<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, 1997
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.)
225 Franklin Street, 25th Floor
Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(617) 261-9000
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>
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, 1997 the Partnership had disposed of all of its real
estate investments. The Partnership plans to liquidate and dissolve in 1998
after settling its remaining assets and liabilities. In 1990, a third-party
mortgage lender foreclosed on one real estate investment (Investment One). The
principal terms of the sales of the Partnership's other investments are set
forth in the following table:
<TABLE>
<CAPTION>
Investment Month/Year of Sale Net Sale Proceeds Distribution/Unit Distribution
Month/Year
<S> <C> <C> <C> <C>
Investment Two/1/ 4/96 $6,933,764 $177.00 4/96
Investment Three 8/96 $5,202,964 $150.00 8/96
Investment Four 5/97 $5,246,979 $151.00 5/97
Investment Five/2/ 10/97 $4,677,970 - -
</TABLE>
The Partnership has no employees. Services are performed for the
Partnership by the Managing General Partner and affiliates of the Managing
General Partner.
- --------
1 Represents net sale proceeds to the Partnership after repayment of related
mortgage loan.
2 The Partnership will make a distribution of net sales proceeds in 1998.
<PAGE>
Item 3. Legal Proceedings.
-----------------
The Partnership is not a party to, nor are any of its previously owned
properties subject to, any material pending legal proceedings.
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 Matter.
---------------------------------------------------------------------
There is no active market for the Units. Trading in the Units is
sporadic and occurs solely through private transactions.
As of December 31, 1997, there were 2,291 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, 1997, cash distributions
paid in 1997, or distributed after year end with respect to 1997, to the Limited
Partners as a group totaled $5,986,316 ($173.11 per limited partnership unit),
including $5,221,731 ($151 per limited partnership unit) representing proceeds
from the sale of one property. For the year ended December 31, 1996, cash
distributions paid in 1996, or distributed after year end with respect to 1996,
to the Limited Partners as a group totaled $12,452,964, including $11,307,987
($327 per limited partnership unit) representing proceeds from the sales of two
properties.
Largely due to the capital distribution mentioned above, total cash
distributions exceeded net income in 1997, and reduced partners' capital
accordingly. Regular cash distributions from operations, however, were less than
cash provided by operations. Reference is made to the Partnership's Statement of
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:
12/31/97 (2) 12/31/96 (3) 12/31/95 12/31/94 12/31/93
-------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues $ 1,121,938 $ 1,689,421 $ 2,864,780 $ 3,064,367 $ 2,979,336
Net Income (Loss) (1) $ 2,356,173 $ 1,709,735 $ (983,224) $ 1,531,224 $ 1,679,020
Net Income (Loss)
per Limited
Partnership Unit $ 67.45 $ 48.95 $ (28.15) $ 43.84 $ 48.07
Total Assets $ 5,559,042 $ 9,853,360 $ 24,886,471 $ 28,270,811 $ 29,253,029
Mortgage Loan $ 0 $ 0 $ 4,238,857 $ 4,363,307 $ 4,474,343
Total Cash
Distributions
per Limited
Partnership Unit,
including amounts
distributed after
year end with
respect to such
year $ 173.11 $ 360.11 $ 62.50 $ 70.00 $ 66.25
-------------- ------------- --------------- -------------- ---------------
</TABLE>
(1) Net Income (Loss) includes charges of $250,000, $2,600,000 and $200,000 in
1996, 1995 and 1994, respectively, related to impairment of the carrying values
of certain investments.
(2) Net Income includes gains totaling $1,608,395 on the sales of properties.
Cash distributions include a return of capital of $151.00 per Limited
Partnership Unit.
(3) Net Income includes gains totaling $906,542 on the sales of properties. Cash
distributions include returns of capital totaling $327.00 per Limited
Partnership Unit.
<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.
On April 9, 1996, the Partnership sold the Zehntel property for
$11,449,612, of which $4,215,073 was used to pay off the related mortgage loan
and $506,687 was used to complete certain improvements as a condition of the
sale. Net proceeds to the Partnership, after closing costs, were $11,148,837. A
disposition fee of $343,488 was accrued but not paid to AEW Real Estate
Advisors, Inc. ("AEW") On April 25, 1996, the Partnership made a capital
distribution of $6,120,837 ($177 per limited partnership unit), which reduced
the adjusted capital contribution to $823 per unit.
On August 13, 1996, the United Exposition property was sold for
$5,372,500. The Partnership received net proceeds of $5,202,964, after closing
costs. A disposition fee of $161,175 was accrued but not paid to AEW. On August
29, 1996, the Partnership made a capital distribution of $5,187,150 ($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 $678,548 ($19.62 per limited partnership unit)
on the sale. On May 29, 1997, the Partnership made a capital distribution of
$5,221,731 ($151 per limited partnership unit), which reduced the adjusted
capital contribution to $522 per unit.
On October 24, 1997, the East Anaheim property was sold for $4,700,000.
The Partnership received net proceeds of $4,677,970, after closing costs, and
recognized a gain of $929,847 ($26.89 per limited partnership unit). As this is
the last property in the Partnership, the net proceeds are being held in
reserves pending Partnership dissolution and liquidation later in 1998.
At December 31, 1997, the Partnership had $5,559,042 in cash and cash
equivalents and short-term investments, of which $91,168 was used for cash
distributions to partners on January 29, 1998; the remainder is being retained
pending dissolution and liquidation of the Partnership later in 1998, and for
working capital reserves. The source of future liquidity and cash distributions
to partners will be cash generated by the Partnership's short-term investments.
Distributions of cash from operations relating to all four 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; the fourth quarter 1996 distribution was based on the adjusted
capital contribution of $673 per unit. Distributions of cash from operations
were made at an annualized rate of 2.0% for all four 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 and fourth quarter 1997 distributions
were 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 sale of Medlock Oaks during the second quarter of 1997.
