<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------------------------------------------------------------------
For Quarter Ended September 30, 1997 Commission File Number 0-15430
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Massachusetts 04-2893293
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
225 Franklin Street, 25th Fl.
Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(617) 261-9000
- --------------------------------------------------------------------------
Former name, former address and former fiscal year if changed since last report
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
<PAGE>
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1997
PART I
FINANCIAL INFORMATION
---------------------
<PAGE>
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
ASSETS
Real estate investments:
Property, net $ -- $3,684,199
Joint ventures -- 4,704,079
---------- ----------
-- 8,388,278
Property held for disposition 3,697,489 --
Cash and cash equivalents 664,659 1,166,590
Short-term investments 295,367 298,492
---------- ----------
$4,657,515 $9,853,360
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 42,840 $ 49,902
Accrued management fee 9,017 23,250
Deferred disposition fees 665,403 504,663
---------- ----------
Total liabilities 717,260 577,815
---------- ----------
Partners' capital (deficit):
Limited partners ($522 and $673
per unit, respectively; 100,000
units authorized, 34,581
units issued and
outstanding) 4,041,691 9,375,845
General partners (101,436) (100,300)
---------- ----------
Total partners' capital 3,940,255 9,275,545
---------- ----------
$4,657,515 $9,853,360
========== ==========
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended Quarter Ended Nine Months Ended
September 30, 1997 September 30, 1997 September 30, 1996 September 30, 1996
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY
Property rentals $130,229 $ 395,968 $ 192,306 $1,201,548
Property operating expenses (37,417) (100,791) (27,607) (80,951)
Depreciation and amortization (29,772) (91,751) (50,652) (174,619)
Interest and other expenses -- -- 352 (114,798)
-------- --------- ---------- ----------
63,040 203,426 114,399 831,180
Joint venture earnings -- 76,597 79,884 236,118
Gain on sale of property -- 507,980 885,059 885,059
Investment valuation allowance -- -- -- (250,000)
-------- --------- ---------- ----------
Total real estate operations 63,040 788,003 1,079,342 1,702,357
Interest on cash equivalents
and short term investments 13,627 65,898 29,917 88,048
-------- --------- ---------- ----------
Total investment activity 76,667 853,901 1,109,259 1,790,405
-------- --------- ---------- ----------
PORTFOLIO EXPENSES
Management fee 9,017 67,366 26,601 91,134
General and administrative 23,624 75,040 28,503 94,996
-------- --------- ---------- ----------
32,641 142,406 55,104 186,130
-------- --------- ---------- ----------
Net income $ 44,026 $ 711,495 $1,054,155 $1,604,275
======== ========= ========== ==========
Net income per
limited partnership unit $ 1.26 $ 20.37 $ 30.18 $ 45.93
======== ========= ========== ==========
Cash distributions per
limited partnership unit $ 13.52 $ 174.62 $ 158.68 $ 360.68
======== ========= ========== ==========
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Number of limited partnership
units outstanding during the period 34,581 34,581 34,581 34,581
======== ========= ========== ==========
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended Quarter Ended Nine Months Ended
September 30, 1997 September 30, 1997 September 30, 1996 September 30, 1996
---------------------- ---------------------- ---------------------- ----------------------
General Limited General Limited General Limited General Limited
Partners Partners Partners Partners Partners Partners Partners Partners
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
beginning of
period $(97,153) $4,465,640 $(100,300) $9,375,845 $(106,175) $13,981,413 $(102,943) $ 20,422,156
Cash
distributions (4,723) (467,535) (8,251) (6,038,534) (3,032) (5,487,313) (11,765) (12,472,675)
Net income 440 43,586 7,115 704,380 10,542 1,043,613 16,043 1,588,232
-------- ---------- --------- ---------- --------- ----------- --------- ------------
Balance at
end of period $(101,436) $4,041,691 $(101,436) $4,041,691 $(98,665) $9,537,713 $(98,665) $9,537,713
======== ========== ========= ========== ========= =========== ========= ============
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
SUMMARIZED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------
1997 1996
----------- ------------
<S> <C> <C>
Net cash provided by operating
activities $ 331,607 $ 1,088,808
----------- ------------
Cash flows from investing activities:
Net proceeds from sale of property 5,086,239 15,847,013
Increase in deferred disposition fees 160,740 504,663
Investment in property (36,385) (1,052,637)
Decrease in short-term
investments, net 2,653 1,442,670
----------- ------------
Net cash provided by
investing activities 5,213,247 16,741,709
----------- ------------
Cash flows from financing activities:
Repayment of mortgage loan -- (4,238,857)
Distributions to partners (6,046,785) (12,484,440)
----------- ------------
Net cash used in financing
activities (6,046,785) (16,723,297)
----------- ------------
Net increase (decrease) in cash
and cash equivalents (501,931) 1,107,220
Cash and cash equivalents:
Beginning of period 1,166,590 449,092
----------- ------------
End of period $ 664,659 $ 1,556,312
=========== ============
</TABLE>
Non-cash transaction:
Effective January 1, 1996, the Partnership's joint venture investment in East
Anaheim Distribution Center Associates was converted to a wholly-owned property.
