
# OF LEASE TOTAL ANNUAL CONTRACT GROSS ANNUAL
PROPERTY EXPIRATIONS SQUARE FEET RENT RENTAL*
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
R&D Buildings in Walnut Creek, CA
- ----------------------------------------
1996 0 0 $0 0%
1997 0 0 $0 0%
1998 0 0 $0 0%
1999 0 0 $0 0%
2000 1 60,000 $540,000 (1) 42%
2001 0 0 $0 0%
2002 1 85,000 $739,500 (2) 58%
2003 0 0 $0 0%
2004 0 0 $0 0%
2005 0 0 $0 0%
Warehouse Building in Anaheim, CA
- ----------------------------------------
1996 1 24,892 $116,496 24%
1997 2 81,340 $373,206 76%
1998 0 0 $0 0%
1999 0 0 $0 0%
2000 0 0 $0 0%
2001 0 0 $0 0%
2002 0 0 $0 0%
2003 0 0 $0 0%
2004 0 0 $0 0%
2005 0 0 $0 0%
Industrial Buildings in Las Vegas, NV
- ----------------------------------------
1996 0 0 $0 0%
1997 0 0 $0 0%
1998 0 0 $0 0%
1999 1 128,178 $643,000 100%
2000 0 0 $0 0%
2001 0 0 $0 0%
2002 0 0 $0 0%
2003 0 0 $0 0%
2004 0 0 $0 0%
2005 0 0 $0 0%
Service Center Buildings in Atlanta, GA
- ----------------------------------------
1996 6 34,546 $221,046 20%
1997 5 33,846 $204,412 18%
1998 4 61,119 $447,816 40%
1999 3 25,451 $158,926 14%
2000 2 9,686 $77,952 8%
2001 0 0 $0 0%
2002 0 0 $0 0%
2003 0 0 $0 0%
2004 0 0 $0 0%
2005 0 0 $0 0%
- --------------------------------------------------------------------------------------------------------
</TABLE>
* DOES NOT INCLUDE EXPENSES PAID BY TENANTS.
(1) Reflects 1996 rent on new lease with Teradyne.
(2) Reflects 1996 contractual rent with sublessee.
<PAGE>
The following table sets forth for each of the Partnership's
properties the: (i) federal tax basis, (ii) rate of depreciation, (iii)
method of depreciation, (iv) life claimed, and (v) accumulated depreciation,
with respect to each property or component thereof for purposes of
depreciation:
<TABLE>
<CAPTION>
Depreciable Assets
Rate of Life Accumulated
Entity / Property Tax Basis Depreciation Method in years Depreciation
East Anaheim Distribution Center
- ----------------------------------
<S> <C> <C> <C> <C> <C>
Building $ 1,785,598 5.26% SL 19 $ 855,304
Tenant Improvements 795,581 3.17% SL 31.5 191,056
----------- ----------
Total Depreciable Assets 2,581,179 1,046,360
Medlock Oaks Associates
- ----------------------------------
Building 5,431,792 5.26% SL 19 2,316,651
Tenant Improvements 182,996 2.56% SL 39 4,921
Tenant Improvements 3,076,352 3.17% SL 31.5 505,244
----------- ----------
Total Depreciable Assets 8,691,140 2,826,816
Wholly Owned Property
- ----------------------------------
Zehntel Building 8,092,552 4.00% SL 25 2,816,754
United Expo Building 3,986,285 3.17%-5.88% SL 17-31.5 1,378,204
----------- ----------
Total Depreciable Assets 12,078,837 4,194,958
Total Depreciable Assets $23,351,156 $8,068,134
=========== ==========
- ----------------------------------------------------------------------------------------------
</TABLE>
SL = Straight Line Depreciation
<PAGE>
Following is information regarding the competitive market conditions
for each of the Partnership's properties. This information has been gathered
from sources deemed reliable. However, the Partnership has not independently
verified the information and, as such, cannot guarantee its accuracy or
completeness:
A. R&D Building in Walnut Creek, CA.
--------------------------------
This property is situated in the Shadelands district of the city of
Walnut Creek, within central Contra Costa County. This neighborhood is
comprised mainly of low-rise Class B office space with several light industrial
properties interspersed throughout, including this property. The neighborhood
is primarily perceived as a secondary office market within Walnut Creek. At
September 30, 1995, the Contra Costa County office market had a total vacancy
of approximately 14%. The Walnut Creek - Shadelands office submarket,
consisting of 1.8 million square feet, had a vacancy rate of approximately 24%,
which is one of the highest vacancy rates of any sub-market within Contra Costa
County.
B. Warehouse Building in Anaheim, CA.
---------------------------------
This investment is located in Anaheim, California which is part of
the Orange County industrial market. As of September 30, 1995, this market had
a total inventory of approximately 779,968,000 square feet. Overall available
square footage, including buildings available for sale or lease, totaled
20,846,000. This equates to an availability rate of approximately 9%, which is
consistent with the availability rate of 12 months earlier. Within the North
Orange County submarket where the investment is located, the availability rate
was approximately 8%.
C. Warehouse Buildings in Las Vegas, NV
------------------------------------
While traditionally based upon the resort and gambling industry, the
Las Vegas economy is becoming more diversified as favorable taxation, worker
compensation and transportation systems encourage companies to relocate to
Nevada. The healthy business climate of Las Vegas is responsible for a strong
industrial market, which exhibits a low vacancy rate of approximately 5% on a
base inventory of 30.4 million square feet. Rental rates have remained level,
and in some cases, have increased, over the past year. Most free rent
concessions have diminished.
D. Industrial/Service Center Buildings in Atlanta, GA.
--------------------------------------------------
This investment is located in the Northeast/I-85 submarket which
is part of the metropolitan Atlanta industrial market. As of September 30,
1995, the Northeast/I-85 submarket had a total inventory of approximately
75,623,000 square feet, which represents an increase of 2,470,000 square feet
from year end 1994. Overall vacant square footage declined to 1,870,000 square
feet from 3,524,000 at the end of 1994, reflecting net positive absorption of
4.1 million square feet. Occupancy increased to 97.5% at September 30, 1995
from 95.2% at year end 1994. At September 30, 1995, vacancy within the Service
Center sector of the industrial market was 6.1%.
Item 3. Legal Proceedings.
-----------------
The Partnership is not a party to, nor are any of its properties subject
to, any material pending legal proceedings.
<PAGE>
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.
PART II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
---------------------------------------------------------------------
There is no active market for the Units. Trading in the Units is
sporadic and occurs solely through private transactions.
As of December 31, 1995, there were 2,283 holders of Units.
The Partnership's Amended and Restated Agreement of Limited Partnership
dated August 7, 1986, as amended to date (the "Partnership Agreement"),
requires that any Distributable Cash (as defined therein) be distributed
quarterly to the Partners in specified proportions and priorities. There are
no restrictions on the Partnership's present or future ability to make
distributions of Distributable Cash. For the year ended December 31, 1995,
cash distributions paid in 1995, or distributed after year end with respect to
1995, to the Limited Partners as a group totaled $2,161,312. For the year
ended December 31, 1994, cash distributions paid in 1994, or distributed after
year end with respect to 1994, to the Limited Partners as a group totaled
$2,420,670.
The Partnership incurred a net loss in 1995, primarily as a result of a
non-cash charge related to the reduction in the carrying value of an
investment. Cash distributions, however, were made at a level slightly less
than cash provided by operating activities, and reduced partners' capital
accordingly. The balance of liquid assets decreased during the year.
Reference is made to the Partnership's Statement of Changes in Partners'
Capital (Deficit) and Statement of Cash Flows in Item 8 hereof.
<PAGE>
Item 6. Selected Financial Data.
-----------------------
<TABLE>
<CAPTION>
For Year For Year For Year For Year For Year
Ended or Ended or Ended or Ended or Ended or
As of: As of: As of: As of: As of:
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues $ 2,864,780 $ 3,064,367 $ 2,979,336 $ 3,042,933 $ 3,028,283
Net Income (Loss) (1) $ (983,224) $ 1,531,224 $ 1,679,020 $ 1,711,107 $ 1,811,358
Net Income (Loss) per
weighted average
Unit of Limited
Partnership
Interest
Outstanding $(28.15) $43.84 $48.07 $48.99 $51.86
Total Assets $24,886,471 $28,270,811 $29,253,029 $29,969,921 $30,620,530
Mortgage Loan $ 4,238,857 $ 4,363,307 $ 4,474,343 $ 4,574,853 $ 4,664,580
Total Cash
Distributions
per Unit of
Limited
Partnership
Interest,
including amounts
distributed after
year end with
respect to the
previous year $ 62.50 $ 70.00 $ 66.25 $ 65.00 $ 55.00
----------- ----------- ----------- ----------- -----------
</TABLE>
(1) Net Income (Loss) includes charges of $2,600,000 and $200,000 in 1995 and
1994, respectively, related to impairment of the carrying values of certain
investments.
<PAGE>
Item 7.
-------
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. The Partnership made the real
estate investments described in Item 1 hereof.
At December 31, 1995, the Partnership had $1,915,083 in cash, cash
equivalents, and short-term investments, of which $523,955 was used for cash
distributions to partners on January 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. Quarterly distributions of cash from
operations relating to all four quarters of 1994 and 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
6.0% for the last three quarters of 1995. The cash distribution rate decreased
in the second quarter of 1995 due to the restructuring and extension of a lease
at the Zehntel property, as discussed below.
The mortgage loan, with a principal balance of $4,238,857 at December 31,
1995, matures on April 1, 1996. The Managing General Partner expects the
Partnership to sell the collateral property in the near term, and that the loan
will be repaid with a portion of the proceeds. In anticipation of the sale,
the Partnership undertook to make certain repairs and improvements to the
property at a total cost of approximately $1,000,000. In February 1996, the
Partnership entered into a contract to sell these two buildings at an amount
approximating the carrying value at December 31, 1995, plus the cost of these
repairs and improvements.
The carrying value of real estate investments in the financial statements
at December 31, 1995 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 December 31, 1995, the appraised value of the
United Exposition investment was approximately $1,400,000 greater than its
carrying value. The carrying values of the remaining investments approximated
their related appraised values. 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.
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 remaining investments in the portfolio are structured as joint ventures
with real estate management/development firms or
<PAGE>
affiliates of the Partnership. Effective January 1, 1996, however, the Anaheim
joint venture was dissolved and all of its assets and liabilities were
transferred to the Partnership.
Operating Factors
The Zehntel property, which is comprised of two R&D buildings totaling
145,000 square feet, is fully leased to a single tenant through June, 1996.
During the third quarter of 1995, 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. A direct lease with the sublease tenant in this building
will begin upon expiration of the original lease in June, 1996. During the
third quarter of 1995, with the decision to sell the Zehntel property, the
Managing General Partner determined that the Partnership will 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 as of the fourth quarter, with the refinement of
the estimate based on the terms of the pending sale transaction.