<PAGE>
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Partnership's computer programs that have date-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions or
engage in normal business operations. The Managing General Partner and its
affiliates are assessing the modifications or replacement of its software that
may be required due to the Year 2000 Issue. The Managing General Partner and its
affiliates do not believe that the cost of either modifying existing software or
converting to new software will be significant or that the Year 2000 Issue will
pose significant operational problems.
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 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 to a single tenant through June, 1996. During the third quarter of
1995, the Partnership signed a lease extension with the lessee for one of the
buildings through December, 2000. The extension was retroactive to April 1,
1995, and was at a lower rental rate than under the previous lease. In the third
quarter of 1995, the tenant sub-leased the second building to a sub-tenant which
executed a primary lease for the building through June 2002. During the third
quarter of 1995, after deciding to market the Zehntel property for sale, the
Managing General Partner determined that the Partnership would not likely
recover its carrying value over the shortened investment period. Accordingly,
the Partnership reduced the carrying value to its estimated net fair market
value, net of selling costs, with a charge to operations of $2,200,000. The
carrying value was further reduced by $400,000 in the fourth quarter of 1995,
with the refinement of the estimate based on the terms of the sale transaction
discussed above. The Partnership recognized a gain of $21,483 ($.62 per limited
partnership unit) upon final settlement of the sale transaction.
The United Exposition property also consists of two buildings which
were 100% leased to one tenant since 1987. The Partnership recognized a gain of
$885,059 ($25.34 per limited partnership unit) on the sale.
At Medlock Oaks, occupancy was 100%, 97% and 95% as of May 2, 1997,
December 31, 1996 and December 31, 1995, 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. 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.
As mentioned above, the Partnership and its affiliate sold the Medlock Oaks
buildings on May 2, 1997, and recognized a gain of $678,548 ($19.62 per limited
partnership unit) from the sale.
Occupancy at the Anaheim Distribution Center property was 100% as of
October 24, 1997, December 31, 1996 and December 31, 1995. As discussed above,
the Partnership sold this property on October 24, 1997, and recognized a gain of
$929,847 ($26.89 per limited partnership unit) from the sale.
Three tenants each contributed more than 10% of the total rental
revenue from the Partnership's investments (collectively 68%) in 1997.
<PAGE>
Investment Results
1997 Compared to 1996
Exclusive of the valuation allowance related to Medlock Oaks in 1996,
aggregate operating results from real estate investments ere $280,665 in 1997
and $1,176,591 in 1996. The sale of the Zehntel and United Exposition properties
during 1996 resulted in a decrease in operating results of approximately
$609,000. The remainder of the decrease is comprised of reduced operating income
from the sales of Medlock Oaks and East Anaheim during 1997 of approximately
$211,000 and $76,000, respectively.
Other income of $504,663 in 1997 represents the reversal of previously
accrued disposition fees related to the sales of two real estate investments in
1996. During the fourth quarter of 1997, the Managing General Partner determined
that the limited partners would not receive the cumulative return which would
entitle AEW to payment of these fees.
Interest on cash equivalents and short-term investments increased by
approximately $19,000, or 18%, between 1996 and 1997 primarily due to higher
average invested balances, as well as higher short-term yields.
Cash flow provided by operating activities decreased by $387,000
between 1996 and 1997. This change was primarily caused by the Zehntel and
United Exposition property sales in 1996. Cash flow also declined due to a
decrease in cash distributions from Medlock Oaks and East Anaheim as a result of
their partial ownership during 1997.
1996 Compared to 1995
Exclusive of the valuation allowances on Medlock Oaks in 1996 and
Zehntel in 1995, aggregate real estate operating results were $1,176,591 in 1996
and $1,870,411 in 1995. The Zehntel and United Exposition properties were owned
for only a portion of 1996, which resulted in a decrease in operating income of
$784,000. Operating income from Anaheim Distribution Center increased by $46,000
between 1996 and 1995 primarily due to rental increases and lower depreciation
charges. Operating income from Medlock Oaks also increased by $40,000 due to
rental increases.
Interest on cash equivalents and short-term investments decreased by
$3,000 in 1996 as compared to 1995, primarily due to lower invested balances as
well as lower short-term yields.
Cash flow provided by operating activities decreased by $1,103,000
between 1996 and 1995. This change was primarily caused by the Zehntel and
United Exposition sales during 1996. These decreases were partially offset by an
increase in cash flow from Medlock Oaks and by changes 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 $29,000 or 25% between 1996 and 1997, primarily due to decreases in
accounting and appraisal fees. General and administrative expenses decreased
approximately $32,000 or 22%, in 1996 as compared to 1995, primarily due to a
decrease in legal 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 in both 1997 and 1996 compared to the respective prior
years due to the decreases 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, 1997.
<TABLE>
<CAPTION>
Name Position(s) with the Managing General Partner Age
- ---- --------------------------------------------- ---
<S> <C> <C>
Wesley M. Gardiner, Jr. President, Chief Executive Officer and Director 39
Pamela J. Herbst Vice President and Director 42
J. Grant Monahon Vice President and Director 52
James J. Finnegan Vice President 37
Karin J. Lagerlund Treasurer and Principal Financial and Accounting Officer 33
</TABLE>
(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:
Wesley M. Gardiner, Jr. joined AEW Real Estate Advisors, Inc. ("AEW")
, formerly known as Copley Real Estate Advisors, Inc., in 1990 and has been a
Vice President at AEW since January, 1994. AEW is a subsidiary of AEW Capital
Management, L.P. ("AEW Capital Management"). 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 AEW has included asset management
responsibility for the company's Georgia and Texas holdings. Presently, Mr.
Gardiner has overall responsibility for all the partnerships advised by AEW
<PAGE>
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.