The carrying value of this investment at conversion was $3,763,820.
(See accompanying notes to financial statements)
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the Partnership's
financial position as of September 30, 1997 and December 31, 1996 and the
results of its operations, its cash flows and partners' capital (deficit) for
the interim periods ended September 30, 1997 and 1996. These adjustments are of
a normal recurring nature.
See notes to financial statements included in the Partnership's 1996 Annual
Report on Form 10-K for additional information relating to the Partnership's
financial statements.
NOTE 1 - ORGANIZATION AND BUSINESS
- ----------------------------------
Copley Realty Income Partners 1; A Limited Partnership (the "Partnership")
is a Massachusetts limited partnership organized for the purpose of investing
primarily in newly-constructed and existing income-producing real properties.
The Partnership commenced operations in August 1986 and acquired the remaining
real estate investment it currently owns during 1986. The Partnership intended
to dispose of its investments within nine years of their acquisition, and then
liquidate; however, the managing general partner has extended the holding
period, having determined it to be in the best interest of the limited partners.
The Partnership intends to liquidate and dissolve in 1998. The Partnership has
engaged AEW Real Estate Advisors, Inc. (the "Advisor") to provide asset
management advisory services.
NOTE 2 -PROPERTY
- ----------------
Effective January 1, 1996, the East Anaheim Distribution Center joint
venture was dissolved and the venture partner's ownership interest was assigned
to the Partnership. Accordingly, as of this date, the investment is being
accounted for as a wholly-owned property. The carrying value of the joint
venture investment at conversion ($3,763,820) was allocated to land, building
and improvements, and other net operating assets.
The Zehntel property, located in Walnut Creek, California, was sold on
April 9, 1996.
On August 13, 1996, the United Exposition property, located in Las Vegas,
Nevada, was sold.
The following is a summary of the Partnership's investment in the East
Anaheim property:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------- ------------------
<S> <C> <C>
Land $1,279,147 $1,279,147
Buildings and improvements 2,519,289 2,482,904
Other net assets 53,326 5,819
Accumulated depreciation (154,273) (83,671)
---------- ----------
Net carrying value $3,697,489 $3,684,199
========== ==========
</TABLE>
<PAGE>
NOTE 3 - REAL ESTATE JOINT VENTURES
- -----------------------------------
On May 2, 1997, the Medlock Oaks buildings, which were owned by the
Partnership (57%) and an affiliate (43%), were sold for a total sales price of
$9,402,779. The Partnership received net proceeds of $5,246,979, after closing
costs, and recognized a gain of $507,980 ($14.54 per limited partnership unit)
on the sale. A disposition fee of $160,740 was accrued but not paid to the
Advisor. On May 29, 1997, the Partnership made a capital distribution of
$5,221,731 ($151 per limited partnership unit) from the proceeds of the sale.
The following summarized financial information relates to the Medlock Oaks
joint venture:
<TABLE>
<CAPTION>
Assets and Liabilities
----------------------
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Assets
Real property, at cost less
accumulated depreciation
of $0 and $2,821,679 $ $ 7,702,658
Other -- 288,149
------------------ -----------------
-- 7,990,807
Liabilities -- 86,084
------------------ -----------------
Net Assets $ -- $ 7,904,723
================== =================
<CAPTION>
Results of Operations
Period from
January 1, 1997 Nine Months Ended
through May 2, 1997 September 30, 1996
------------------- ------------------
<S> <C> <C>
Revenue
Rental income $400,861 $965,082
Other 735 1,627
------------------ -----------------
401,596 966,709
------------------ -----------------
Expenses
Depreciation and amortization 156,940 334,676
Operating expenses 112,258 209,318
------------------ -----------------
269,198 543,994
------------------ -----------------
Net income $ 132,398 $ 422,715
================== =================
</TABLE>
Liabilities and expenses exclude amounts owed and attributable to the
Partnership and its affiliate on behalf of their various financing arrangements
with the joint venture.