The United Exposition property also consists of two buildings which have
been 100% leased to one tenant since 1987.
At Medlock Oaks, occupancy was 95%, 100% and 98% at December 31, 1995,
1994 and 1993, respectively. 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.
Occupancy at the Anaheim Distribution Center property was 100% at December
31, 1995, 1994 and 1993, although several leases expired during 1993 and 1994.
Two tenants each contributed more than 10% of the total rental revenue
from the Partnership's investments (collectively 67%) in 1995. These tenants
were current with regard to lease payments at December 31, 1995; management is
not aware of any impairment in the tenants' ability to continue to perform in
accordance with the terms of their respective leases.
Investment Results
Operating results generated by the Zehntel and United Exposition
properties (before the investment valuation allowance on Zehntel) decreased by
$198,416 between 1994 and 1995 primarily due to reduced rental income caused by
the lease restructuring at Zehntel. During 1994, results from operations for
the two properties decreased by $16,842, due to the settlement of prior year
property taxes at Zehntel in the amount of $22,589 (included in interest and
other expenses), partially offset by a rental increase at Zehntel.
Joint venture earnings were $490,643, $452,881 and $387,895 for the years
ended December 31, 1995, 1994 and 1993, respectively. Joint venture earnings
from Anaheim were $250,312, $182,243 and $190,863 in the corresponding years.
The increase in net operating income in 1995 at Anaheim was primarily due to
increased rentals and a decrease in amortization of tenant improvements. The
decrease between 1993 and 1994 was due primarily to an increase in operating
expenses. Joint venture earnings from Medlock Oaks were $240,331, $270,638 and
$197,032 in the corresponding years. The decrease in net operating income at
this property in 1995 is the result of the decrease in average occupancy, as
well as the write-off of tenant improvements during the year. The increase
during 1994 as compared to 1993 was due to an increase in the average occupancy
rate.
<PAGE>
Interest on cash equivalents and short-term investments increased by
$15,000 in 1994 and $36,000 in 1995 as compared to the respective prior years,
primarily as a result of increases in short-term yields. Average invested
balances were also higher in both years.
Cash flow from operations decreased in 1995 compared to 1994, and
increased in 1994 compared to 1993. These changes are largely in line with the
respective change in operating results before the investment valuation
allowances.
Portfolio Expenses
General and administrative expenses primarily consist of real estate
appraisal, accounting, printing and servicing agent fees. These expenses
increased 12% between 1994 and 1995, primarily due to increased professional
fees. General and administrative expenses decreased 2% in 1994 as compared to
1993, primarily due to lower professional 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. The
fee decreased in 1995 compared to 1994, and increased in 1994 compared to 1993,
consistent with the respective changes in distributable cash flow.
Inflation
---------
By their nature, real estate investments tend not to be adversely affected
by inflation. Inflation may tend to result in appreciation in the value of the
Partnership's real estate investments over time, if rental rates and
replacement costs increase. Declines in real property values during the period
of Partnership operations, due to market and economic conditions, have
overshadowed the overall positive effect inflation may have on the value of the
Partnership's investments.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
See the Financial Statements of the Partnership included as a part of
this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
--------------------
The Partnership has had no disagreements with its accountants on any
matters of accounting principles or practices or financial statement
disclosure.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
--------------------------------------------------
(a) and (b) Identification of Directors and Executive Officers.
--------------------------------------------------
The following table sets forth the names of the directors and executive
officers of the Managing General Partner and the age and position held by each
of them as of December 31, 1995.
<TABLE>
<CAPTION>
Name Position(s) with the Managing General Partner Age
- -------------------------- ----------------------------------------------- ---
<S> <C> <C>
Joseph W. O'Connor President, Chief Executive Officer and Director 49
Daniel J. Coughlin Managing Director and Director 43
Peter P. Twining Managing Director, General Counsel and Director 49
Wesley M. Gardiner, Jr. Vice President 37
Daniel C. Mackowiak Principal Financial and Accounting Officer 44
</TABLE>
Mr. O'Connor and Mr. Coughlin have served in an executive capacity since
the organization of the Managing General Partner on November 14, 1985. Mr.
Gardiner and Mr. Twining have served in their capacities since June 1994, and
Mr. Mackowiak has served in his capacity as of January 1, 1996. All of these
individuals will continue to serve in such capacities until their successors
are elected and qualify.
(c) Identification of Certain Significant Employees.
-----------------------------------------------
None.
(d) Family Relationships.
--------------------
None.
(e) Business Experience.
-------------------
The Managing General Partner was incorporated in Massachusetts on
November 14, 1985. The background and experience of the executive officers and
directors of the Managing General Partner are as follows:
Joseph W. O'Connor has been President, Chief Executive Officer and a
Director of Copley Real Estate Advisors, Inc. ("Copley") since January, 1982.
He was a Principal of Copley from 1985 to 1987 and
<PAGE>
has been a Managing Director of Copley since January 1, 1988. He has been
active in real estate for 27 years. From June, 1967, until December, 1981, he
was employed by New England Mutual Life Insurance Company ("The New England"),
most recently as a Vice President in which position he was responsible for The
New England's real estate portfolio. He received a B.A. from Holy Cross College
and an M.B.A. from Harvard Business School.
Daniel J. Coughlin was a Principal of Copley from 1985 to 1987 and has
been a Managing Director of Copley since January 1, 1988 and a Director of
Copley since July 1994. Mr. Coughlin has been active in financial management
and control for 21 years. From June, 1974 to December, 1981, he was Real
Estate Administration Officer in the Investment Real Estate Department at The
New England. Since January, 1982, he has been in charge of the asset
management division of Copley. Mr. Coughlin is a Certified Property Manager
and a licensed real estate broker. He received a B.A. from Stonehill College
and an M.B.A. from Boston University.
Peter P. Twining is a Managing Director and General Counsel of Copley.
As such, he is responsible for general legal oversight and policy with respect
to Copley and its investment portfolios. Before being promoted to this
position in January 1994, he was a Vice President/Principal and senior lawyer
responsible for assisting in the oversight and management of Copley's legal
operations. Before joining Copley in 1987, he was a senior member of the Law
Department at The New England and was associated with the Boston law firm,
Ropes and Gray. Mr. Twining is a graduate of Harvard College and received his
J.D. in 1979 from Northeastern University.
Wesley M. Gardiner, Jr. joined Copley in 1990 and has been a Vice
President at Copley since January, 1994. From 1982 to 1990, he was employed by
Metric Realty, a nationally-known real estate investment advisor and
syndication firm, as a portfolio manager responsible for several public and
private limited partnerships. His career at Copley has included asset
management responsibility for the company's Georgia and Texas holdings.
Presently, as a Vice President and Team Leader, Mr. Gardiner has overall
responsibility for all the partnerships advised by Copley whose securities are
registered under the Securities and Exchange Act of 1934. He received a B.A.
in Economics from the University of California at San Diego.
Daniel C. Mackowiak has been a Vice President of Copley since January 1989
and has been a Vice President and the Principal Financial and Accounting
Officer of the Managing General Partner since January 1996. Mr. Mackowiak
previously held the offices of Chief Accounting Officer of Copley from January
1989 through April 1994 and Vice President and Principal Financial and
Accounting Officer of the Managing General Partner between January 1989 and May
1994. From 1975 until joining Copley, he was employed by the public accounting
firm of Price Waterhouse, most recently as a Senior Audit Manager. He is a
certified public accountant and has been active in the field of accounting his
entire business career. He received a B.S. from Nichols College and an M.B.A.
from Cornell University.
<PAGE>
Mr. O'Connor is a director of Copley Properties, Inc., a Delaware
corporation organized as a real estate investment trust which is listed for
trading on the American Stock Exchange. None of the other directors of the
Managing General Partner is a director of a company with a class of securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934. All
of the directors and officers of the Managing General Partner also serve as
directors and officers of one or more corporations which serve as general
partners of publicly-traded real estate limited partnerships which are
affiliated with the Managing General Partner.
(f) Involvement in Certain Legal Proceedings.
----------------------------------------
None.
Item 11. Executive Compensation.
----------------------
Under the Partnership Agreement, the General Partners and their
affiliates are entitled to receive various fees, commissions, cash
distributions, allocations of taxable income or loss and expense reimbursements
from the Partnership. See Notes 1 and 7 of Notes to the Financial Statements.
The following table sets forth the amounts of the fees and cash
distributions and reimbursements of out-of-pocket expenses which the
Partnership paid to or accrued for the account of the General Partners and
their affiliates for the year ended December 31, 1995. Cash distributions to
General Partners include amounts distributed after year end with respect to
1995.
<TABLE>
<CAPTION>
Amount of Compensation
Receiving Entity Type of Compensation and Reimbursement
- ------------------------------- --------------------------- ----------------------
<S> <C> <C>
Copley Real Estate Advisors, Management Fees and
Inc. Reimbursement of Expenses $233,661
General Partners Share of Distributable Cash 21,833
New England Securities Servicing Fees and
Corporation Reimbursement of Expenses 3,193
--------
TOTAL $258,687
========
</TABLE>
<PAGE>
For the year ended December 31, 1995, the Partnership allocated $16,697
of taxable income to the General Partners. See Note 1 of Notes to Financial
Statements for additional information about transactions between the
Partnership and the General Partners and their affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
-----------------------------------------------
No person or group is known by the Partnership to be the beneficial
owner of more than 5% of the outstanding Units at December 31, 1995. Under the
Partnership Agreement, the voting rights of the Limited Partners are limited
and, in some circumstances, are subject to the prior receipt of certain
opinions of counsel or judicial decisions.
Except as expressly provided in the Partnership Agreement, the right
to manage the business of the Partnership is vested exclusively in the Managing
General Partner.
(b) Security Ownership of Management.
---------------------------------
The General Partners of the Partnership owned no Units at December
31, 1995.
(c) Changes in Control.
-------------------
There exists no arrangement known to the Partnership, the operation
of which may at a subsequent date result in a change in control of the
Partnership.
Item 13. Certain Relationships and Related Transactions.
-----------------------------------------------
The Partnership has no relationships or transactions to report other than
as reported in Item 11, above.
PART IV
-------
Item 14. Exhibits, Financial Statements, 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 Schedule, Financial Statement
Index No. 2 and Financial Statement Index No. 3 are filed as part of this
Annual Report.
(2) Financial Statement Schedule--The Financial Statement Schedule
listed on the accompanying Index to Financial Statements and Schedule is 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. During the last quarter of the year ended
December 31, 1995, the Partnership filed no Current Report on Form 8-K.
<PAGE>
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Page #
Report of Independent
Accountants.......................................................