Pamela J. Herbst directs AEW Capital Management's Portfolio Advisory
Services, with oversight responsibility for the asset and portfolio management
areas. Ms. Herbst is a member of AEW Capital Management's Investment Policy
Group and Management Committee. She came to AEW Capital Management in December
1996 as a result of the firm's merger with Copley Real Estate Advisors, Inc.,
where she held various senior level positions in asset and portfolio management,
acquisitions, and corporate operations since 1982. Ms. Herbst is a graduate of
the University of Massachusetts (B.A.) and Boston University (M.B.A.).
J. Grant Monahon is AEW Capital Management's General Counsel and a
member of the firm's Management Committee and Investment Policy Group. He has
over 25 years of experience in real estate law and investments. Prior to joining
AEW Capital Management in 1987, Mr. Monahon was a partner with a major Boston
law firm. As the head of that firm's real estate finance department, he
represented a wide variety of institutional clients, both domestic and
international, in complex equity and debt transactions. He is the former
Chairman of the General Counsel section of the National Association of Real
Estate Investment Managers. Mr. Monahon is a graduate of Dartmouth College
(B.A.) and Georgetown University Law Center (J.D.).
James J. Finnegan is the Assistant General Counsel of AEW Capital
Management. Mr. Finnegan served as Vice President and Assistant General Counsel
of Aldrich, Eastman & Waltch, L.P., a predecessor to AEW Capital Management. Mr.
Finnegan has over ten years of experience in real estate law, including seven
years of experience in private practice with major New York City and Boston law
firms. Mr. Finnegan also serves as AEW's securities and regulatory compliance
officer. Mr. Finnegan is a graduate of the University of Vermont (B.A.) and
Fordham University School of Law (J.D.).
Karin J. Lagerlund directs the Advisory Services Portfolio Accounting
Group at AEW Capital Management, overseeing portfolio accounting, performance
measurement and client financial reporting for AEW's private equity investment
portfolios. Ms. Lagerlund is a Certified Public Accountant and has over ten
years experience in real estate consulting and accounting. Prior to joining AEW
Capital Management in 1994, she was an Audit Manager at EY/Kenneth Leventhal
LLP. Ms. Lagerlund is a graduate of Washington State University (B.A.).
(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, 2 and 6 of Notes to the Financial Statements.
<PAGE>
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, 1997. Cash distributions to General Partners
include amounts distributed after year end with respect to 1997.
<TABLE>
<CAPTION>
Amount of Compensation
Receiving Entity Type of Compensation and Reimbursement
- ---------------- -------------------- -----------------
<S> <C> <C>
AEW Real Estate Advisors, Inc. Management Fees and
Reimbursement of Expenses $ 92,547
General Partners Share of Distributable Cash 7,724
New England Securities Servicing Fees and 3,715
Corporation Reimbursement of Expenses
-----------------
TOTAL $ 103,986
=================
</TABLE>
For the year ended December 31, 1997, the Partnership allocated
$27,372 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, 1997.
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, 1997.
(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.
<PAGE>
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 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. On November 10, 1997, the Partnership filed
one Current Report on Form 8-K disclosing the sale of the East Anaheim property
on October 24, 1997.
<PAGE>
Copley Realty Income Partners 1;
A Limited Partnership
Financial Statements
* * * * * * *
December 31, 1997
<PAGE>
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Report of Independent Accountants
Financial Statements:
Balance Sheets - December 31, 1997 and 1996
Statements of Operations - For the Years Ended December 31, 1997,
1996 and 1995
Statements of Partners' Capital (Deficit) - For the Years Ended
December 31, 1997, 1996 and 1995
Statements of Cash Flows - For the Years Ended December 31, 1997, 1996
and 1995
Notes to Financial Statements
Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation at December 31,
1997, 1996 and 1995
<PAGE>
Report of Independent Accountants
---------------------------------
To the Partners
Copley Realty Income Partners 1;
A Limited Partnership
In our opinion, based on our audits and the reports of other auditors for the
years ended December 31, 1997, 1996 and 1995, 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, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997, 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 Medlock Oaks joint venture investee
for the years ended December 31, 1996 and 1995, which results of operations are
recorded using the equity method of accounting in the Partnership's financial
statements. Equity in joint venture income for this joint venture investee was
$280,509 and $240,331 for the years ended December 31, 1996 and 1995,
respectively. We also did not audit the financial statements of the
Partnership's investment in Anaheim Distribution Center for the years ended
December 31, 1996 and 1995. Operating income for this investment totalled
$410,656 for the year ended December 31, 1996, and equity in joint venture
income was $250,312 for the year ended December 31, 1995. 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 Medlock Oaks for the years ended December
31, 1996 and 1995, and for the operating income and the equity in joint venture
income for Anaheim Distribution Center for the years ended December 31, 1996 and
1995, 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, 1997, 1996 and 1995 provide a reasonable basis for the opinion
expressed above.
