<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------------------------------------------------------------------
For Quarter Ended March 31, 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 MARCH 31, 1997
PART I
FINANCIAL INFORMATION
----------------------
<PAGE>
BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------------- ---------------------
<S> <C> <C>
ASSETS
Real estate investments:
Property, net $ 3,728,689 $ 3,684,199
Joint ventures 4,629,166 4,704,079
------------ ------------
8,357,855 8,388,278
Cash and cash equivalents 1,040,954 1,166,590
Short-term investments 297,136 298,492
------------ ------------
$ 9,695,945 $ 9,853,360
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 37,699 $ 49,902
Accrued management fee 11,642 23,250
Deferred disposition fee 504,663 504,663
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Total liabilities 554,004 577,815
------------ ------------
Partners' capital (deficit):
Limited partners ($673 per
unit; 100,000 units
authorized, 34,581
units issued and
outstanding) 9,243,577 9,375,845
General partners (101,636) (100,300)
------------ -------------
Total partners' capital 9,141,941 9,275,545
------------ -------------
$ 9,695,945 $ 9,853,360
============ =============
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31,
1997 1996
--------- ----------
<S> <C> <C>
INVESTMENT ACTIVITY
Property rentals $ 133,578 $ 677,395
Property operating expenses (31,286) (26,148)
Depreciation and amortization (32,196) (55,965)
Interest and other expenses - (104,243)
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70,096 491,039
Joint venture earnings 54,365 71,913
Investment valuation allowance - (250,000)
---------- -----------
Total real estate operations 124,461 312,952
Interest on cash equivalents
and short term investments 16,963 22,575
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Total investment activity 141,424 335,527
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PORTFOLIO EXPENSES
Management fee 11,642 34,546
General and administrative 28,305 29,398
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39,947 63,944
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Net Income $ 101,477 $ 271,583
========== ===========
Net income per
limited partnership unit $ 2.91 $ 7.77
========== ===========
Cash distributions per
limited partnership unit $ 6.73 $ 15.00
========== ===========
Number of limited partnership
units outstanding during the period 34,581 34,581
========== ===========
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31,
1997 1996
------------------------ --------------------------
General Limited General Limited
Partners Partners Partners Partners
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at
beginning of
period $ (100,300) $ 9,375,845 $ (102,943) $ 20,422,156
Cash
distributions (2,351) (232,730) (5,240) (518,715)
Net income 1,015 100,462 2,716 268,867
---------- ---------- ----------- -----------
Balance at
end of period $ (101,636) $ 9,243,577 $ (105,467) $ 20,172,308
=========== =========== ============ ============
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
SUMMARIZED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31,
----------------------------
1997 1996
----- -----
<S> <C> <C>
Net cash provided by operating
activities $ 142,157 $ 715,884
----------- -----------
Cash flows from investing activities:
Investment in property (32,673) -
Decrease (increase) in short-
term investments, net (39) 771,801
----------- -----------
Net cash provided by (used in)
investing activities (32,712) 771,801
----------- -----------
Cash flows from financing activities:
Reduction of mortgage loan - (23,784)
Distributions to partners (235,081) (523,955)
----------- -----------
Net cash used in financing
activities (235,081) (547,739)
----------- -----------
Net increase (decrease) in cash
and cash equivalents (125,636) 939,946
Cash and cash equivalents:
Beginning of period 1,166,590 449,092
----------- -----------
End of period $ 1,040,954 $ 1,389,038
=========== ===========
</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 March 31, 1997 and December 31, 1996 and the results of its
operations, its cash flows and changes in partners' capital (deficit) for the
interim periods ended March 31, 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.
It commenced operations in August 1986, and acquired the two real estate
investments it currently owns prior to the end of 1987. The Partnership
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 into 1998, having determined it to be in the best interest of
the limited partners.
NOTE 2 -PROPERTY
- ----------------
Effective January 1, 1996, the East Anaheim Distribution Center joint venture
was dissolved and the venture partner's ownership interest was assigned to the
Partnership. Accordingly, as of this date, the investment is being accounted
for as a wholly-owned property. The carrying value of the joint venture
investment at conversion ($3,763,820) was allocated to land, building and
improvements, and other net operating assets.
The 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>
March 31, 1997 December 31, 1996
--------------- ------------------
<S> <C> <C>
Land $1,279,147 $1,279,147
Buildings and improvements 2,515,577 2,482,904
Other net assets 41,046 5,819
Accumulated depreciation (107,081) (83,671)
---------- ----------
Net carrying value $3,728,689 $3,684,199
========== ==========
</TABLE>
<PAGE>
NOTE 3 - REAL ESTATE JOINT VENTURES
- -----------------------------------
The following summarized financial information relates to the Medlock Oaks
joint venture:
<TABLE>
<CAPTION>
Assets and Liabilities
----------------------
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Assets
Real property, at cost less
accumulated depreciation
of $2,922,139 and $2,821,679 $ 7,604,544 $ 7,702,658
Other 244,922 288,149
------------ ------------
7,849,466 7,990,807
Liabilities 69,964 86,084
------------ ------------
Net Assets $ 7,779,502 $ 7,904,723
============ ============
</TABLE>
Results of Operations
---------------------
<TABLE>
<CAPTION>
Quarter ended March 31,
-----------------------
1997 1996
------ ------
<S> <C> <C>
Revenue
Rental income $ 287,448 $ 320,174
Other 495 588
---------- ---------
287,943 320,762
---------- ---------
Expenses
Depreciation and amortization 111,867 111,867
Operating expenses 77,873 79,907
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189,740 191,774
---------- ---------
Net income $ 98,203 $ 128,988
========== =========
</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 EVENTS
- --------------------------
Distributions of cash from operations relating to the quarter ended March
31, 1997 were made on April 24, 1997 in the aggregate amount of $117,715 ($3.37
per limited partnership unit).