Financial Statements:
Balance Sheet - December 31, 1995 and 1994...................
Statement of Operations - For the Years Ended December 31,
1995, 1994 and 1993..........................................
Statement of Changes in Partners' Capital (Deficit) -
For the Years Ended December 31, 1995, 1994 and 1993.........
Statement of Cash Flows - For the Years Ended December 31,
1995, 1994 and 1993..........................................
Notes to Financial Statements................................
Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1995............................................
<PAGE>
Report of Independent Accountants
---------------------------------
To the Partners
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
In our opinion, based upon our audits and the reports of other auditors, for
the years ended December 31, 1995, 1994 and 1993, the financial statements
listed in the accompanying index present fairly, in all material respects, the
financial position of Copley Realty Income Partners 1; A Limited Partnership
(the "Partnership") at 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.
These financial statements are the responsibility of First Income Corp., the
Managing General Partner of the Partnership; our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the financial statements of the Partnership's Anaheim Distribution Center and
Medlock Oaks joint venture investees for the years ended December 31, 1995,
1994 and 1993, which results of operations are recorded using the equity method
of accounting in the Partnership's financial statements. Equity in joint
venture income for these joint venture investees aggregated $490,643, $452,881
and $387,895 for the years ended December 31, 1995, 1994 and 1993,
respectively. Those statements were audited by other auditors whose reports
thereon have been furnished to us, and our opinion expressed herein, insofar as
it relates to the amounts included for the equity in joint venture income for
Anaheim Distribution Center and Medlock Oaks for the years ended December 31,
1995, 1994 and 1993, is based solely on the reports of the other auditors. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which 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 accounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by the Managing
General Partner, and evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors for the years
ended December 31, 1995, 1994 and 1993 provide a reasonable basis for the
opinion expressed above.
As discussed in Note 2 to the financial statements, the Partnership changed its
method of accounting for impaired long-lived assets and for long-lived assets
to be disposed of effective January 1, 1995 in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of".
/s/ Price Waterhouse LLP
Boston, Massachusetts
March 11, 1996
<PAGE>
<TABLE>
<CAPTION>
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
BALANCE SHEET
December 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Real estate investments:
Property, net $13,441,466 $16,284,661
Joint ventures 8,971,192 9,326,690
----------- -----------
22,412,658 25,611,351
Cash and cash equivalents 449,092 1,638,294
Short-term investments 1,465,991 299,205
Deferred rent receivable 558,730 721,961
----------- -----------
$24,886,471 $28,270,811
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Mortgage loan $ 4,238,857 $ 4,363,307
Accounts payable 276,581 274,141
Accrued management fee 51,820 60,456
----------- -----------
Total liabilities 4,567,258 4,697,904
----------- -----------
Partners' capital (deficit):
Limited partners ($ 1,000 per unit;
100,000 units authorized, 34,581
units issued and outstanding) 20,422,156 23,643,312
General partners (102,943) (70,405)
----------- -----------
Total partners' capital 20,319,213 23,572,907
----------- -----------
$24,886,471 $28,270,811
=========== ===========
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
<TABLE>
<CAPTION>
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
Year ended December 31,
-------------------------------------
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
INVESTMENT ACTIVITY
Property rentals $ 2,264,643 $2,538,256 $2,533,180
Depreciation and amortization (423,712) (493,677) (485,314)
Interest and other expenses (461,163) (466,395) (452,840)
----------- ---------- ----------
1,379,768 1,578,184 1,595,026
Joint venture earnings 490,643 452,881 387,895
Investment valuation allowances (2,600,000) (200,000) -
----------- ---------- ----------
Total real estate operations (729,589) 1,831,065 1,982,921
Interest on cash equivalents
and short-term investments 109,494 73,230 58,261
----------- ---------- ----------
Total investment activity (620,095) 1,904,295 2,041,182
----------- ---------- ----------
PORTFOLIO EXPENSES
Management fee 215,915 241,825 228,870
General and administrative 147,214 131,246 133,292
----------- ---------- ----------
363,129 373,071 362,162
----------- ---------- ----------
NET INCOME (LOSS) $ (983,224) $1,531,224 $1,679,020
=========== ========== ==========
Net income (loss) per limited partnership unit $(28.15) $43.84 $ 48.07
=========== ========== ==========
Cash distributions per limited
partnership unit $65.00 $70.00 $ 65.00
=========== ========== ==========
Number of limited partnership units
outstanding during the year 34,581 34,581 34,581
=========== ========== ==========
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------------
1995 1994 1993
------------------------ ----------------------- -----------------------
General Limited General Limited General Limited
Partners Partners Partners Partners Partners Partners
---------- ------------ --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $ (70,405) $23,643,312 $(61,266) $24,548,070 $(55,351) $25,133,605
Cash distributions (22,706) (2,247,764) (24,451) (2,420,670) (22,705) (2,247,765)
Net income (loss) (9,832) (973,392) 15,312 1,515,912 16,790 1,662,230
--------- ----------- -------- ----------- -------- -----------
Balance at end of year $(102,943) $20,422,156 $(70,405) $23,643,312 $(61,266) $24,548,070
========= =========== ======== =========== ======== ===========
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
<TABLE>
<CAPTION>
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
Year ended December 31,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (983,224) $ 1,531,224 $ 1,679,020
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 423,712 493,677 485,314
Investment valuation allowances 2,600,000 200,000 -
Equity in joint venture net income (490,643) (452,881) (387,895)
Cash distributions from joint
ventures 813,600 691,428 755,048
Increase in other net assets (168,853) - -
Decrease in deferred rent
receivable 145,390 122,719 18,711
Increase (decrease) in operating liabilities (6,197) 42,715 (24,932)
----------- ----------- -----------
Net cash provided by operating activities 2,333,785 2,628,882 2,525,266
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in joint ventures - - (30,000)
Investment in property - (10,567) (137,177)
Repayment of loan by joint venture 20,878 17,192 15,409
Decrease (increase) in short-term
investments, net (1,148,945) 348,256 375,838
----------- ----------- -----------
Net cash provided by (used in)
investing activities (1,128,067) 354,881 224,070
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of mortgage loan (124,450) (111,036) (100,510)
Distributions to partners (2,270,470) (2,445,121) (2,270,470)
----------- ----------- -----------
Net cash used in financing activities (2,394,920) (2,556,157) (2,370,980)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents (1,189,202) 427,606 378,356
Cash and cash equivalents:
Beginning of year 1,638,294 1,210,688 832,332
----------- ----------- -----------
End of year $ 449,092 $ 1,638,294 $ 1,210,688
=========== =========== ===========
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS
----------------------------------
General
-------
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, since it is considered in the best
interest of the limited partners.
The Managing General Partner of the Partnership is First Income Corp., a
wholly-owned subsidiary of Copley Real Estate Advisors, Inc. ("Copley"). The
associate general partner is CCOP Associates Limited Partnership, a
Massachusetts limited partnership, the general partners of which are managing
directors of Copley and/or officers of the Managing General Partner. Subject
to the Managing General Partner's overall authority, the business of the
Partnership is managed by Copley pursuant to an advisory contract. Copley 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 ("The New England"), the parent of NEIC's predecessor, is
NEIC's principal unitholder. In August 1995, The New England announced an
agreement to merge (the "Merger") with Metropolitan Life Insurance Company
("Metropolitan Life"), with Metropolitan Life to be the surviving entity. This
merger, which is subject to various policyholder and regulatory approvals, is
expected to take place in the first half of 1996. Metropolitan Life is the
second largest life insurance company in the United States in terms of total
assets, having assets of over $130 billion (and adjusted capital of over $8
billion) as of June 30, 1995.
Management
----------
Copley, as advisor, is entitled to receive stipulated fees from the
Partnership in consideration of services performed in connection with the
management of the Partnership and acquisition and disposition of Partnership
investments in real property. Partnership management fees are 9% of
distributable cash flow from operations, as defined, before deducting such
fees. Copley is also reimbursed for expenses incurred in connection with
administering the Partnership ($17,746 in 1995, $6,270 in 1994, and $20,085 in
1993). Acquisition fees were based on 3% of the gross proceeds from the
offering available for investment and paid at the time commitments were
initially funded. Disposition fees are generally 3% of the selling price of
property, but are subject to the prior receipt by the limited partners of their
capital contributions plus a stipulated return thereon.
<PAGE>
New England Securities Corporation, a direct subsidiary of The New
England, is engaged by the Partnership to act as its unit holder servicing
agent. Fees and out-of-pocket expenses for such services totaled $3,193, $4,468
and $3,510 in 1995, 1994 and 1993, respectively.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
Accounting Estimates
--------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Managing General Partner to make
estimates affecting the reported amounts of assets and liabilities, and of
revenues and expenses. In the Partnership's business, certain estimates
require an assessment of factors not within management's control, such as the
ability of tenants to perform under long-term leases and the ability of the
properties to sustain their occupancies in changing markets. Actual results,
therefore, could differ from those estimates.
Real Estate Joint Ventures
--------------------------
Investments in joint ventures, including loans made to joint ventures,
which are in substance real estate investments, are stated at cost plus (minus)
equity in undistributed joint venture income (losses). Allocations of joint
venture income (losses) were made to the Partnership's venture partners as long
as they had substantial economic equity in the project. Economic equity is
measured by the excess of the appraised value of the property over the
Partnership's total cash investment plus accrued preferential returns and
interest thereon. Currently, the Partnership records an amount equal to 100%
of the operating results of the property, after the elimination of all inter-
entity transactions.
Property
--------
Property includes land and buildings and improvements, which are stated at
cost less accumulated depreciation, plus other operating net assets. The
initial carrying value of a property previously owned by a joint venture equals
the Partnership's carrying value of the predecessor investment on the
conversion date.
Tenant leases at the properties provide for rental increases over the
respective lease terms. Rental revenue is being recognized on a straight-line
basis over the lease term. At December 31, 1995 and 1994, accrued rental
revenue amounted to $558,730 and $721,961, respectively.
Capitalized Costs
-----------------
Maintenance and repair costs are expensed 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 costs are also capitalized and amortized over the
related lease terms.
Acquisition fees have been capitalized as part of the cost of real estate
investments. Amounts not related to land are being amortized using the
straight-line method over the estimated useful lives of the underlying real
property.
<PAGE>
Realizability of Real Estate Investments
----------------------------------------
Effective January 1, 1995, with the Partnership's adoption of Statement of
Financial Accounting Standards No. 121 (SFAS 121) entitled "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
the carrying value of a real estate investment is reduced to its estimated fair
market value, if the investment carrying value is determined not to be
recoverable through expected undiscounted future cash flows. Further, if an
impaired investment is being held for sale, the carrying value is also reduced
for the estimated costs of sale. Property held for sale is not depreciated
during the holding period. Prior to the adoption of SFAS 121, the reduction in
the investment carrying value was to estimated net realizable value. During
1994, the Managing General Partner determined that the carrying value of the
Partnership's Medlock Oaks investment should be reduced by $200,000. During
1995, with the decision to sell the Zehntel property, the Managing General
Partner determined that its net carrying value should be reduced by $2,600,000.