/s/Price Waterhouse LLP
- -----------------------
Boston, Massachusetts
March 9, 1998
<PAGE>
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1997 1996
----------------- ----------------
<S> <C> <C>
Assets
Real estate investments:
Property, net $ - $ 3,684,199
Joint ventures - 4,704,079
----------------- ----------------
- 8,388,278
Cash and cash equivalents 5,259,413 1,166,590
Short-term investments 299,629 298,492
----------------- -----------------
$ 5,559,042 $ 9,853,360
================= =================
Liabilities and Partners' Capital
Accounts payable $ 56,260 $ 49,902
Accrued management fee 9,017 23,250
Deferred disposition fees - 504,663
----------------- -----------------
Total liabilities 65,277 577,815
----------------- -----------------
Partners' capital (deficit):
Limited partners ($522 and $673 per
unit, respectively; 100,000 units authorized,
34,581 units issued and outstanding) 5,579,666 9,375,845
General partners (85,901) (100,300)
----------------- -----------------
Total partners' capital 5,493,765 9,275,545
----------------- -----------------
$ 5,559,042 $ 9,853,360
================= =================
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Investment Activity
Property rentals $ 428,804 $ 1,302,434 $ 2,264,643
Property operating expenses (119,344) (84,876) -
Depreciation and amortization (91,751) (206,677) (423,712)
Interest and other expenses - (114,799) (461,163)
------------- ------------- -------------
217,709 896,082 1,379,768
Joint venture earnings 62,956 280,509 490,643
Investment valuation allowances - (250,000) (2,600,000)
-------------- --------------- -------------
Total real estate operations 280,665 926,591 (729,589)
Gain on sales of property 1,608,395 906,542 -
-------------- --------------- --------------
Total real estate activity 1,889,060 1,833,133 (729,589)
Interest on cash equivalents
and short-term investments 125,515 106,478 109,494
Other income 504,663 - -
-------------- --------------- --------------
Total investment activity 2,519,238 1,939,611 (620,095)
-------------- --------------- --------------
Portfolio Expenses
Management fee 76,382 114,383 215,915
General and administrative 86,683 115,493 147,214
-------------- --------------- --------------
163,065 229,876 363,129
-------------- --------------- --------------
Net Income (Loss) $ 2,356,173 $ 1,709,735 $ (983,224)
============== =============== ==============
Net income (loss) per limited partnership unit $ 67.45 $ 48.95 $ (28.15)
============== ============== ==============
Cash distributions per limited
partnership unit $ 177.23 $ 368.38 $ 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 PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------- ------------------------------- --------------------------------
General Limited General Limited General Limited
Partners Partners Partners Partners Partners Partners
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $ (100,300) $ 9,375,845 $ (102,943) $ 20,422,156 $ (70,405) $ 23,643,312
Cash distributions (9,163) (6,128,790) (14,454) (12,738,949) (22,706) (2,247,764)
Net income (loss) 23,562 2,332,611 17,097 1,692,638 (9,832) (973,392)
------------- ------------- ------------- ------------- ------------- ---------------
Balance at end of year $ (85,901) $ 5,579,666 $ (100,300) $ 9,375,845 $ (102,943) $ 20,422,156
============= ============= ============= ============= ============= ===============
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------
1997 1996 1995
------------------- ------------------- ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,356,173 $ 1,709,735 $ (983,224)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 91,751 206,677 423,712
Investment valuation allowances - 250,000 2,600,000
Equity in joint venture net income (62,956) (280,509) (490,643)
Cash distributions from joint ventures 201,506 575,189 813,600
Gain on sales of property (1,608,395) (906,542) -
Deferred leasing commissions (66,392) (144,245) (168,853)
Decrease (increase) in investment income
receivable (3,790) 19,420 (17,841)
Decrease in operating liabilities (7,875) (255,249) (6,197)
Decrease (increase) in property
working capital (55,800) 56,344 163,231
------------------- ------------------- ------------------
Net cash provided by operating activities 844,222 1,230,820 2,333,785
------------------- ------------------- ------------------
Cash flows from investing activities:
Net proceeds from sales of property 9,924,949 15,847,138 -
Increase (decrease) in deferred disposition
fees (504,663) 504,663 -
Investment in property (36,385) (1,020,942) -
Repayment of loan by joint venture - - 20,878
Decrease (increase) in short-term
investments, net 2,653 1,148,079 (1,148,945)
------------------- ------------------- -------------------
Net cash provided by (used in)
investing activities 9,386,554 16,478,938 (1,128,067)
------------------- ------------------- -------------------
Cash flows from financing activities:
Repayment of mortgage loan - (4,238,857) (124,450)
Distributions to partners (6,137,953) (12,753,403) (2,270,470)
------------------- ------------------- ------------------
Net cash used in financing activities (6,137,953) (16,992,260) (2,394,920)
------------------- ------------------- ------------------
Net increase (decrease) in cash and cash
equivalents 4,092,823 717,498 (1,189,202)
Cash and cash equivalents:
Beginning of year 1,166,590 449,092 1,638,294
------------------- ------------------- ------------------
End of year $ 5,259,413 $ 1,166,590 $ 449,092
=================== =================== ==================
</TABLE>
<PAGE>
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>
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. The Partnership commenced operations in August 1986, and acquired
five real estate investments prior to the end of 1987. The Partnership sold its
last remaining investment in October 1997 and therefore intends to liquidate and
dissolve in 1998.
The Managing General Partner of the Partnership is First Income Corp.,
a wholly-owned subsidiary of AEW Real Estate Advisors, Inc. ("AEW"), formerly
known as Copley Real Estate Advisors, Inc. ("Copley"). The associate general
partner is CCOP Associates Limited Partnership, a Massachusetts limited
partnership. Subject to the Managing General Partner's overall authority, the
business of the Partnership is managed by AEW pursuant to an advisory contract.
On December 10, 1996, Copley's parent, New England Investment
Companies, Limited Partnership ("NEIC"), a publicly traded master limited
partnership, acquired certain assets subject to then existing liabilities from
Aldrich, Eastman & Waltch, Inc. and its affiliates and principals (collectively,
"the AEW Operations"). Simultaneously, a new entity, AEW Capital Management,
L.P. was formed, into which NEIC contributed its interests in Copley and its
affiliates. As a result, the AEW Operations were combined with Copley to form
the business operations of AEW Capital Management, L.P. At year end 1997, NEIC
completed a restructuring plan under which it contributed all of its operations
to a newly formed private partnership, NEIC Operating Partnership, L.P., in
exchange for a general partnership interest in the newly formed entity. As such,
at December 31, 1997, AEW Capital Management, L.P. is wholly owned by NEIC
Operating Partnership, L.P. AEW is a subsidiary of AEW Capital Management, L.P.
Prior to August 30, 1996, New England Mutual Life Insurance Company
("The New England") was NEIC's principal unit holder and owner of all the
outstanding stock of NEIC's general partner. On August 30, 1996, The New England
merged with and into Metropolitan Life Insurance Company ("Met Life"). Met Life
is the surviving entity and, therefore, through a wholly-owned subsidiary,
became the owner of the units of partnership interest previously owned by The
New England and of the stock of NEIC's general partner.
