SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 0-15796
Corporate Realty Income Fund I, L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3311993
(State of organization) (I.R.S. Employer
identification No.)
475 Fifth Avenue, New York, New York 10017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 696-0772
- --------------------------------------------------------------------------------
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 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 _____
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<PAGE>
CORPORATE REALTY INCOME FUND I, L.P.
(a Delaware limited partnership)
Index
Page No.
--------
Part I Financial information 3
Consolidated Balance Sheets --
September 30, 1999 and December 31, 1998 4
Consolidated Statements of Operations --
For the three months ended September 30, 1999 and 1998 5
Consolidated Statements of Operations --
For the nine months ended September 30, 1999 and 1998 6
Consolidated Statements of Cash Flows --
For the nine months ended September 30, 1999 and 1998 7
Notes to the Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II Other information 12
Signatures 13
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<PAGE>
Part I. Financial Information
Item I. Financial Statements
The summarized financial information contained herein is unaudited; however, in
the opinion of management, all adjustments necessary for a fair presentation of
such financial information have been included.
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<PAGE>
CORPORATE REALTY INCOME FUND I, L.P.
(a Delaware limited partnership)
CONSOLIDATED BALANCE SHEETS
September 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Real estate, at cost:
Land $ 19,875,846 $ 19,875,846
Buildings and improvements 96,703,272 95,541,299
Equipment and furniture 115,585 78,029
------------- -------------
116,694,703 115,495,174
Less accumulated depreciation (24,042,338) (21,669,758)
------------- -------------
92,652,365 93,825,416
Cash and cash equivalents at cost,
which approximate market value 1,798,045 4,115,435
Escrow cash 3,993,634 --
Accounts receivable 617,138 737,617
Due from partners 115,818 95,016
Notes receivable net of unamortized discount of
$36,273 in 1999 and $50,024 in 1998 443,395 524,379
Step rent receivables 2,899,645 2,638,615
Deferred charges, net of accumulated amortization
of $1,300,523 in 1999 and $927,224 in 1998 1,192,772 829,552
Lease commissions and legal fees, net of accumulated amortization
of $2,034,022 in 1999 and $1,637,425 in 1998 2,667,075 2,726,566
Deposits and other assets 503,144 255,769
------------- -------------
Total assets $ 106,883,031 $ 105,748,365
============= =============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Mortgage loan payable $ 52,746,994 $ 46,930,800
Accounts payable and accrued expenses 1,728,321 2,983,261
Other liabilities 1,226,131 1,382,043
------------- -------------
Total Liabilities 55,701,446 51,296,104
------------- -------------
Partners' Capital (Deficit):
General partners:
Capital contributions 1,000 1,000
Net income 389,496 395,236
Cash distributions (594,167) (567,200)
------------- -------------
(203,671) (170,964)
------------- -------------
Limited partners: ($25 per unit; 4,000,000 units
authorized, 2,983,531 issued and
outstanding in 1999 and 1998)
Capital contributions, net of offering costs 71,724,856 71,724,856
Net income 38,559,968 39,128,241
Cash distributions (58,899,568) (56,229,872)
------------- -------------
51,385,256 54,623,225
------------- -------------
Total partners' capital (deficit) 51,181,585 54,452,261
------------- -------------
Total liabilities and partners' capital (deficit) $ 106,883,031 $ 105,748,365
============= =============
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
CORPORATE REALTY INCOME FUND I, L.P.
(a Delaware limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Income:
Rental $ 3,946,204 $ 4,189,509
Interest and other income 65,991 3,350
----------- -----------
4,012,195 4,192,859
----------- -----------
Expenses:
Interest 897,841 795,863
Depreciation 790,860 737,070
Amortization 256,632 211,313
Property operating 1,955,383 1,572,697
Management fees 271,920 282,500
General and administrative 234,869 114,792
----------- -----------
4,407,505 3,714,235
----------- -----------
Net income/(loss) $ (395,310) $ 478,624
=========== ===========
Net income/(loss) allocated:
To the general partners (3,953) $ 4,786
To the limited partners (391,357) 473,838
----------- -----------
$ (395,310) $ 478,624
=========== ===========
Net income/(loss) per unit of limited partnership interest $ (0.13) $ 0.16
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
CORPORATE REALTY INCOME FUND I, L.P.
(a Delaware limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the nine months ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Income:
Rental $ 11,298,086 $ 12,168,132
Interest and other income 684,045 41,909
------------ ------------
11,982,131 12,210,041
------------ ------------
Expenses:
Interest 2,563,695 2,429,619
Depreciation 2,372,580 2,205,936
Amortization 769,896 633,939
Property operating 5,476,949 5,286,662
Management fees 813,315 869,902
General and administrative 559,709 283,435
------------ ------------
12,556,144 11,709,493
------------ ------------
Net income/(loss) $ (574,013) $ 500,548
============ ============
Net income/(loss) allocated:
To the general partners $ (5,740) $ 5,005
To the limited partners (568,273) 495,543
------------ ------------
$ (574,013) $ 500,548
============ ============
Net income/(loss) per unit of limited partnership interest $ (0.19) $ 0.17
============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
CORPORATE REALTY INCOME FUND I, L.P.