The carrying value of an investment may be more or less than its current
appraised value. At December 31, 1995, the appraised value of one of the
Partnership's investments was approximately $1,400,000 greater than its
carrying value. The carrying values of the remaining investments approximated
their related appraised values. At December 31, 1994, the appraised value of
one of the Partnership's investments exceeded its related carrying value by
$1,300,000, and the appraised values of the remaining investments were less
than their related carrying values by an aggregate $1,300,000.
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.
Cash Equivalents and Short-Term Investments
-------------------------------------------
Cash equivalents are stated at cost, plus accrued interest. The
Partnership considers all highly liquid debt instruments purchased with a
maturity of ninety days or less to be cash equivalents; otherwise, they are
classified as short-term investments.
The Partnership has the positive intent and ability to hold all short-term
investments to maturity; therefore, short-term investments are carried at cost
plus accrued interest, which approximates market value. At December 31, 1995
and 1994, all investments are in commercial paper with less than five months
and one month, respectively, remaining to maturity.
Income Taxes
------------
A partnership is not liable for income taxes and, therefore, no provision
for income taxes is made in the financial statements of the Partnership. A
proportionate share of the Partnership's income is reportable on each partner's
tax return.
Per Unit Computations
---------------------
Per unit computations are based on the number of units of limited
partnership interest outstanding during the year. The actual per unit amount
will vary by partner depending on the date of admission to, or withdrawal from,
the Partnership.
<PAGE>
NOTE 3 - INVESTMENTS IN PROPERTY
--------------------------------
The following is a summary of the Partnership's two investments in
property:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Land $ 7,973,584 $ 7,973,584
Buildings and improvements 12,085,214 12,085,214
Investment valuation allowance (2,600,000) -
Other net assets 156,818 -
Accumulated depreciation (4,174,150) (3,774,137)
----------- -----------
Net carrying value $13,441,466 $16,284,661
=========== ===========
</TABLE>
Zehntel
-------
On September 11, 1986, the Partnership acquired two one-story research and
development buildings and land located in Walnut Creek, California, subject to
a first mortgage loan (See Note 5). The total net carrying value was
$9,533,690 and $12,221,487 at December 31, 1995 and 1994, respectively. The
buildings are being depreciated over 25 years. Both buildings were leased to a
single tenant for a ten year term ending June 1996, and this tenant
subsequently sub-leased one of the buildings. The sub-tenant has entered into
a new six-year lease for the building it occupies, to commence upon expiration
of the original lease. The original tenant has entered into a new lease for
the other building for a term expiring in December 2000, with two five-year
renewal options. The various leases provide for the lessee to pay
substantially all operating expenses. In partial consideration for the
original tenant's new lease, the Partnership agreed to a reduction in the
annual rent for the remainder of the original lease term. Both new leases
provide for periodic rent increases, either in fixed increments or based on
Consumer Price Index "CPI" increases. Minimum annual rentals under non-
cancelable leases are as follows: 1996 - $1,512,090; 1997 - $1,279,500; 1998 -
$1,334,964; 1999 - $1,365,882; 2000 - $1,396,800; thereafter - $1,336,994.
In the third quarter of 1995, with the decision to sell the property, the
Managing General Partner determined that the Partnership would not likely
recover the carrying value of this investment over the shortened investment
period. Accordingly, the carrying value was reduced by $2,200,000 with a
charge to operations. In February 1996, the Partnership entered into a
contract to sell this property. The carrying value was further reduced by
$400,000 as of the fourth quarter, with the refinement of the estimate based on
the terms of the pending sale transaction. For the year ended December 31,
1995, Zehntel's operating results were as follows: revenues - $1,644,753;
depreciation expense - $244,615; interest and other expenses - $443,890.
<PAGE>
United Exposition
-----------------
On October 28, 1987, the Partnership acquired two industrial buildings and
land located in Las Vegas, Nevada. The total net carrying value was $3,907,776
and $4,063,174 at December 31, 1995 and 1994, respectively. The buildings are
being depreciated over 17 and 31.5 years. The Partnership leased 100% of the
space to a single tenant under an agreement which has a term of twelve years
ending in October 1999 and an initial annual rental of $536,000, increasing
every five years by 20%. Under the terms of the lease, the lessee is
responsible for all property operating expenses.
NOTE 4 - REAL ESTATE JOINT VENTURES
-----------------------------------
The Partnership has invested in two real estate joint ventures organized
as general partnerships with a real estate management/development firm. It
made capital contributions to the ventures, which are subject to preferential
cash distributions at a specified rate and to priority distributions with
respect to sale or refinancing proceeds. The Partnership also made loans to
these ventures which have been accounted for as real estate investments due to
the attendant risks of ownership. 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 share in the event a
venture partner does not contribute proportionately.
The Partnership's venture partners are responsible for day-to-day
development and operating activities, although overall authority and
responsibility for the business is shared by the venturers. The respective
real estate management/development firms, or their affiliates, also provide
various services to the joint ventures for a fee.
The following is a summary of cash invested in joint ventures, net of
returns of capital or principal, and excluding investment acquisition fees:
<TABLE>
<CAPTION>
December 31,
Rate of Ownership ---------------------
Investment/Location Return/Interest Interest 1995 1994
--------------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Anaheim Distribution Center
Anaheim, California 10.5% 61.6% (C) $2,012,000 $2,012,000
11.0% (L) $2,670,331 $2,691,209
Prime (L) $ 454,276 $ 454,276
Medlock Oaks
Atlanta, Georgia 10.25% 57% (C) $1,932,300 $1,932,300
10.25% (L) $4,850,094 $4,850,094
</TABLE>
(C) Capital contribution
(L) Loan
<PAGE>
Anaheim Distribution Center
---------------------------
On December 30, 1986, the Partnership entered into a joint venture with an
affiliate of Davis Development to construct and operate an industrial facility
located in Anaheim, California. The Partnership made a capital contribution of
$2,000,000 which requires repayment on December 31, 1996. In addition, the
Partnership made a construction/permanent mortgage loan to the venture of
$2,750,000. Principal and interest became payable on a monthly basis, beginning
in January 1991, based on a thirty-year amortization schedule with a balloon
payment due at maturity on January 1, 1996. The Partnership subsequently
committed to make a deficit loan to the venture of up to $477,000, as did its
venture partner in an amount proportionate to its ownership interest. This loan
bore interest at the prime rate, and the Partnership funded the amounts shown
in the above summary. On June 4, 1993, the venture partner elected to no longer
contribute its proportionate share of deficits. Therefore, the Partnership made
an additional unmatched deficit loan in the amount of $12,000. As a result of
the unmatched deficit loan, the venture partner's ownership interest was
diluted from 40% to 38.4%, and the Partnership's share increased to 61.6%.
Effective January 1, 1996, all assets and obligations of the joint venture were
transferred to the Partnership, and the property became a wholly-owned
investment.
The aggregate minimum rents under non-cancelable leases are $410,035 and
$159,419 in l996 and 1997, respectively.
Medlock Oaks
------------
On December 4, 1987, the Partnership entered into a joint venture with an
affiliate of the Partnership and with an affiliate of Hill Properties, Ltd., to
construct and operate five warehouse and service center buildings. The
Partnership made a capital contribution of $1,932,300 to the venture. In
addition, the Partnership committed to make a construction/ permanent mortgage
loan to the venture of up to $4,964,700, which matures on December 4, 1997.
Interest is payable monthly.
On September 3, 1991, ownership of the investment was restructured as a
result of the development/management firm's decision not to contribute its
required proportionate share of capital to fund operating deficits at the
property. Its ownership interest was assigned pro rata to the Partnership and
its affiliate. As a result, the Partnership's ownership interest increased
from 38.19% to 57%.
The Managing General Partner determined in 1994 that the carrying value of
this investment should be reduced to its net realizable value. Accordingly,
the carrying value was reduced by $200,000 with a charge to operations.
The aggregate minimum rents due to the venture under non-cancelable leases
are $942,452, $805,640, $550,449, $168,271 and $69,210 in 1996 through 2000,
respectively.
<PAGE>
Summarized Financial Information
--------------------------------
The following summarized financial information is presented in the
aggregate for the investments in joint ventures:
<TABLE>
<CAPTION>
Assets and Liabilities
---------------------------------
December 31,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Assets
Real property, at cost less
accumulated depreciation
of $3,469,239 and $2,988,063 $11,520,507 $11,944,203
Other 352,804 446,568
----------- -----------
11,873,311 12,390,771
Liabilities 104,215 159,604
----------- -----------
Net assets $11,769,096 $12,231,167
=========== ===========
<CAPTION>
Results of Operations
---------------------------------
Year ended December 31,
-------------------------------------
1995 1994 1993
---------- ----------- -----------
<S> <C> <C> <C>
Revenue
Rental income $1,571,560 $ 1,524,741 $ 1,445,432
Other 110,184 113,514 72,475
---------- ----------- -----------
1,681,744 1,638,255 1,517,907
---------- ----------- -----------
Expenses
Depreciation and amortization 579,916 595,450 602,670
Operating expenses 409,923 365,800 358,741
---------- ----------- -----------
989,839 961,250 961,411
---------- ----------- -----------
Net income $ 691,905 $ 677,005 $ 556,496
========== =========== ===========
</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.
<PAGE>
NOTE 5- MORTGAGE LOAN
---------------------
The mortgage loan bears interest at the rate of 10% per annum and is
secured by the Partnership's Zehntel property (See Note 3). The loan matured
on October 1, 1995, at which time a six-month extension was granted by the
lender until April 1, 1996 under the same terms. A balloon payment of
$4,215,073 is due at maturity. The Partnership expects that the property will
be sold in the near term, and that the loan will be repaid with a portion of
the proceeds. In addition to the balloon payment, scheduled principal payments
are $22,816 in 1996. Interest of $428,900, $442,315 and $452,840 was paid in
1995, 1994 and 1993, respectively. The estimated market rate for a loan with
similar risk and maturity was 8.0% at December 31, 1995; however, because of
the short period this loan will be outstanding, its estimated fair value
approximates its carrying value.