Management
- ----------
AEW, 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.
AEW is also reimbursed for expenses incurred in connection with administering
the Partnership ($16,165 in 1997, $16,000 in 1996, and $17,746 in 1995).
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 limited to the lesser of 3% of the selling price
<PAGE>
of the property, or 50% of the standard real estate commission customarily
charged by an independent real estate broker. Payments of disposition fees are
subject to the prior receipt by the limited partners of their capital
contributions plus a stipulated return thereon.
New England Securities Corporation, an indirect subsidiary of Met Life,
is engaged by the Partnership to act as its unit holder servicing agent. Fees
and out-of-pocket expenses for such services totaled $3,715, $3,541 and $3,193
in 1997, 1996 and 1995, 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. For the Medlock Oaks joint venture investment, the Partnership
recorded its ownership share of the operating results, after the elimination of
all inter-entity transactions, since its venture partner, an affiliate of the
Partnership, had substantial economic equity in the project. Joint ventures are
consolidated with the accounts of the Partnership if, and when, the venture
partner no longer shares in the control of the business.
Property
- --------
Property includes land and buildings and improvements, which are stated
at cost less accumulated depreciation, plus other operating net assets. The
Partnership's 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.
Capitalized Costs, Depreciation and Amortization
- ------------------------------------------------
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.
Acquisition fees have been capitalized as part of the cost of real
estate investments. Amounts not related to land are amortized using the
straight-line method over the estimated useful lives of the underlying real
property.
<PAGE>
Leases
- ------
Leases are accounted for as operating leases. Leasing commissions are
amortized over the terms of the respective leases. Rental income is recognized
on a straight-line basis over the terms of the respective leases.
Realizability of Real Estate Investments
- ----------------------------------------
The Partnership considers a real estate investment to be impaired when
it determines the carrying value of the investment is not recoverable through
expected undiscounted cash flows from the operations and disposition of the
property. The impairment loss is based on the excess of the investment's
carrying value over its estimated fair market value. For investments being held
for sale, the impairment loss also includes estimated costs of sale.
Property held for sale is not depreciated during the holding period.
The carrying value of an investment may be more or less than its
current appraised value. At December 31, 1996, the aggregate appraised value of
the Partnership's investments was approximately $800,000 greater than their
carrying value after giving effect to previously recorded valuation allowances.
The appraised value of real estate investments at December 31, 1996 was
estimated by the Managing General Partner and was generally based on a
combination of traditional appraisal approaches performed by AEW and independent
appraisers.
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, 1997 and 1996, all investments are in commercial paper with less
than one month and two months, respectively, remaining to maturity.
Deferred Disposition Fees
- -------------------------
According to the terms of the advisory contract, AEW is entitled to
disposition fees related to sales of real estate investments. Payment of the
fees, however, is contingent upon the limited partners first receiving their
capital, plus a stipulated return thereon. After diposing of the Partnership's
remaining real property asset during the fourth quarter of 1997, the Managing
General Partner determined that the return of the limited partners' original
invested capital would not occur. As a result, previously accrued disposition
fees payable to AEW totaling $504,663 ($14.59 per limited partnership unit) were
reversed and recognized as other income in 1997.
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.
<PAGE>
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.
Effective January 1, 1998, the Partnership adopted FAS 128 "Earnings
per Share," which simplifies the standards of reporting earnings per share (EPS)
previously found in APB Opinion No. 15. It provides guidance on the computation
and disclosure of basic and diluted EPS and requires restatement of prior
periods for comparative purposes. The adoption of FAS 128 did not have a
material impact on the Partnership's financial statements.
NOTE 3 - INVESTMENT IN PROPERTY
- -------------------------------
The following is a summary of the Partnership's investment in property:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1997 1996
--------------------- -----------------
<S> <C> <C>
Land $ - $ 1,279,147
Buildings and improvements - 2,482,904
Other net assets - 5,819
Accumulated depreciation - (83,671)
--------------------- -----------------
Net carrying value $ - $ 3,684,199
==================== =================
</TABLE>
The net carrying value at December 31, 1996 relates solely to Anaheim
Distribution Center.
The buildings and improvements of Anaheim Distribution Center were
depreciated over 30 years, beginning January 1, 1996.
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 East Anaheim, California. The Partnership invested
$5,216,276 in the joint venture in the form of capital contributions and loans.
Effective January 1, 1996, the joint venture was dissolved and ownership of the
venture's net assets was assigned to the Partnership. Accordingly, as of that
date, the investment was 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.
On October 24, 1997, the Partnership sold the East Anaheim property to
an institutional buyer, which is unaffiliated with the Partnership, for
$4,700,000. The Partnership received net proceeds of $4,677,970, after closing
costs, and recognized a gain of $929,847 ($26.89 per limited partnership unit).
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. The property was listed for sale during the third
quarter of 1995, and the indication from the market was that the Partnership
would likely not recover its net carrying value over the shortened investment
period. Accordingly, the Partnership recognized an investment valuation
allowance of $2,200,000 through a charge to operations. The carrying value was
further reduced by $400,000 in the fourth quarter of 1995, with the refinement
of the fair market value estimate based on the terms of the pending sale
transaction. The property was sold on April 9, 1996 for $11,449,612, of which
$4,215,073 was used to repay the related mortgage loan and $506,687 was used to
complete certain improvements and pay certain costs, as conditions of the sale.
After closing costs, the Partnership received net proceeds of $11,148,837 and
recognized a gain of $21,483
<PAGE>
($0.62 per limited partnership unit) on the sale. (Approximately $50,000 was
received in the fourth quarter of 1996, upon the finalization of all
conditions.) A disposition fee of $343,488 was accrued but not paid to AEW.
During 1997, the Partnership determined that the disposition fee would not be
paid and therefore reversed the accrued disposition fee and recognized it as
other income. On April 25, 1996, the Partnership made a capital distribution of
$6,120,837 ($177 per limited partnership unit) from the proceeds.