(a Delaware limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ (574,013) $ 500,548
------------ ------------
Adjustments to reconcile net income/(loss)
to net cash provided by operating
activities:
Depreciation and amortization 3,142,476 2,839,875
Changes in operating assets and liabilities:
Decrease/(increase) in:
Accounts receivable 120,479 188,477
Due from partners (20,802) 109,795
Notes receivable 80,984 (90,973)
Step rent receivables (261,030) 159,033
Lease commissions and legal fees (337,106) (768,261)
Other assets (247,375) (358,065)
Increase/(decrease)in:
Accounts payable and accrued expenses (1,254,940) (240,113)
Other liabilities (155,912) (156,336)
------------ ------------
Total adjustments 1,066,774 1,683,432
------------ ------------
Net cash provided by operating activities 492,761 2,183,980
------------ ------------
Cash flows from investing activities:
Acquisition of real estate (1,199,529) (3,135,875)
Escrow cash (3,993,634) --
------------ ------------
Net cash used in investing activities (5,193,163) (3,135,875)
------------ ------------
Cash flows from financing activities:
Mortgage proceeds 32,000,000 6,400,000
Mortgage paid (26,183,806) (766,800)
Deferred charges (736,519) (172,217)
Capital repurchase -- (90,300)
Cash distributions to partners (2,696,663) (2,745,709)
------------ ------------
Net cash provided by financing activities 2,383,012 2,624,974
------------ ------------
Net increase/(decrease) in cash and cash equivalents (2,317,390) 1,673,079
Cash and cash equivalents at beginning of period 4,115,435 855,840
------------ ------------
Cash and cash equivalents at end of period $ 1,798,045 $ 2,528,919
============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
CORPORATE REALTY INCOME FUND I, L.P.
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
1. General
The accompanying financial statements and related notes should be read in
conjunction with the Partnership's annual report for the year ended December 31,
1998 as certain footnote disclosures which would substantially duplicate those
contained in such audited financial statements have been omitted from this
report.
In August 1999, the Partnership established two wholly-owned subsidiaries
namely, 475 Fifth Avenue L.P. and 475 Fifth - GP, Inc. 475 Fifth Avenue L.P.,
the interests of which is 99% owned by Registrant and 1% owned by 475 Fifth -
GP, Inc. (the General Partner), acquired ownership of the New York building and
related operations.
The consolidated financial statements include the accounts of the
Partnership and its wholly-owned subsidiaries. All intercompany accounts and
transactions have been eliminated.
2. Rental Income
In accordance with the Financial Accounting Standards Board Statement No.
13, "Accounting for Leases," the Partnership recognizes rental income on a
straight-line basis over the fixed term of the lease period. Step rent
receivables represent unbilled future rentals. The following reconciles rental
income received in cash to rental income recognized.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Rental income received in cash $ 3,859,194 $ 4,242,520 $ 11,037,056 $ 12,327,165
Step rent receivables 87,010 (53,011) 261,030 (159,033)
------------ ------------ ------------ ------------
Rental income recognized $ 3,946,204 $ 4,189,509 11,298,086 $ 12,168,132
============ ============ ============ ============
</TABLE>
3. Leases
Minimum future rentals under noncancellable operating leases as of
September 30, 1999 are as follows:
Year ending December 31
1999 $ 2,368,000
2000 10,634,000
2001 7,961,000
2002 7,101,000
2003 6,757,000
Thereafter 25,069,000
-----------
Total $59,890,000
===========
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<PAGE>
CORPORATE REALTY INCOME FUND I, L.P.
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
3. Leases (continued)
In addition to the minimum lease amounts, the leases provide for escalation
charges to the tenants for operating expenses and real estate taxes. Escalation
charges have been included in rental income. For the three and nine months ended
September 30, 1999 and 1998, escalation charges amounted to $524,064 and
$1,512,458 in 1999, and $1,053,828 and $2,157,606 in 1998.
4. Transactions with General Partners and Affiliates
Fees earned for the three and nine months ended September 30, 1999 are:
Three Nine
Months Months
--------- ---------
Partnership management fees $ 62,727 $ 188,181
Property management fees 209,193 625,134
5. Supplemental Disclosure of Cash Flow Information
Cash paid for interest during the nine months ended September 30, 1999 and
1998 amounted to $2,563,695 and $2,429,619, respectively.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
At September 30, 1999, Registrant had cash and receivables of approximately
$2,415,000 as contrasted to accounts payable and accrued expenses of
approximately $1,728,000. In addition to this working capital of approximately
$687,000, Registrant could borrow up to an additional $3,000,000 on its existing
line of credit (the "Loan"). Registrant measures its liquidity by its ability to
generate sufficient cash flow from operations to meet its current operating and
debt service requirements on a short-term and long-term basis. Registrant's
operations and proceeds from mortgage financing have provided this liquidity and
are expected to continue to do so.