NOTE 6 - INCOME TAXES
---------------------
The Partnership's income for federal income tax purposes differs from that
reported in the accompanying statement of operations as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss) per financial
statements $ (983,224) $1,531,224 $1,679,020
Timing differences:
Property rentals 303,432 48,406 (3,804)
Joint venture earnings (153,412) (58,493) 6,490
Expenses 3,978 3,978 7,694
Depreciation method (101,083) (19,083) (25,560)
Valuation allowance 2,600,000 200,000 -
---------- ---------- ----------
Taxable income $1,669,691 $1,706,032 $1,663,840
========== ========== ==========
</TABLE>
NOTE 7 - PARTNERS' CAPITAL
--------------------------
Allocation of net income (losses) from operations and distributions of
distributable cash from operations, as defined, are in the ratio of 99% to the
limited partners and 1% to the general partners. Cash distributions are made
quarterly.
Net sale proceeds and financing proceeds will be allocated first to
limited partners to the extent of their contributed capital plus a stipulated
return thereon, as defined, second to pay disposition fees, and then 85% to the
limited partners and 15% to the general partners. Income from sales will be
allocated in proportion to the distribution of related proceeds, provided that
the general partners are allocated at least 1%. Income or losses from sales,
if there are no residual proceeds after the repayment of the related debt, will
be allocated 99% to the limited partners and 1% to the general partners.
NOTE 8 - SUBSEQUENT EVENT
-------------------------
Distributions of cash from operations relating to the quarter ended
December 31, 1995 were made on January 25, 1996 in the aggregate amount of
$523,955 ($15.00 per limited partnership unit).
<PAGE>
COPLEY REALTY INCOME PARTNERS I;
A LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
Initial Cost to Costs Capitalized
the Partnership Subsequent to Gross amount at which
Acquisition Carried at Close of Period
-------------------------------- --------------------- --------------------------------------
Investment
Encum - Buildings & Improve - Carrying Buildings & Valuation
Description brances Land Improvements ments Costs Land Improvements Allowance
- ----------- ------- ----------- ------------ ---------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Two one-story R & D
buildings (145,000 sq.ft) on
11.1 acres in Walnut
Creek, California. Note A $6,777,729 $7,956,466 304,562 -- $6,777,729 $8,261,028 ($2,600,000)
and B
Two one-story concrete
industrial buildings and one
cooler/freezer building Note B $1,195,749 $3,980,657 347 -- $1,195,855 $3,981,004 $0
(128,178 sq.ft) on 6.5
acres in Las Vegas, Nevada.
----------------------------------------------------------------------------------------------
Total wholly owned $7,973,478 $11,937,123 $304,909 $7,973,584 $12,242,032 ($2,600,000)
==============================================================================================
<CAPTION>
<S> <C>
61.6% interest in
East Anaheim Distribution
Center Associates. Owners
of a warehouse --------------------See Note C ---------------------------------------------
(106,232 square feet) situated
on 4.9 acres of land in
Anaheim, California.
57% interest in Medlock Oaks
Associates. Owners of five --------------------See Note C ---------------------------------------------
warehouse and service center
buildings (173,916 square feet)
situated on 14.9 acres of land
in Atlanta, Georgia.
_____________________________________________________________________________
Total real estate joint ventures
=============================================================================
</TABLE>
COPLEY REALTY INCOME PARTNERS I;
A LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
Accumulated Date of Date Depreciable
Description Total Depreciation Construction Acquired Life
- ----------- ------------ -------------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C>
Two one-story R & D
buildings (145,000 sq.ft) on
11.1 acres in Walnut
Creek, California. $12,438,757 $2,905,067 1978 & 1980 09/11/86 25 Yrs
Two one-story concrete
industrial buildings and one
cooler/freezer building $5,176,859 $1,269,083 1964 & 1986 10/29/87 17 & 31.5 Yr
(128,178 sq.ft) on 6.5
acres in Las Vegas, Nevada.
-----------------------------------------------------------------------
Total wholly owned $17,615,616 $4,174,150
========================== ========================
61.6% interest in
East Anaheim Distribution
Center Associates. Owners
of a warehouse
(106,232 square feet) situated
on 4.9 acres of land in $ 3,763,820 N/A 1987 12/30/86 30 Yrs
Anaheim, California.
57% interest in Medlock Oaks
Associates. Owners of five
warehouse and service center Phase I -1987
buildings (173,916 square feet) $ 5,207,372 N/A Phase II-1990 12/4/87 30 / 15 Yrs
situated on 14.9 acres of land
in Atlanta, Georgia.
Total real estate joint ventures
_______________________________________________________________________
$8,971,192
=======================================================================
</TABLE>
Note: (A) First mortgage with principal balance of $4,238,857 at December 31,
1995 is held by John Hancock Mutual Life Ins. Co.
<PAGE>
COPLEY REALTY INCOME PARTNERS I
----------------------------
NOTE B TO SCHEDULE III
<TABLE>
<CAPTION>
Reconciliation of Real 1995 ACCUMULATED
Estate Owned 1995 1995 INVESTMENT DEPRECIATION 1995
BALANCE CAPITALIZED OTHER VALUATION BALANCE BALANCE DEPRECIATION
DESCRIPTION AT 12/31/94 IMPROVEMENTS NET ASSETS ALLOWANCE AT 12/31/95 AT 12/31/94 EXPENSE
- ------------ --------------------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Walnut Creek,
California $14,881,939 $0 $156,818 ($2,600,000) $12,438,757 $2,660,452 $244,615
Las Vegas, Nevada 5,176,859 0 0 0 5,176,859 1,113,685 155,398
--------------------------------------------------------------------------- ------------------------------
$20,058,798 $0 $156,818 ($2,600,000) $17,615,616 $3,774,137 $400,013
=========================================================================== ==============================
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of Real ACCUMULATED
Estate Owned DEPRECIATION
BALANCE BALANCE (NET)
DESCRIPTION AT 12/31/95 AT 12/31/95
- ------------ --------------- -------------
<S> <C> <C>
Walnut Creek, California $ $2,905,067 $ 9,533,690
Las Vegas, Nevada $1,269,083 3,907,776
--------------- -----------
$ $4,174,150 $13,441,466
=============== ===========
</TABLE>
NOTE C TO SCHEDULE III
<TABLE>
<CAPTION>
1995
1995 1995 AMORTIZATION 1995
PERCENT OF BALANCE CASH INVESTMENT EQUITY IN OF ACQUISITION REPAYMENT
DESCRIPTION OWNERSHIP AT 12/31/94 IN JOINT VENTURE INCOME (LOSS) FEES OF LOAN
- ------------ ---------- ------------ ---------------- ------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
East Anaheim 61.6% $3,928,424 $0 $250,312 ($3,960) ($20,878)
Distribution
Center
Associates
Medlock Oaks 57% 5,398,266 0 240,331 (7,703) 0
Associates
------------ ----------- --------------- ------------- ----------
$9,326,690 $0 $490,643 ($11,663) ($20,878)
============ =========== =============== ============= ==========
</TABLE>
<TABLE>
<CAPTION>
1995 CASH 1995
DISTRIBUTIONS INVESTMENT
FROM VALUATION BALANCE
JOINT VENTURE ALLOWANCE AT 12/31/95
--------------- ----------- ------------
<S> <C> <C> <C>
East Anaheim ($390,078) $0 $3,763,820
Distribution
Center
Associates
Medlock Oaks (423,522) 0 5,207,372
Associates
------------ ----------- ------------
($813,600) $0 $8,971,192
============ =========== ============
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
INDEX NO. 2
Report and Financial Statements
of East Anaheim Distribution Center Associates
Page #
Independent Auditor's Report of E & Y/Kenneth Leventhal.................
Balance Sheet - December 31, 1995 and 1994..............................
Statement of Operations - For the Years Ended
December 31, 1995, 1994 and 1993.......................................
Statement of Partners' Equity For the Years Ended
December 31, 1995, 1994 and 1993.......................................
Statement of Cash Flows - For the Years Ended
December 31, 1995, 1994 and 1993.......................................
Notes to Financial Statements...........................................
<PAGE>
[LOGO] ERNST & YOUNG LLP
[LETTERHEAD OF ERNST & YOUNG LLP]
Report of Independent Auditors
To the Partners
East Anaheim Distribution Center Associates
We have audited the accompanying balance sheets of East Anaheim Distribution
Center Associates (the "Partnership"), a California general partnership, as of
December 31, 1995 and 1994, and the related statements of operations, partners'
equity (deficit) and cash flows for the years ended December 31, 1995, 1994 and
1993. These financial statements are the responsibility of the Partnership's
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 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 financial statements referred to above present fairly, in
all material respects, the financial position of East Anaheim Distribution
Center Associates as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years ended December 31, 1995, 1994 and
1993 in conformity with generally accepted accounting principles.
On January 1, 1996, in consideration of Copley Realty Income Partners I ("CRIP")
releasing Davis Anaheim Distribution Center Associates (the "Developer") from
all claims it may have against the Developer pursuant to the terms of the
Partnership Agreement and loan documents relating to the note payable to
partner, CRIP and the Developer caused the Partnership to transfer all
Partnership assets and obligations to CRIP. Under the terms of the Partnership
Agreement, the disposition constitutes an event of dissolution and, accordingly,
CRIP and the Developer intend to dissolve the Partnership during 1996. The
<PAGE>
[LOGO] ERNST & YOUNG LLP
To the Partners
East Anaheim Distribution Center Associates
accompanying financial statements do not include any adjustments which resulted
from the January 1996 transfer or which may result from the Partnership's
dissolution.
/s/ ERNST & YOUNG LLP
January 19, 1996
<PAGE>
EAST ANAHEIM DISTRIBUTION CENTER ASSOCIATES
(a California general partnership)
Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Cash $ 49,091 $ 86,250
Accounts receivable - 2,474
Industrial real estate, less accumulated depreciation of
$1,208,342 (1995) and $1,087,953 (1994) (Notes 3 and 7) 3,646,224 3,766,613
Other assets, less accumulated amortization of
$63,258 (1995) and $102,044 (1994) 33,138 57,314
---------- ----------
$3,728,453 $3,912,651
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued liabilities $ 343,632 $ 312,860
Notes payable to partners (Notes 4 and 7) 3,415,457 3,436,335
Tenant deposits 35,179 35,319
---------- ----------
3,794,268 3,784,514
Commitments and contingencies (Note 5)
Partners' equity (deficit) (65,815) 128,137
---------- ----------
$3,728,453 $3,912,651
========== ==========
</TABLE>
See report of independent auditors and accompanying notes.
<PAGE>
EAST ANAHEIM DISTRIBUTION CENTER ASSOCIATES
(a California general partnership)
Statements of Operations
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Rental income $ 469,666 $ 437,045 $ 420,364
Other income - 2,253 4,286
Interest income 1,846 1,854 515
--------- --------- ---------
471,512 441,152 425,165
--------- --------- ---------
COSTS AND EXPENSES
Rental and operating expenses (Note 6) 80,093 81,871 56,911
Interest expense (Note 6) 360,772 350,095 342,959
Depreciation and amortization (Note 2) 154,099 190,030 190,383
--------- --------- ---------
594,964 621,996 590,253
--------- --------- ---------
NET LOSS $(123,452) $(180,844) $(165,088)
========= ========= =========
</TABLE>
See report of independent auditors and accompanying notes.