United Exposition
- -----------------
On October 28, 1987, the Partnership acquired two industrial buildings
and land located in Las Vegas, Nevada. On August 13, 1996, the United Exposition
property was sold for $5,372,500. The Partnership received net proceeds of
$5,202,964, after closing costs, and recognized a gain of $885,059 ($25.34 per
limited partnership unit). A disposition fee of $161,175 was accrued but not
paid to AEW. During 1997, the Partnership determined that the disposition fee
would not be paid and therefore reversed the accrued disposition fee and
recognized it as other income. On August 29, 1996, the Partnership made a
capital distribution of $5,187,150 ($150 per limited partnership unit) from the
proceeds.
NOTE 4 - REAL ESTATE JOINT VENTURES
- -----------------------------------
The Partnership had invested in two real estate joint ventures
organized as general partnerships with a real estate management/development
firm. One joint venture investment was restructured into a wholly-owned property
effective January 1, 1996. The remaining joint venture investment was sold on
May 2, 1997. The Partnership made capital contributions to the ventures, which
were 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. The joint venture agreements
provided 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 did not contribute proportionately.
The respective real estate management/development firm was responsible
for day-to-day development and operating activities, although overall authority
and responsibility for the business is shared by the venturers. The real estate
management/development firms, or their affiliates, also provided 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>
Rate of Ownership December 31,
Investment/Location Return/Interest Interest 1997 1996
- ------------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Medlock Oaks
Atlanta, Georgia 10.25% 57% (C) - $ 1,932,300
10.25% (L) - $ 4,850,094
</TABLE>
(C) Capital contribution
(L) Loan
<PAGE>
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 located in
Atlanta, Georgia. The Partnership made a capital contribution of $1,932,300 to
the venture which was subject to preferential returns of 10.25% per annum. In
addition, the Partnership made a construction/permanent mortgage loan to the
venture of $4,964,700, which bore interest at 10.25% per annum.
On September 3, 1991, ownership of the investment was restructured as a
result of the management/development firm's decision not to contribute its
required proportionate share of capital to fund operating deficits. 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. 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 reduced by $250,000 through a charge to
investment valuation allowances.
On May 2, 1997, the Medlock Oaks buildings were sold to an
institutional buyer, which is unaffiliated with the Partnership, 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 $678,548 ($19.62 per limited
partnership unit) on the sale. 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.
Summarized Financial Information
- --------------------------------
The following summarized financial information is presented in the
aggregate for the investments in joint ventures:
Assets and Liabilities
----------------------
December 31,
------------------------------------------
1997 1996
------------------ ------------------
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
================== ==================
<PAGE>
Results of Operations
---------------------
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------
1997 1996 1995
-------------- --------------- --------------
<S> <C> <C> <C>
Revenue
Rental income $ 358,009 $ 1,165,073 $ 1,571,560
Other 36,653 114,609 110,184
--------------- --------------- --------------
394,662 1,279,682 1,681,744
--------------- --------------- --------------
Expenses
Depreciation and amortization 156,941 454,305 579,916
Operating expenses 129,254 321,958 409,923
--------------- --------------- --------------
286,195 776,263 989,839
--------------- --------------- --------------
Net income $ 108,467 $ 503,419 $ 691,905
=============== =============== ==============
</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.
Effective January 1, 1996, the Anaheim joint venture was dissolved.
Accordingly, the 1997 and 1996 amounts relate only to the Medlock Oaks joint
venture.
NOTE 5 - 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,
--------------------------------------------------------------
1997 1996 1995
----------------- ----------------- ---------------
<S> <C> <C> <C>
Net income (loss) per financial
statements $ 2,356,173 $ 1,709,735 $ (983,224)
Timing differences:
Property rentals -- (301) 303,432
Joint venture earnings 116,672 (136,605) (153,412)
Expenses 777 (24,383) 3,978
Depreciation method (27,008) (131,172) (101,083)
Valuation allowance -- 250,000 2,600,000
Loss on sale 290,625 (572,443) -
----------------- ----------------- ------------------
Taxable income $ 2,737,239 $ 1,094,831 $ 1,669,691
================= ================= ==================
</TABLE>
<PAGE>
NOTE 6 - 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 is 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, are allocated 99% to
the limited partners and 1% to the general partners.
NOTE 7 - SUBSEQUENT EVENT
- -------------------------
Distributions of cash from operations relating to the quarter ended
December 31, 1997 were made on January 29, 1998 in the aggregate amount of
$91,168 ($2.61 per limited partnership unit).
<PAGE>
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Initial Cost to Costs Capitalized
The Partnership Subsequent to Acquisition
--------------------------------------------------- -----------------------------
Encum - Buildings & Improve - Carrying
Description brances Land Improvements ments Costs
- ----------- ----------- ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Two one-story R & D
buildings (145,000 sq.ft) on
11.1 acres in Walnut Notes A
Creek, California. and B $6,777,729 $ 7,956,466 $1,371,782 --
Two one-story concrete
industrial buildings and one
cooler/freezer building
(128,178 sq.ft) on 6.5
acres in Las Vegas, Nevada. Note B $1,195,749 $ 3,980,657 $ 12,642 --
One-story warehouse building
(106,232 sq.ft) on 4.9
acres in Anaheim, California. Note B $1,279,147 $ 2,456,841 $ 147,571 --
------------ ------------ ----------
Total wholly owned $9,252,625 $14,393,964 $1,531,995
============ ============ ==========
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
<CAPTION>
Gross amount at which
Carried at close of Period
----------------------------------------------------
Investment
Buildings & Valuation Accumulated
Description Land Improvements Allowance Total Depreciation
- ----------- ------------ ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Two one-story R & D
buildings (145,000 sq.ft) on
11.1 acres in Walnut
Creek, California. $6,777,729 $9,328,248 ($2,571,667) $13,534,310 $2,905,067
Two one-story concrete
industrial buildings and one
cooler/freezer building
(128,178 sq.ft) on 6.5
acres in Las Vegas, Nevada. $1,195,749 $3,993,299 $0 $5,189,048 $1,366,207
One-story warehouse building
(106,232 sq.ft) on 4.9
acres in Anaheim, California. $1,279,147 $2,604,412 $0 $3,883,559 $154,273
------------ ------------ ------------- ----------- ------------
Total wholly owned $9,252,625 $15,925,959 ($2,571,667) $22,606,917 $4,425,547
============ ============ ============= =========== ============
57% interest in Medlock Oaks
Associates. Owners of five --------------------- $0 N/A
warehouse and service center
buildings (173,916 square feet)
situated on 14.9 acres of land
in Atlanta, Georgia.