<PAGE>
NOTE 4 - SUBSEQUENT EVENT
- --------------------------
Distributions of cash from operations relating to the quarter ended
September 30, 1997 were made on October 30, 1997 in the aggregate amount of
$91,168 ($2.61 per limited partnership unit).
On October 24, 1997, the Partnership sold the East Anaheim property to an
institutional buyer (the "Buyer"), which is unaffiliated with the Partnership.
The selling price was determined by arm's length negotiations between the
Partnership and the Buyer. The East Anaheim property was sold for $4,700,000;
the Partnership received net proceeds of approximately $4,676,000. Accordingly,
the East Anaheim property has been reclassified on the Balance Sheet as
"Property held for disposition". This transaction will be accounted for in the
fourth quarter of 1997.
<PAGE>
Management's Discussion and Analysis of Financial Condition
- -----------------------------------------------------------
and Results of Operations
- -------------------------
Liquidity and Capital Resources
The Partnership completed its offering of units of limited partnership
interest in April 1987, and a total of 34,581 units were sold. The Partnership
received proceeds of $30,812,718, net of selling commissions and other offering
costs, which have been invested in real estate, used to pay related acquisition
costs or retained as working capital reserves. In connection with two sales in
1996, capital of $11,307,987 has been returned to the limited partners. On
April 25, 1996, the Partnership made a capital distribution of $177 per limited
partnership unit, which reduced the adjusted capital contribution to $823 per
unit. On August 29, 1996, the Partnership made a capital distribution of $150
per limited partnership unit, which reduced the adjusted capital contribution to
$673 per unit.
On May 2, 1997, the Medlock Oaks buildings, which were owned by the
Partnership (57%) and an affiliate (43%), were sold for a total sales price of
$9,402,779. The Partnership received net proceeds of $5,246,979, after closing
costs, and recognized a gain of $507,980 ($14.54 per limited partnership unit)
on the sale. A disposition fee of $160,740 was accrued but not paid to the
Advisor. On May 29, 1997, the Partnership made a capital distribution of
$5,221,731 ($151 per limited partnership unit) from the proceeds of the sale.
The distribution reduced the adjusted capital contribution to $522 per unit.
At September 30, 1997, the Partnership had $960,026 in cash and cash
equivalents and short-term investments, of which $91,168 was used for cash
distributions to partners on October 30, 1997; the remainder is being retained
for working capital reserves. The source of future liquidity and cash
distributions to partners will primarily be cash generated by the Partnership's
short-term investments. Distributions of cash from operations relating to the
first three quarters of 1996 were made at an annualized rate of 4.0%; the first
quarter 1996 distribution was based on a capital contribution of $1,000 per
unit; the second and third quarter 1996 distributions were based on the weighted
average adjusted capital contribution. Distributions of cash from operations
were made at an annualized rate of 2.0% for the first three quarters of 1997;
the first quarter 1997 distribution was based on the adjusted capital
contribution of $673 per unit; the second quarter 1997 distribution was based on
the weighted average adjusted capital contribution; the third quarter 1997
distribution was based on the adjusted capital contribution of $522 per unit.
The distribution rate was decreased in 1997, in line with the cash flow
decreases resulting from the sale of the Zehntel and United Exposition
investments, and the impending sale of Medlock Oaks during the second quarter of
1997.
<PAGE>
On October 24, 1997, the Partnership sold the East Anaheim property to an
institutional buyer (the "Buyer"), which is unaffiliated with the Partnership.
The selling price was determined by arm's length negotiations between the
Partnership and the Buyer. The East Anaheim property was sold for $4,700,000;
the Partnership received net proceeds of approximately $4,676,000. Accordingly,
the East Anaheim property has been reclassified on the Balance Sheet as
"Property held for disposition". This transaction will be accounted for in the
fourth quarter of 1997.