<PAGE>
EAST ANAHEIM DISTRIBUTION CENTER ASSOCIATES
(a California general partnership)
Statements of Partners' Equity (Deficit)
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Davis
Anaheim Total
Copley Distribution Partners'
Realty Income Center Equity
Partners I Associates (Deficit)
------------- ------------ ---------
<S> <C> <C> <C>
BALANCE - December 31, 1992 $ 462,059 $ 10 $ 462,069
Contributions 12,000 - 12,000
Net loss (165,088) - (165,088)
--------- ---- ---------
BALANCE - December 31, 1993 308,971 10 308,981
Net loss (180,844) - (180,844)
--------- ---- ---------
BALANCE - December 31, 1994 128,127 10 128,137
Distributions (70,500) - (70,500)
Net loss (123,452) - (123,452)
--------- ---- ---------
BALANCE - December 31, 1995 $ (65,825) $ 10 $ (65,815)
========= ==== =========
</TABLE>
See report of independent auditors and accompanying notes.
<PAGE>
EAST ANAHEIM DISTRIBUTION CENTER ASSOCIATES
(A CALIFORNIA GENERAL PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss $(123,452) $(180,844) $(165,088)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization 154,099 190,030 190,383
Decrease (increase) in accounts receivable 2,474 24,160 (13,963)
Increase in other assets (9,534) (19,826) (17,524)
Increase in accounts payable and accrued
liabilities 30,772 51,579 41,699
Decrease in tenant deposits (140) (52) (7,798)
--------- --------- ---------
Net cash provided by operating activities 54,219 65,047 27,709
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures on industrial real estate - (1,962) (2,595)
--------- --------- ---------
Net cash used in investing activities - (1,962) (2,595)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing (repayment) of notes payable to partners (20,878) (17,192) 2,591
Capital contributions (distributions) to partners (70,500) - 12,000
--------- --------- ---------
Net cash (used in) provided by financing activities (91,378) (17,192) 14,591
NET (DECREASE) INCREASE IN CASH (37,159) 45,893 39,705
CASH - beginning of year 86,250 40,357 652
--------- --------- ---------
CASH - end of year $ 49,091 $ 86,250 $ 40,357
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 319,578 $ 297,074 $ 298,857
========= ========= =========
</TABLE>
See report of independent auditors and accompanying notes.
<PAGE>
EAST ANAHEIM DISTRIBUTION CENTER ASSOCIATES
(a California general partnership)
Notes to Financial Statements
December 31, 1995, 1994 and 1993
1. ORGANIZATION
East Anaheim Distribution Center Associates (the "Partnership") is a California
general partnership established December 31, 1986 between Copley Realty Income
Partners I ("CRIP"), a Massachusetts limited partnership, and Davis Anaheim
Distribution Center Associates (the "Developer"), a California general
partnership. The purpose of the Partnership is to acquire and operate the
Partnership property consisting of industrial real estate located in Anaheim,
California.
During 1993, the Partnership requested deficit funding from the partners for
interim operating needs exclusive of preferred returns to partners. The funding
was provided entirely by CRIP. As a result, the Developer's ownership interest
was diluted in accordance with the terms of the Partnership Agreement.
Ownership interests were as follows:
Period Covered CRIP Developer
- -------------- ----------------
Prior to June 1993: 60% 40%
June 1993 - December 1995: 61.6% 38.4%
Profits from operations are allocated first to CRIP to the extent of preferred
return previously distributed and to the extent profits have not been previously
allocated on account thereof; and thereafter, in proportion to Partnership
interest. Losses from operations are allocated 100% to CRIP. Profits and
losses other than from operations are allocated according to the Partnership
Agreement.
CRIP is entitled to a preferred return on its unrecovered capital contribution
of 10% per annum payable on a monthly basis. CRIP is entitled to an additional
0.5% per annum cumulative preferential return on its capital contribution,
payable as cash is available. At December 31, 1995 and 1994, CRIP's unrecovered
capital contributions totaled $2,012,000 and the accumulated unpaid preferred
return was $851,004 and $633,990, respectively.
<PAGE>
EAST ANAHEIM DISTRIBUTION CENTER ASSOCIATES
(a California general partnership)
Notes to Financial Statements (continued)
1. ORGANIZATION (continued)
On January 1, 1996, in consideration of CRIP releasing the Developer from all
claims it may have against the Developer pursuant to the terms of the
Partnership Agreement and loan documents relating to the note payable to
partner, CRIP and the Developer caused the Partnership to transfer all
Partnership assets and obligations to CRIP (Note 7).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Industrial Real Estate
Industrial real estate is stated at cost and includes the cost of land,
building, tenant improvements and capitalized carrying costs. Expenditures for
renewals and betterments are capitalized; maintenance and repair costs are
expensed as incurred.
Income Taxes
No provision for income taxes or income tax benefits has been included in the
financial statements, as Partnership income or loss is reportable by the
partners on their respective tax returns.
Other Assets
Other assets consist principally of prepaid insurance, lease commissions, and
finance fees and commissions.
Rental Income
Rental income is recorded on a straight-line basis over the lease term. As a
result, a deferred rent receivable is created as rental income is recognized
during the free rent period of a lease. The deferred rent receivable is reduced
in future periods by the excess of cash rents received over economic accrual
rents recognized. There were no deferred rents receivables at December 31, 1995
and 1994.
<PAGE>
EAST ANAHEIM DISTRIBUTION CENTER ASSOCIATES
(a California general partnership)
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Depreciation and Amortization
Depreciation and amortization is computed using the straight-line method over
the assets' useful life. For the years ended December 31, 1995, 1994 and 1993,
depreciation and amortization consisted of:
Useful
Life 1995 1994 1993
-------------- -------- -------- --------
Industrial buildings 30 years $ 88,970 $ 88,670 $ 88,670
Tenant improvements 7 years 31,419 74,288 73,996
Lease commissions life of lease 26,168 19,530 20,175
Finance fees term of loan 7,542 7,542 7,542
-------- -------- --------
$154,099 $190,030 $190,383
======== ======== ========
3. INDUSTRIAL REAL ESTATE
Industrial real estate consists of one building located in Anaheim, California
which contains approximately 106,000 square feet of leasable space. It is
suitable for distribution, manufacturing and warehousing.
<PAGE>
EAST ANAHEIM DISTRIBUTION CENTER ASSOCIATES
(a California general partnership)
Notes to Financial Statements (continued)
3. INDUSTRIAL REAL ESTATE (continued)
The cost of industrial real estate at December 31 consists of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Land $ 1,662,131 $ 1,662,131
Building 2,660,115 2,660,115
Tenant improvements 532,320 532,320
----------- -----------
4,854,566 4,854,566
Less accumulated depreciation (1,208,342) (1,087,953)
----------- -----------
$ 3,646,224 $ 3,766,613
=========== ===========
</TABLE>
4. NOTES PAYABLE TO PARTNERS
Notes payable to partners at December 31 consist of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Loan payable to CRIP, secured by industrial real estate
held for investment, interest at 11%, payable in
monthly principal and interest payments of $26,189
through January 1, 1996, with a balloon payment of
$2,672,027 (Note 7) $ 2,670,331 $ 2,691,209
Unsecured note payable to CRIP, interest at prime rate,
due on demand 454,276 454,276
Unsecured note payable to the Developer, interest at
prime rate, due on demand 290,850 290,850
----------- -----------
$ 3,415,457 $ 3,436,335
=========== ===========
</TABLE>
<PAGE>
EAST ANAHEIM DISTRIBUTION CENTER ASSOCIATES
(a California general partnership)
Notes to Financial Statements (continued)
4. NOTES PAYABLE TO PARTNERS (continued)
Unsecured notes payable to partners and related accrued interest are to be
repaid from and only to the extent of available cash flow of the Partnership,
after payment of preferred returns to partners. The prime rate at December 31,
1995 and 1994 was 8.5% and 8.5%, respectively.
5. COMMITMENTS AND CONTINGENCIES
At December 31, 1995, the Partnership had leased the entire property under
noncancelable operating leases having terms ranging from approximately three to
five years.
Future minimum rentals exclusive of property tax, insurance and operating
expense reimbursements to be received under these noncancelable operating leases
for years ending December 31 are as follows:
<TABLE>
<S> <C>
1996 $410,035
1997 159,419
--------
$569,454
========
</TABLE>
6. RELATED PARTY TRANSACTIONS
Davis Partners, an affiliate of the Developer, is the property manager for the
industrial real estate and receives management fees equal to 3% of rental income
received. Management fees of $14,064, $13,349 and $11,313 were incurred and
paid during the years ended December 31, 1995, 1994 and 1993, respectively.
<PAGE>
EAST ANAHEIM DISTRIBUTION CENTER ASSOCIATES
(a California general partnership)
Notes to Financial Statements (continued)
6. RELATED PARTY TRANSACTIONS (continued)
During the years ended December 31, 1995, 1994 and 1993, the Partnership
incurred interest expense and paid interest to partners as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
CRIP
Interest expense $335,095 $329,238 $325,514
Interest paid $319,578 $297,074 $298,857
The Developer
Interest expense $ 25,677 $ 20,857 $ 17,445
</TABLE>
No interest was paid to Davis Partners in 1995, 1994 and 1993.
During the years ended December 31, 1995, 1994 and 1993, the Partnership
incurred lease commission costs of $0, $8,824 and $0, respectively, which were
paid to Davis Partners.
Accounts payable and accrued liabilities include interest of $196,002 and
$180,485 payable to CRIP as of December 31, 1995 and 1994, respectively, and
$128,411 and $102,734 payable to Davis Partners as of December 31, 1995 and
1994, respectively.
7. SUBSEQUENT EVENT
On January 1, 1996, in consideration of CRIP releasing the Developer from all
claims it may have against the Developer pursuant to the terms of the
Partnership Agreement and loan documents relating to the note payable to
partner, CRIP and the Developer caused the Partnership to transfer all
Partnership assets and obligations to CRIP.
<PAGE>
EAST ANAHEIM DISTRIBUTION CENTER ASSOCIATES
(a California general partnership)
Notes to Financial Statements (continued)
7. SUBSEQUENT EVENT (continued)
Under the terms of the Partnership Agreement, the disposition constitutes an
event of dissolution and, accordingly, CRIP and the Developer intend to dissolve
the Partnership during 1996. The accompanying financial statements do not
include any adjustments which resulted from the January 1996 transfer or which
may result from the Partnership's dissolution.