-------------
Total real estate joint ventures $0
=============
<CAPTION>
Date of Date Date Depreciable
Description Sales Construction Acquired Sold 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. ($10,629,243) 1978 & 1980 09/11/86 04/09/96 25 Yrs
Two one-story concrete
industrial buildings and one
cooler/freezer building
(128,178 sq.ft) on 6.5
acres in Las Vegas, Nevada. ($3,822,841) 1964 & 1986 10/29/87 08/13/96 17&31.5 Yrs
One-story warehouse building
(106,232 sq.ft) on 4.9
acres in Anaheim, California. ($3,729,286) 1987 12/30/86 10/24/97 30 Yrs
--------------
Total wholly owned ($18,181,370)
==============
57% interest in Medlock Oaks Phase I -1987
Associates. Owners of five Phase II-1990 12/4/87 05/02/97 30/15 Yrs
warehouse and service center
buildings (173,916 square feet)
situated on 14.9 acres of land
in Atlanta, Georgia. ($4,562,940)
--------------
Total real estate joint ventures ($4,562,940)
==============
</TABLE>
Note: (A) First mortgage with principal balance of $4,215,073 held
by John Hancock Mutual Life Ins. Co. was paid off with
proceeds of sale on April 9, 1996.
<PAGE>
COPLEY REALTY INCOME PARTNERS 1.
A LIMITED PARTNERSHIP
SCHEDULE III-NOTE B
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995, 1996 & 1997
<TABLE>
<CAPTION>
Reconciliation of Real 1995
Estate Owned 1995 1995 INVESTMENT
BALANCE CAPITALIZED OTHER VALUATION BALANCE
DESCRIPTION AT 12/31/94 IMPROVEMENTS NET ASSETS ALLOWANCE AT 12/31/95
----------------------------- --------------- ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Walnut Creek, California $14,881,939 $0 $156,818 ($2,600,000) $12,438,757
Las Vegas, Nevada 5,176,859 0 0 0 5,176,859
--------------- ------------ -------------- ------------- -------------
$20,058,798 $0 $156,818 ($2,600,000) $17,615,616
=============== ============ ============== ============= =============
1996
1996 1996 INVESTMENT
BALANCE CAPITALIZED OTHER VALUATION BALANCE
AT 12/31/95 IMPROVEMENTS NET ASSETS ALLOWANCE AT 12/31/96
--------------- ------------ -------------- ------------- -------------
Walnut Creek, California $12,438,757 $1,031,003 $64,550 $0 $13,534,310
Las Vegas, Nevada 5,176,859 12,189 0 0 5,189,048
East Anaheim Distribution Ctr. 3,763,820 [A] 26,063 (22,013) 0 3,767,870
--------------- ------------ -------------- ------------- -------------
$21,379,436 $1,069,255 $42,537 $0 $22,491,228
=============== ============ ============== ============= =============
[A] Carrying value at conversion date (1/1/96)
1997
1997 1997 INVESTMENT
BALANCE CAPITALIZED OTHER VALUATION BALANCE
AT 12/31/96 IMPROVEMENTS NET ASSETS ALLOWANCE AT 12/31/97
--------------- ------------ -------------- ------------- -------------
Walnut Creek, California $0 $0 $0 $0 $0
Las Vegas, Nevada 0 0 0 0 0
East Anaheim Distribution Ctr. 3,767,870 36,385 66,392 0 3,870,647
--------------- ------------ -------------- ------------- -------------
$3,767,870 $36,385 $66,392 $0 $3,870,647
=============== ============ ============== ============= =============
<CAPTION>
Reconciliation of Real ACCUMULATED ACCUMULATED
Estate Owned DEPRECIATION 1995 DEPRECIATION
BALANCE DEPRECIATION BALANCE 1995 BALANCE (NET)
DESCRIPTION AT 12/31/94 EXPENSE AT 12/31/95 SALES AT 12/31/95
----------------------------- --------------- ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Walnut Creek, California $2,660,452 $244,615 $2,905,067 $0 $9,533,690
Las Vegas, Nevada 1,113,685 155,398 1,269,083 0 3,907,776
--------------- ------------ -------------- ------------- -------------
$3,774,137 $400,013 $4,174,150 $0 $13,441,466
=============== ============ ============== ============= =============
ACCUMULATED ACCUMULATED
DEPRECIATION 1996 DEPRECIATION
BALANCE DEPRECIATION BALANCE 1996 BALANCE (NET)
AT 12/31/95 EXPENSE AT 12/31/96 SALES AT 12/31/96
--------------- ------------ -------------- ------------- -------------
Walnut Creek, California $2,905,067 $0 $2,905,067 ($10,629,243) $0
Las Vegas, Nevada 1,269,083 97,124 1,366,207 (3,822,841) 0
East Anaheim Distribution Ctr. 0 83,671 83,671 0 3,684,199
--------------- ------------ -------------- ------------- -------------
$4,174,150 $180,795 $4,354,945 ($14,452,084) $3,684,199
=============== ============ ============== ============= =============
ACCUMULATED ACCUMULATED
DEPRECIATION 1997 DEPRECIATION
BALANCE DEPRECIATION BALANCE 1997 BALANCE (NET)
AT 12/31/96 EXPENSE AT 12/31/97 SALES AT 12/31/97
--------------- ------------ -------------- ------------- -------------
Walnut Creek, California $0 $0 $0 $0 $0
Las Vegas, Nevada 0 0 0 0 0
East Anaheim Distribution Ctr. 83,671 70,602 154,273 (3,716,374) 0
--------------- ------------ -------------- ------------- -------------
$83,671 $70,602 $154,273 ($3,716,374) $0
=============== ============ ============== ============= =============
</TABLE>
<PAGE>
COPLEY REALTY INCOME PARTNERS 1;
