<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------------------------------------------------------------------
For Quarter Ended June 30, 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 JUNE 30, 1997
PART I
FINANCIAL INFORMATION
---------------------
<PAGE>
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
ASSETS
<S> <C> <C>
Real estate investments:
Property, net $3,724,981 $3,684,199
Joint ventures -- 4,704,079
---------- ----------
3,724,981 8,388,278
Cash and cash equivalents 1,149,664 1,166,590
Short-term investments 247,960 298,492
---------- ----------
$5,122,605 $9,853,360
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 42,008 $ 49,902
Accrued management fee 46,707 23,250
Deferred disposition fees 665,403 504,663
---------- ----------
Total liabilities 754,118 577,815
---------- ----------
Partners' capital (deficit):
Limited partners ($522 and $673
per unit, respectively; 100,000
units authorized, 34,581
units issued and
outstanding) 4,465,640 9,375,845
General partners (97,153) (100,300)
---------- ----------
Total partners' capital 4,368,487 9,275,545
---------- ----------
$5,122,605 $9,853,360
========== ==========
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended Quarter Ended Six Months Ended
June 30, 1997 June 30, 1997 June 30, 1996 June 30, 1996
-------------- ---------------- -------------- -----------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY
Property rentals $ 132,162 $ 265,740 $ 331,847 $ 1,009,242
Property operating expenses (32,088) (63,374) (27,196) (53,344)
Depreciation and amortization (29,783) (61,979) (68,002) (123,967)
Interest and other expenses -- -- (10,907) (115,150)
----------- ----------- ----------- --------------
70,291 140,387 225,742 716,781
Joint venture earnings 22,231 76,596 84,321 156,234
Gain on sale of property 507,980 507,980 -- --
Investment valuation allowance -- -- -- (250,000)
----------- ----------- ----------- --------------
Total real estate operations 600,502 724,963 310,063 623,015
Interest on cash equivalents
and short term investments 35,308 52,271 35,556 58,131
----------- ----------- ----------- --------------
Total investment activity 635,810 777,234 345,619 681,146
----------- ----------- ----------- --------------
PORTFOLIO EXPENSES
Management fee 46,707 58,349 29,987 64,533
General and administrative 23,111 51,416 37,095 66,493
----------- ----------- ----------- --------------
69,818 109,765 67,082 131,026
----------- ----------- ----------- --------------
Net Income $ 565,992 $ 667,469 $ 278,537 $ 550,120
=========== =========== =========== ==============
Net income per
limited partnership unit $ 16.20 $ 19.11 $ 7.97 $ 15.75
=========== =========== =========== ==============
Cash distributions per
limited partnership unit $ 154.37 $ 161.10 $ 187.00 $ 202.00
=========== =========== =========== ==============
</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 Six Months Ended Quarter Ended Six Months Ended
June 30, 1997 June 30, 1997 June 30, 1996 June 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 $ (101,636) $ 9,243,577 $ (100,300) $ 9,375,845 $ (105,467) $ 20,172,308 $ (102,943) $ 20,422,156
Cash
distributions (1,177) (5,338,269) (3,528) (5,570,999) (3,493) (6,466,647) (8,733) (6,985,362)
Net income 5,660 560,332 6,675 660,794 2,785 275,752 5,501 544,619
---------- ----------- ---------- ----------- ---------- ------------ ---------- ------------
Balance at
end of period $ (97,153) $ 4,465,640 $ (97,153) $ 4,465,640 $ (106,175) $ 13,981,413 $ (106,175) $ 13,981,413
========== =========== ========== =========== ========== ============ ========== ============
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
SUMMARIZED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------
1997 1996
---- ----
<S> <C> <C>
Net cash provided by operating
activities $ 297,707 $ 891,815
----------- ------------
Cash flows from investing activities:
Net proceeds from sale of property 5,086,239 10,805,224
Deposit on sale of property -- 100,000
Increase in deferred disposition fees 160,740 343,488
Investment in property (36,385) (1,043,192)
Decrease in short-term
investments, net 49,300 1,027,321
----------- ------------
Net cash provided by
investing activities 5,259,894 11,232,841
----------- ------------
Cash flows from financing activities:
Reduction of mortgage loan -- (4,238,857)
Distributions to partners (5,574,527) (6,994,095)
----------- ------------
Net cash used in financing
activities (5,574,527) (11,232,952)
----------- ------------
Net (decrease) increase in cash
and cash equivalents (16,926) 891,704
Cash and cash equivalents:
Beginning of period 1,166,590 449,092
----------- ------------
End of period $ 1,149,664 $ 1,340,796
=========== ============
</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 June 30, 1997 and December 31, 1996 and the results of
its operations, its cash flows and partners' capital (deficit) for the interim
periods ended June 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. It
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 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>
June 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 57,222 5,819
Accumulated depreciation (130,677) (83,671)
---------- ----------
Net carrying value $3,724,981 $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
--------------------------------
June 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
===== ====== ================
</TABLE>
Results of Operations
----------------------
<TABLE>
<CAPTION>
Period from
January 1, 1997 Six Months Ended
through May 2, 1997 June 30, 1996
------------------- ----------------
<S> <C> <C>
Revenue
Rental income $ 400,861 $ 647,972
Other 735 1,116
-------- --------
401,596 649,088
-------- --------
Expenses
Depreciation and amortization 156,940 222,809
Operating expenses 112,258 146,537
-------- --------
269,198 369,346
-------- --------
Net income $132,398 $279,742
======== ========
</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 June
30, 1997 were made on July 24, 1997 in the aggregate amount of $108,284 ($3.10
per limited partnership unit).