As a result of the transfer, the Partnership will realize a gain on
extinguishment of nonrecourse indebtedness in 1996 as follows:
<TABLE>
<S> <C>
Unpaid principal of permanent loans settled $3,415,457
Accrued unpaid interest 324,413
----------
Permanent loans extinguished 3,739,870
Other liabilities assumed by CRIP, including accounts payable
and security deposits 54,398
----------
Total loans extinguished and liabilities assumed 3,794,268
Cost of buildings and other assets transferred 3,728,453
----------
Gain on extinguishment of nonrecourse indebtedness $ 65,815
==========
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
INDEX NO. 3
Auditor's Report and Financial Statements
of Medlock Oaks Associates
Page #
Independent Auditor's Report of Habif, Arogeti and Wynne, P.C...........
Balance Sheet - December 31, 1995 and 1994..............................
Statement of Operations - For the Years Ended
December 31, 1995, 1994 and 1993.......................................
Statement of Changes in Venturer's Equity (Deficit) For the Years
Ended December 31, 1995, 1994 and 1993.................................
Statement of Cash Flows - For the Years Ended
December 31, 1995, 1994 and 1993.......................................
Notes to Financial Statements...........................................
<PAGE>
[LETTERHEAD OF HABIF, AROGETI & WYNNE, P.C.]
============================================
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
To the Venturers of
Medlock Oaks Associates
We have audited the accompanying balance sheets of MEDLOCK OAKS ASSOCIATES
[a joint venture] as of December 31, 1995 and 1994 and the related
statements of operations, changes in venturers' equity [deficit], and cash
flows for the years ended December 31, 1995, 1994, and 1993. These
financial statements are the responsibility of the Joint Venture's
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 MEDLOCK OAKS ASSOCIATES
as of December 31, 1995 and 1994 and the results of its operations and its
cash flows for the years ended December 31, 1995, 1994, and 1993 in
conformity with generally accepted accounting principles.
/s/ Habif, Arogeti & Wynne, P.C.
Atlanta, Georgia
January 18, 1996
<PAGE>
MEDLOCK OAKS ASSOCIATES
BALANCE SHEETS
DECEMBER 31,
ASSETS
------
<TABLE>
<CAPTION>
1 9 9 5 1 9 9 4
----------- -----------
<S> <C> <C>
Property, at cost, pledged as collateral
Land $ 2,083,500 $ 2,083,500
Buildings and improvements 5,762,432 5,753,786
Tenant improvements 3,085,687 3,036,853
----------- -----------
10,931,619 10,874,139
Allowance for depreciation [ 2,539,128] [ 2,139,493]
----------- -----------
8,392,491 8,734,646
----------- -----------
Cash 103,194 94,479
- ---- ----------- -----------
Other assets
- ------------
Receivables, net of allowance for doubtful
accounts of $17,000 and $12,000 84,391 99,217
Prepaid expenses -0- 2,400
Deferred lease commissions, net of accumulated
amortization of $292,868 and $149,545 82,990 104,434
----------- -----------
167,381 206,051
----------- -----------
$ 8,663,066 $ 9,035,176
=========== ===========
</TABLE>
LIABILITIES AND VENTURERS' DEFICIT
----------------------------------
<TABLE>
<CAPTION>
Liabilities
- -----------
<S> <C> <C>
Accounts payable and accrued expenses $ 2,267 $ 29,439
Notes payable 8,508,937 8,508,937
Guaranteed payments to venturer 1,824,244 1,476,769
Prepaid rent -0- 9,593
Security deposits 47,550 55,612
Accrued interest payable 1,662,684 1,318,912
---------- ----------
12,045,682 11,399,262
---------- ----------
Venturers' deficit
- ------------------
Copley Realty Income Partners 1 [ 1,928,093] [ 1,347,531]
Copley Realty Income Partners 2 [ 1,454,523] [ 1,016,555]
---------- ----------
[ 3,382,616] [ 2,364,086]
---------- ----------
$ 8,663,066 $ 9,035,176
========== ==========
</TABLE>
See auditors' report and accompanying notes
<PAGE>
MEDLOCK OAKS ASSOCIATES
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1 9 9 5 1 9 9 4 1 9 9 3
---------- ---------- ----------
<S> <C> <C> <C>
Revenues
- --------
Rental $1,101,894 $1,087,696 $1,025,068
Other 104,650 105,351 64,019
---------- ---------- ----------
1,206,544 1,193,047 1,089,087
---------- ---------- ----------
Expenses
- --------
Amortization 45,634 51,428 76,409
Bad debts 5,000 13,624 31,683
Depreciation 419,031 392,840 374,729
General operating 44,650 41,342 41,191
Insurance 4,440 4,489 4,461
Landscaping and grounds 24,867 14,475 14,400
Management fees 36,075 36,225 36,289
Professional fees 16,143 12,992 16,642
Property taxes 87,665 87,665 83,287
Repairs and maintenance 25,928 20,767 34,001
Utilities 43,270 52,350 39,876
---------- ---------- ----------
752,703 728,197 752,968
---------- ---------- ----------
Income from operations 453,841 464,850 336,119
---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
Other income [expense]
- ----------------------
<S> <C> <C> <C>
Loss on abandonment of tenant
improvements [41,792] -0- -0-
Interest income 3,688 4,056 3,655
Interest expense [1,086,792] [1,032,237] [ 983,003]
--------- --------- ---------
[1,124,896] [1,028,181] [ 979,348]
--------- --------- ---------
Net loss $[ 671,055] $[ 563,331] $[ 643,229]
========= ========= =========
</TABLE>
See auditors' report and accompanying notes
<PAGE>
MEDLOCK OAKS ASSOCIATES
STATEMENTS OF CHANGES IN VENTURERS' EQUITY [DEFICIT]
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
Copley Copley
Realty Realty
Income Income
Partners 1 Partners 2 Total
------------ ------------ ------------
<S> <C> <C> <C>
Balances, January 1, 1993 $[ 263,669] $[ 198,907] $[ 462,576]
Net loss [ 366,641] [ 276,588] [ 643,229]
Guaranteed payments [ 198,061] [ 149,414] [ 347,475]
--------- --------- ---------
Balances, December 31, 1993 [ 828,371] [ 624,909] [1,453,280]
Net loss [ 321,099] [ 242,232] [ 563,331]
Guaranteed payments [ 198,061] [ 149,414] [ 347,475]
--------- --------- ---------
Balances, December 31, 1994 [1,347,531] [1,016,555] [2,364,086]
Net loss [ 382,501] [ 288,554] [ 671,055]
Guaranteed payments [ 198,061] [ 149,414] [ 347,475]
--------- --------- ---------
Balances, December 31, 1995 $[1,928,093] $[1,454,523] $[3,382,616]
========= ========= =========
</TABLE>
See auditors' report and accompanying notes
<PAGE>
MEDLOCK OAKS ASSOCIATES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
Increase [Decrease] In Cash
<TABLE>
<CAPTION>
1 9 9 5 1 9 9 4 1 9 9 3
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
- ------------------------------------
Net loss $[671,055] $[563,331] $[643,229]
------- ------- -------
Adjustments to reconcile net loss
to net cash provided by
operating activities
Depreciation and amortization 464,665 444,267 451,138
Provision for allowance for
doubtful accounts 5,000 [ 5,500] [ 3,419]
Loss on abandonment of tenant
improvements 41,792 -0- -0-
Changes in assets and liabilities
Decrease in receivables 9,826 82,407 119,015
Decrease [Increase] in prepaid
expenses 2,400 [ 312] [ 1,292]
Increase in deferred lease
commissions [ 24,190] [ 29,373] [ 85,529]
Increase [Decrease] in accounts
payable and accrued expense [ 27,171] [164,553] 193,991
Decrease in prepaid rent [ 9,593] [ 33,693] [ 8,693]
Increase [Decrease] in
security deposits [ 8,062] [ 4,582] 4,076
Increase in accrued interest 343,772 340,390 182,668
------- ------- -------
Total adjustments 798,439 629,051 851,955
------- ------- -------
Net cash provided by
operating activities 127,384 65,720 208,726
------- ------- -------
Cash flows from investing activities
- ------------------------------------
Acquisition of property [118,669] [ 45,551] [297,286]
------- ------- -------
Net increase [decrease] in cash 8,715 20,169 [ 88,560]
-------------------------------
Cash, beginning of year 94,479 74,310 162,870
------ ------ -------
Cash, end of year $ 103,194 $ 94,479 $ 74,310
======= ====== ======
</TABLE>
See auditors' report and accompanying notes
<PAGE>
MEDLOCK OAKS ASSOCIATES
STATEMENTS OF CASH FLOWS [CONTINUED]
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1 9 9 5 1 9 9 4 1 9 9 3
--------- --------- ---------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH
- --------------------------------
FLOW INFORMATION
----------------
Cash paid during the years for
Interest $743,020 $691,847 $800,334
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES
- --------------------------------------------------------
Increases in accrued guaranteed payments of $347,475 are reflected as reduction
in venturers' equity for the years ended December 31, 1993, 1994, and 1995.
During 1995, $188,956 of fully amortized deferred leasing commissions were
retired.
See auditors' report and accompanying notes
<PAGE>
MEDLOCK OAKS ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, AND 1993
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Terms of the Joint Venture Agreement:
------------------------------------
MEDLOCK OAKS ASSOCIATES, a Georgia joint venture, was formed December 4, 1987
under an agreement between Copley Realty Income Partners 1 and 2 [CRIP 1 and
CRIP 2], two Massachusetts limited partnerships, and Hill Limited #10 [Hill],
a Georgia limited partnership, with initial ownership interests of 34.2%,
25.8% and 40%, respectively. Effective January 1, 1990, the respective
interests of the Venturers were: CRIP 1 -38.19%; CRIP 2 - 28.81%; and Hill -
33%. On September 3, 1991, the Joint Venture entered into an agreement for
the transfer and assignment of Hill's 33% Joint Venture interest to CRIP 1 and
CRIP 2. Upon execution of the agreement, CRIP 1 and CRIP 2's partnership
interests increased to 57% and 43%, respectively. Under this agreement, Hill
has no rights or entitlements to any future allocations and distributions or
to any amounts accrued as of the date of the transfer.
The purpose of the Venture is to own and operate Medlock Oaks Business Center
located in Gwinnett County, Georgia. The Project consists of two phases.
Phase I consists of three office/warehouse buildings with approximately
114,900 rentable square feet and was completed in December 1987. Phase II
consists of two office/warehouse buildings with approximately 60,200 rentable
square feet and was completed in May 1990.
CRIP 1 and CRIP 2 initially contributed $1,932,300 and $1,457,700 to the Joint
Venture. Except as provided in the Joint Venture Agreement, the Venturers
will not be required to make any further capital contributions.