A LIMITED PARTNERSHIP
SCHEDULE III - NOTE C
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997, 1996 & 1995
<TABLE>
<CAPTION>
1995
1995 1995 AMORTIZATION OF
PERCENT OF BALANCE CASH INVESTMENT EQUITY IN ACQUISITION
DESCRIPTION OWNERSHIP AT 12/31/94 IN JOINT VENTURE INCOME (LOSS) FEES
----------------------------- --------------- ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
East Anaheim Distribution Ctr. 61.6% $3,928,424 $0 $250,312 ($3,960)
Medlock Oaks Associates 57% 5,398,266 0 240,331 (7,703)
------------ -------------- ------------- -------------
$9,326,690 $0 $490,643 ($11,663)
============ ============== ============= =============
1996
1996 1996 AMORTIZATION OF
PERCENT OF BALANCE CASH INVESTMENT EQUITY IN ACQUISITION
OWNERSHIP AT 12/31/95 IN JOINT VENTURE INCOME (LOSS) FEES
--------------- ------------ -------------- ------------- -------------
East Anaheim Distribution Ctr. 100% $3,763,820 $0 $0 $0
Medlock Oaks Associates 57% 5,207,372 0 280,509 (7,704)
------------ -------------- ------------- -------------
$8,971,192 $0 $280,509 ($7,704)
============ ============== ============= ============
1997
1997 1997 AMORTIZATION OF
PERCENT OF BALANCE CASH INVESTMENT EQUITY IN ACQUISITION
OWNERSHIP AT 12/31/96 IN JOINT VENTURE INCOME (LOSS) FEES
--------------- ------------ -------------- ------------- -------------
East Anaheim Distribution Ctr. 100% $0 $0 $0 $0
Medlock Oaks Associates 57% 4,704,079 0 62,956 (2,589)
------------ -------------- ------------- -------------
$4,704,079 $0 $62,956 ($2,589)
============ ============== ============= =============
<CAPTION>
1995 CASH 1995 CONVERSION
1995 DISTRIBUTIONS INVESTMENT TO
REPAYMENT FROM VALUATION WHOLLY-OWNED BALANCE
DESCRIPTION OF LOAN JOINT VENTURE ALLOWANCE PROPERTY AT 12/31/95
----------------------------- --------------- ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
East Anaheim Distribution Ctr. ($20,878) ($390,078) $0 $0 $3,763,820
Medlock Oaks Associates 0 (423,522) 0 0 5,207,372
--------------- ------------ -------------- ------------- -------------
($20,878) ($813,600) $0 $0 $8,971,192
=============== ============ ============== ============= =============
1996
1996 CASH 1996 CONVERSION
DISTRIBUTIONS INVESTMENT TO
FROM VALUATION WHOLLY-OWNED BALANCE
JOINT VENTURE ALLOWANCE PROPERTY AT 12/31/96
--------------- ------------ -------------- -------------
East Anaheim Distribution Ctr. $0 $0 ($3,763,820) $0
Medlock Oaks Associates (526,098) (250,000) 0 4,704,079
--------------- ------------ -------------- -------------
($526,098) ($250,000) ($3,763,820) $4,704,079
=============== ============ ============== =============
1997 CASH 1997 CONVERSION
DISTRIBUTIONS INVESTMENT TO
FROM VALUATION WHOLLY-OWNED 1997 BALANCE
JOINT VENTURE ALLOWANCE PROPERTY SALES AT 12/31/97
--------------- ------------ -------------- ------------- -------------
East Anaheim Distribution Ctr. $0 $0 $0 $0 $0
Medlock Oaks Associates (201,506) 0 0 (4,562,940) 0
--------------- ------------ -------------- ------------- -------------
($201,506) $0 $0 ($4,562,940) $0
=============== ============ ============== ============= =============
</TABLE>
<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.
27. Financial Data Schedule
- -----------------------------------------------------
* Previously filed and incorporated herein by reference.
<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 25, 1998 By: /s/ Wesley M. Gardiner, Jr.
---------------------------
Wesley M. Gardiner, Jr.
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, Chief
Executive Officer and
/s/ Wesley M. Gardiner, Jr Director March 25, 1998
- -------------------------------
Wesley M. Gardiner, Jr
Vice President and
/s/ Pamela J. Herbst Director March 25, 1998
- ---------------------------
Pamela J. Herbst
Vice President and
/s/ J. Grant Monahon Director March 25, 1998
- ---------------------------
J. Grant Monahon
/s/ James J. Finnegan Vice President March 25, 1998
- ---------------------------
James J. Finnegan
Treasurer and Principal Financial
/s/ Karin J. Lagerlund and Accounting Officer March 25, 1998
- ---------------------------
Karin J. Lagerlund
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,259,413
<SECURITIES> 299,629
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,559,042
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,559,042
<CURRENT-LIABILITIES> 65,277
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,493,765
<TOTAL-LIABILITY-AND-EQUITY> 5,559,042
<SALES> 491,760
<TOTAL-REVENUES> 2,730,333
<CGS> 119,344
<TOTAL-COSTS> 119,344
<OTHER-EXPENSES> 254,816
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,356,173
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,356,173
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,356,173
<EPS-PRIMARY> 67.45
<EPS-DILUTED> 67.45
</TABLE>