Results of Operations
Form of Real Estate Investments
The Medlock Oaks investment was structured as a joint venture with an
affiliate of the Partnership. The Anaheim investment was structured as a joint
venture with a real estate management/development firm. Effective January 1,
1996, however, the East Anaheim venture was dissolved and all of its assets and
liabilities were transferred to the Partnership, whereby the property became
wholly-owned by the Partnership. The Zehntel and United Exposition investments,
which were sold in April and August of 1996, respectively, were wholly-owned
properties.
Operating Factors
The Zehntel property, which is comprised of two R&D buildings, was fully
leased at the time of its sale.
The United Exposition property also consists of two buildings which had
been 100% leased to one tenant at the time of sale.
As discussed above, the Partnership and its affiliate sold the Medlock Oaks
buildings on May 2, 1997, and recognized a gain of $507,980. Occupancy at
Medlock Oaks increased from 92% at March 31, 1997 to 100% as of the sale date.
(Occupancy was 97% at December 31, 1996 and 95% at September 30, 1996.) 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. In the
first quarter of 1996, the managing general partner determined that the
Partnership would be unable to recover the carrying value of this investment
and, accordingly, the carrying value was further reduced by $250,000 through a
charge to operations.
Occupancy at East Anaheim remained at 100% at September 30, 1997.
(Occupancy was also 100% at December 31, 1996 and September 30, 1996.)
<PAGE>
Investment Results
Exclusive of joint venture earnings from Medlock Oaks of $76,597 in 1997
and $236,118 in 1996, as well as the gains on sale in 1997 and 1996, and the
valuation allowance also related to Medlock Oaks in 1996, aggregate operating
results from real estate investments were approximately $203,000 and $831,000
for the first nine months of 1997 and 1996, respectively. The decline is
primarily due to the sale of the Zehntel and United Exposition properties during
1996 which resulted in a decrease of approximately $608,000.
Interest on cash equivalents and short-term investments decreased by
approximately $22,000, or 25%, between the two nine-month periods primarily due
to lower average invested balances, slightly offset by higher short-term yields.
Cash flow provided by operating activities decreased by $757,000 between
the first nine months of 1996 and 1997. This change was primarily caused by the
Zehntel and United Exposition sales, which resulted in a net reduction of
approximately $587,000 due to lower revenues and interest expense. Cash flow
also declined due to a decrease in cash distributions from Medlock Oaks, along
with an increase in working capital items.
Portfolio Expenses
General and administrative expenses primarily consist of real estate
appraisal, legal, accounting, printing and servicing agent fees. These expenses
decreased approximately $20,000, or 21%, for the first nine months of 1997 as
compared to the same period in 1996, primarily due to decreases in appraisal and
accounting fees.
The Partnership management fee is 9% of distributable cash flow from
operations after any increase or decrease in working capital reserves as
determined by the managing general partner. Management fees decreased between
the two nine-month periods due to the decrease in distributable cash flow.
<PAGE>
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1997
PART II
OTHER INFORMATION
-------------------
Items 1-5 Not Applicable
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: (27) Financial Data Schedule
b. Reports on Form 8-K: No current reports on Form 8-K were
filed during the quarter ended September 30, 1997.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
(Registrant)
November 12, 1997
/s/ James J. Finnegan
-------------------------------
James J. Finnegan
Vice President
of Managing General Partner,
First Income Corp.
November 12, 1997
/s/ Karin J. Lagerlund
--------------------------------
Karin J. Lagerlund
Principal Financial and Accounting
Officer of Managing General Partner,
First Income Corp.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 664,659
<SECURITIES> 295,367
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 960,026
<PP&E> 3,697,489
<DEPRECIATION> 154,273
<TOTAL-ASSETS> 4,657,515
<CURRENT-LIABILITIES> 51,857
<BONDS> 665,403
0
0
<COMMON> 0
<OTHER-SE> 3,940,255
<TOTAL-LIABILITY-AND-EQUITY> 4,657,515
<SALES> 472,565
<TOTAL-REVENUES> 1,046,443
<CGS> 100,791
<TOTAL-COSTS> 100,791
<OTHER-EXPENSES> 234,157
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 711,495
<INCOME-TAX> 0
<INCOME-CONTINUING> 711,495
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 711,495
<EPS-PRIMARY> 20.37
<EPS-DILUTED> 20.37
</TABLE>