The operating cash flow, as defined in the Joint Venture Agreement, must be
distributed in the following order of priority:
- To CRIP 1 and 2, pro rata, based on their respective amounts of invested
capital, in payment of any monthly guaranteed payments.
- To CRIP 1 and 2, pro rata, based on their respective amounts of invested
capital, in payment of any outstanding accrued monthly guaranteed payments.
- To the Venturers in payment of their default priority returns.
- To the Venturers in payment of their deficit preferred returns.
- To the Venturers in accordance with their respective interests.
<PAGE>
MEDLOCK OAKS ASSOCIATES
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1995, 1994, AND 1993
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: [Continued]
------------------------------------------
Capitalization:
--------------
All costs related to planning, development, and construction of the buildings
have been capitalized as construction costs. Costs incurred to form the Joint
Venture, obtain financing, and promote the development have also been
capitalized.
Interest incurred on the notes was capitalized during the 1990 construction
and lease up periods.
Property:
--------
Property is carried at cost. Expenditures for maintenance and repairs are
expensed currently, while renewals and betterments that materially extend the
life of an asset are capitalized. The cost of assets sold, retired, or
otherwise disposed of, and the related allowance for depreciation, are
eliminated from the accounts, and any resulting gain or loss is included in
operations.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets which are as follows:
Buildings and improvements 30 years
Tenant improvements 15 years
Amortization:
------------
Deferred lease commissions costs were capitalized and are being amortized on a
straight-line basis over the term of the related lease.
Leasing Revenue:
---------------
Income from operating leases, which includes scheduled increases over the
lease term, is recognized on a straight-line basis. For the years ended
December 31, 1995, 1994, and 1993, income recognized on a straight-line basis
was less than income which would have accrued in accordance with the lease by
approximately $5,000, $90,000, and $92,000, respectively. Receivables which
resulted from recognizing income on a straight-line basis totaled $80,670 at
December 31, 1995 and $86,168 at December 31, 1994.
<PAGE>
MEDLOCK OAKS ASSOCIATES
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1995, 1994, AND 1993
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: [Continued]
------------------------------------------
Receivables:
-----------
The Venture provides warehouse and office space to tenants located in the
metropolitan Atlanta area. Credit is issued based upon the size of the
company, its past history, and other factors. Tenants are approved by all
venturers. If any defaults occur, the accounting loss would be the value of
receivables owed by the tenant, any unamortized leasing commissions and,
possibly, tenant improvements provided to the tenant by the Venture.
Reclassifications:
-----------------
Certain prior year amounts have been reclassified to conform to the 1995
presentation.
Income Taxes:
------------
No provision has been made for income taxes because each venturer's
proportionate share of the Joint Venture income or loss is passed through to
be included in the individual tax return of the venturer.
B. NOTES PAYABLE:
-------------
Under the notes payable to CRIP 1 and CRIP 2, as amended effective January 1,
1990, the Joint Venture may borrow up to $8,710,000 ($4,964,700 from CRIP 1
and $3,745,300 from CRIP 2) at 10.25% for the construction of Phase I tenant
improvements, the Phase II building shell and Phase II tenant improvements.
The notes bear interest at an annual rate of 10.25% which is payable monthly
through December 4, 1997, at which date all outstanding principal and accrued
interest is due. The notes are secured by a first mortgage on the land and
buildings as well as an assignment of all leases and rental income. Total
principal due under these notes at December 31, 1995 and 1994 was $4,850,094
to CRIP 1 and $3,658,843 to CRIP 2.
Accrued interest of $1,083,815 and $954,668 relating to those notes has been
included in the accompanying balance sheets at December 31, 1995 and 1994,
respectively. The Joint Venture paid $743,020, $691,847, and $800,334 in
interest in 1995, 1994, and 1993, respectively.
C. GUARANTEED PAYMENTS:
-------------------
The Venture is required to make monthly guaranteed payments to CRIP 1 and 2
based on the amount of invested capital outstanding in CRIP 1 and 2's capital
accounts for each month during the year. The guaranteed payments accrue at
the rate of 10.25% per annum and unpaid guaranteed payments accrue at 10.25%
per annum. Guaranteed payments totaled $198,061 for CRIP 1 and $149,414 for
CRIP 2 in each of the last three years. Amounts accrued but unpaid are
$1,824,244 and $1,476,769 at December 31, 1995 and 1994, respectively.
Accrued interest related to the unpaid guaranteed payments totaled $578,869
and $364,244 at December 31, 1995 and 1994, respectively.
<PAGE>
MEDLOCK OAKS ASSOCIATES
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1995, 1994, AND 1993
D. FAIR VALUE OF FINANCIAL INSTRUMENTS:
-----------------------------------
The estimated fair value of the Venture's notes payable cannot be determined
without substantial cost because the fair value of the notes payable is
directly impacted by the amount of interest currently paid by the Venture, the
amount of interest to be paid in the future by the Venture and any net
proceeds to be received on the sale of the Venture's assets. The aggregate
carrying cost of notes payable totalled $8,508,937 with accrued interest of
$1,083,815. These notes mature on December 4, 1997 with a stated interest
rate of 10.25%.
E. LEASE RENTALS:
-------------
At present, the Joint Venture has approximately 19 tenants. Future minimum
rentals to be received under the existing leases at December 31, 1995, which
are classified and accounted for as operating leases, are as follows:
<TABLE>
<CAPTION>
December 31, Lease Revenues
------------ --------------
<S> <C>
1996 $942,452
1997 805,640
1998 550,449
1999 168,271
2000 69,210
--------
$2,536,022
=========
</TABLE>
F. MATTERS AFFECTING OPERATIONS:
----------------------------
The Joint Venture has incurred operating losses since inception and currently
projects operating losses and cash flow deficits for the next year in excess
of committed borrowing capacity. Therefore, the ability of the Joint Venture
to continue as a going concern is dependent upon obtaining additional
financing, or funding from CRIP 1 and CRIP 2, since the success of future
operations cannot be determined at this time.
The management of CRIP 1 and CRIP 2 has indicated its intentions to provide
the additional financing as needed by deferring payments of interest and
making capital contributions or loans to provide for continued operations of
the Joint Venture through at least January 1, 1997.
<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 REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
Date: March 11, 1996 By: /s/ Joseph W. O'Connor
----------------------
Joseph W. O'Connor
President of the
Managing General Partner
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.
Signature Title Date
--------- ----- ----
President, Principal
Executive Officer and
Director of the
/s/ Joseph W. O'Connor Managing General Partner March 11, 1996
- ---- ------------------
Joseph W. O'Connor
Principal Financial and
Accounting Officer of the
/s/ Daniel C. Mackowiak Managing General Partner March 11, 1996
- ---- -------------------
Daniel C. Mackowiak
Director of the
/s/ Daniel J. Coughlin Managing General Partner March 11, 1996
- ---- ------------------
Daniel J. Coughlin
Director of the
/s/ Peter P. Twining Managing General Partner March 11, 1996
- ---- ----------------
Peter P. Twining
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NUMBER PAGE NUMBER
- ---------------- -----------
10A. Corporation Grant Deed as recorded *
September 10, 1986 from NBS Equity
Corporation to the Registrant.
10B. Assignment of Lease, Escrow Agreement, *
Construction Contracts and Warranties
dated as of September 10, 1986 by and
between NBS Equity Corporation and
the Registrant.
10C. Spanish Trace Joint Venture Agreement *
dated as of October 15, 1986 between
Oxford Spanish Trace Partners and the
Registrant.
10D. Joint Venture Agreement of East Anaheim *
Distribution Center Associates ("East
Anaheim"), dated as of December 31, 1986,
by and between Davis Anaheim Distribution
Center Associates, a California general
partnership ("Davis") and the Partnership.
10E. Joint Venture Agreement of Medlock Oaks *
Associates ("Medlock Oaks"), dated as of
December 4, 1987, by and between the
Partnership and Copley Realty Income
Partners 2, a Limited Partnership
(collectively, the "Affiliates") and Hill
Limited #10, a Georgia limited partnership
("Hill").
10F. Promissory Note dated December 4, 1987 from *
Medlock Oaks to the Affiliates.
10G. Deed to Secure Debt and Security Agreement *
dated as of December 4, 1987 between Medlock
Oaks and the Affiliates.
10H. Loan Agreement dated as of December 4, 1987 *
between Medlock Oaks and the Affiliates.
10I. Office Warehouse Lease dated as of October 28, *
1987, by and between the Partnership and
United Exposition Service Co., Inc., a Texas
corporation.
_____________________________________________________
* PREVIOUSLY FILED AND INCORPORATED HEREIN BY REFERENCE.
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NUMBER PAGE NUMBER
- -------------- -----------
10J. Lease dated June 27, 1986 by and *
between NBS Equity Corporation, as
Landlord and Zehntel, Inc., as Tenant.
10K. Second Amendment to Joint Venture Agreement *
of Medlock Oaks Associates ("Medlock Oaks"),
dated as of January 1, 1990, by and among the
Registrant, Copley Realty Income Partners 2;
A Limited Partnership (collectively, the
"Affiliates") and Hill Limited #10, a Georgia
limited partnership ("Hill").
10L. Amended and Restated Promissory Note dated *
as of January 1, 1990, from Medlock Oaks to
the Affiliates.
10M. First Amendment to Deed to Secure Debt and *
Security Agreement dated as of January 1, 1990
between Medlock Oaks and the Affiliates.
10N. First Amendment to Loan Agreement dated as of *
January 1, 1990 between Medlock Oaks and the
Affiliates.
10O. First Amendment to Promissory Note effective *
as of January 1, 1991 by and between East
Anaheim Distribution Center Associates and the
Registrant.
10P. First Amendment to Construction Loan Agreement *
effective as of January 1, 1991 by and between
East Anaheim Distribution Center Associates and
the Registrant.
10Q. Transfer and Assignment of Joint Venture Interest *
in Medlock Oaks made and entered into as of
September 3, 1991 by and between Hill Limited #10,
a Georgia limited partnership, and the Registrant
and Copley Realty Income Partners 2; A Limited
Partnership, a Massachusetts limited partnership.
10R. Sublease dated as of March 16, 1994 by and between *
United Exposition Co., Inc. ("sublessor")and Hydra
Trucking, Inc. ("sublessee").
<PAGE>
10S. Consent to Assignment of Property Management *
Agreement between Medlock Oaks Associates and
Anderson & Senkbeil, Inc. dated June 1, 1991,
assigned to Weeks Corporation dated October 1
1992, to Weeks Realty Services, Inc., L.P. dated
August 1, 1994.
_____________________________________________________
* PREVIOUSLY FILED AND INCORPORATED HEREIN BY REFERENCE.
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