Also on July 24, 1997, the Partnership made an additional distribution of
cash from operations in the aggregate amount of $363,974 ($10.42 per limited
partnership unit), representing excess operating cash previously retained in
working capital reserves.
<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 June 30, 1997, the Partnership had $1,397,624 in cash and cash
equivalents and short-term investments, of which $472,258 was used for cash
distributions to partners on July 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
two 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, and
the second quarter 1996 distribution was 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 two quarters of 1997; the first quarter
1997 distribution was based on the adjusted capital contribution of $673 per
unit; the second quarter 1996 distribution was based on the weighted average
adjusted capital contribution. 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>
The carrying value of real estate investments in the financial statements
at June 30, 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 June 30, 1997, the appraised value of the
Partnership's remaining investment was approximately $700,000 greater than its
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 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 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 98% at June 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 Anaheim Distribution Center remained at 100% at June 30, 1997.
(Occupancy was also 100% at December 31, 1996 and June 30, 1996.) No leases are
scheduled to expire in 1997.
<PAGE>
Investment Results
Exclusive of joint venture earnings from Medlock Oaks of $76,596 in 1997
and $156,234 in 1996, as well as the gain on sale in 1997 and the valuation
allowance also related to Medlock Oaks in 1996, aggregate operating results
from real estate investments were approximately $140,000 and $717,000 for the
first six 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 $555,000.
Interest on cash equivalents and short-term investments decreased by
approximately $6,000, or 10%, between the two six-month periods primarily due to
lower average invested balances, partially offset by higher short-term yields.
Cash flow provided by operating activities decreased by $594,000 between
the first six 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 $550,000 due to lower revenues and interest expense. Cash flow
also declined due to an increase in working capital items, along with a decrease
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 $15,000, or 23%, for the first six 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 six-month periods due to the decrease in distributable cash flow.
<PAGE>
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED JUNE 30, 1997
PART II
OTHER INFORMATION
-------------------
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: None.
b. Reports on Form 8-K: The Partnership filed one current
report on Form 8-K dated May 2, 1997, reporting on Item
No.2. (Acquisition or Disposition of Assets).
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
(Registrant)
August 12, 1997
/s/ James J. Finnegan
-------------------------------
James J. Finnegan
Managing Director and General Counsel
of Managing General Partner,
First Income Corp.
August 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,149,664
<SECURITIES> 247,960
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,397,624
<PP&E> 3,724,981
<DEPRECIATION> 130,677
<TOTAL-ASSETS> 5,122,605
<CURRENT-LIABILITIES> 88,715
<BONDS> 665,403
0
0
<COMMON> 0
<OTHER-SE> 4,368,487
<TOTAL-LIABILITY-AND-EQUITY> 5,122,605
<SALES> 342,336
<TOTAL-REVENUES> 902,587
<CGS> 63,374
<TOTAL-COSTS> 63,374
<OTHER-EXPENSES> 171,744
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 667,469
<INCOME-TAX> 0
<INCOME-CONTINUING> 667,469
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 667,469
<EPS-PRIMARY> 19.11
<EPS-DILUTED> 19.11
</TABLE>