On May 2, 1997, the Partnership and its affiliate sold the Medlock Oaks
buildings for cash in an amount which exceeded the carrying value of the
investment. This transaction will be accounted for in the second 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.
At March 31, 1997, the Partnership had $1,338,090 in cash and cash
equivalents and short-term investments, of which $117,715 was used for cash
distributions to partners on April 24, 1997; the remainder is being retained for
working capital reserves. The source of future liquidity and cash distributions
to partners will be cash generated by the Partnership's real estate and short-
term investments. Distributions of cash from operations relating to the first
quarter of 1996 were made at an annualized rate of 4.0% on a capital
contribution of $1,000 per unit. Distributions of cash from operations were
made at an annualized rate of 2.0% for the first quarter of 1997, based on the
adjusted capital contribution of $673 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.
The carrying value of real estate investments in the financial statements
at March 31, 1997 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 March 31, 1997, the aggregate appraised value of the
Partnership's investments was approximately $900,000 greater than their
aggregate carrying value. The current appraised value of real estate
investments has been determined by the managing general partner and is generally
based on a combination of traditional appraisal approaches performed by the
Partnership's advisor 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 Medlock Oaks investment is 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 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.
<PAGE>
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.
At Medlock Oaks, occupancy decreased to 92% during the first quarter of
1997. (Occupancy was 97% at December 31, 1996 and 98% at March 31, 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.
On May 2, 1997, the Partnership and its affiliate sold the Medlock Oaks
buildings for cash in an amount which exceeded the carrying value of the
investment. This transaction will be accounted for in the second quarter of
1997.
Occupancy at Anaheim Distribution Center remained at 100% at March 31,
1997. (Occupancy was also 100% at December 31, 1996 and March 31, 1996.) No
leases are scheduled to expire in 1997.
Investment Results
Exclusive of the valuation allowance related to Medlock Oaks in 1996,
aggregate operating results from real estate investments were approximately
$124,000 and $563,000 for the first three months of 1997 and 1996, respectively.
The sale of the Zehntel and United Exposition properties during 1996 resulted in
a decrease of $415,000. In addition, operating income from Medlock Oaks
decreased by $18,000 due to the occupancy decline.
Interest on cash equivalents and short-term investments decreased by
approximately $6,000, or 25%, between the two three-month periods primarily due
to lower average invested balances.
Cash flow provided by operating activities decreased by $574,000 between
the first three 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 $439,000 due to lower revenue and interest expense. Cash flow
also declined due to an increase in working capital items, which was partially
offset by an increase in cash distributions from Medlock Oaks.
Portfolio Expenses
General and administrative expenses primarily consist of real estate
appraisal, legal, accounting, printing and servicing agent fees. These expenses
decreased approximately $1,000, or 4%, for the first three months of 1997 as
compared to the same period in 1996, primarily due to a decrease in appraisal
and 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. Management fees decreased between
the two three-month periods due to the decrease in distributable cash flow.
<PAGE>
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1997
PART II
OTHER INFORMATION
-------------------
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: None.
b. Reports on Form 8-K: No Current Reports on
Form 8-K were filed during the quarter ended
March 31, 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)
May 12, 1997
/s/ James J. Finnegan
-------------------------------
James J. Finnegan
Managing Director and General Counsel
of Managing General Partner,
First Income Corp.
May 12, 1997
/s/ Daniel C. Mackowiak
--------------------------------
Daniel C. Mackowiak
Principal Financial and Accounting
Officer of Managing General Partner,
First Income Corp.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,040,954
<SECURITIES> 297,136
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,338,090
<PP&E> 8,357,855
<DEPRECIATION> 107,081
<TOTAL-ASSETS> 9,695,945
<CURRENT-LIABILITIES> 49,341
<BONDS> 504,663
0
0
<COMMON> 0
<OTHER-SE> 9,141,941
<TOTAL-LIABILITY-AND-EQUITY> 9,695,945
<SALES> 187,943
<TOTAL-REVENUES> 204,906
<CGS> 31,286
<TOTAL-COSTS> 31,286
<OTHER-EXPENSES> 72,143
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 101,477
<INCOME-TAX> 0
<INCOME-CONTINUING> 101,477
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 101,477
<EPS-PRIMARY> 2.91
<EPS-DILUTED> 2.91
</TABLE>