In March 1999, Gdynia America Line, Inc., a tenant occupying approximately
21,650 square feet (20.3%) in the Tumi Building filed for protection under
Chapter 11 of the U.S. Bankruptcy Code. Polish Ocean Lines, a Polish corporation
owned by the Polish Government, is jointly and severally obligated under this
lease. On or about April 30, 1999, the lease, which required annual rental
payments of approximately $446,000, was rejected in the bankruptcy proceeding.
Registrant intends to institute suit against Polish Ocean Lines for amounts due
under the remaining eight years term of the lease.
During the nine months ended September 30, 1999, Registrant funded
approximately $1,200,000 in improvements, primarily consisting of building and
tenant improvements at the Colorado, Texas (San Antonio) and New York
properties. Registrant continues to invest capital in improving its properties
with the view to increasing revenues from real estate operations and ultimately
realizing appreciation in property values. Such capital improvements currently
are focused primarily on the New York property and to a lesser extent, the San
Antonio property. Registrant will continue to require capital to fund additional
tenant improvements as tenancies turn over at its properties.
In August 1999, Registrant established two wholly-owned subsidiaries
namely, 475 Fifth Avenue L.P., and 475 Fifth- GP Inc. 475 Fifth Avenue L.P., the
interests of which are owned 99% by Registrant and 1% by 475 Fifth - GP ( the
General Partner), acquired ownership of the New York building and related
operations. 475 Fifth Avenue L.P. obtained mortgage financing (the Mortgage
Loan), the proceeds of which were used to pay down approximately $23,381,000 of
the Loan and to provide the New York operations with cash for capital
improvements and leasing costs. Financial statements of Registrant and
subsidiaries are consolidated, and intercompany accounts and transactions are
eliminated.
The Loan has provided Registrant with available capital to acquire
properties, fund improvements and leasing commissions, repurchase outstanding
Units, and otherwise fund capital requirements. The balance of the Mortgage Loan
proceeds (approximately $3,993,000 at September 30, 1999), after paying down the
Loan and payment of related loan costs, have been segregated and invested in
certain escrow cash accounts to be used to fund additional capital improvements
and leasing costs, and to augment working capital. The cost of Registrant's
financings ultimately must be offset by increased property revenues, or
Registrant's operations and capital will be compromised.
Results of Operations
Nine Months Ended September 30, 1999 versus 1998
In 1998, Registrant accrued substantial lease termination payments from the
Tumi Building in New Jersey and 475 Fifth Avenue in New York. As a consequence
of these lease terminations and the bankruptcy of Gdynia America Line, Inc. (a
tenant in the Tumi Building), rental revenues in 1999 decreased by 7.2% from
1998. Interest and other income in 1999 aggregating approximately $684,000,
consisting of a real estate tax refund from the New York property, a loan
breakup fee and interest income from notes receivable for lease termination,
increased total income to $11,982,131 in 1999 and resulted in just a 1.9%
reduction from 1998.
Interest expense increased by 5.5% from 1998 and due to 1999 because of
additional borrowing under the Loan in the second half of 1998, obtaining the
Mortgage Loan in August 1999 and higher interest rates. Depreciation increased
by 7.6% in 1999 from 1998 because of additional capital improvements made by
Registrant. Amortization increased by 21.4% because of additional leasing
commissions, increased loan costs, and a shorter amortization period. The 3.6%
increase in property operating costs from 1998 to 1999 reflects increased
expenses in utilities, repairs and ground maintenance due to more warm summer
days, and costs related to the replacement of certain key building employees.
Management fees decreased by 6.5% from 1998 to 1999 owing to the decrease in
rental income. General and administrative expenses increased by 97.5% in 1999
primarily because of non-recurring legal costs related to a prospective mortgage
financing and the write-off of amounts owed by former tenants in the New York
building.
10 of 14
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Nine Months Ended September 30, 1999 versus 1998 (continued)
Operations during the nine months ended September 30, 1999, therefore,
resulted in a net loss of $574,013 as compared to net income of $500,548 in
1998. Net cash from operations decreased by 77.4% from 1998 to 1999 primarily
because of the nest loss realized in 1999 and payments of accounts payable and
accrued expenses aggregating approximately $1,254,000 in 1999 as contrasted to
approximately $240, 000 in 1998.
Three Months Ended September 30, 1999 versus 1998
In 1998, Registrant accrued substantial lease termination payments from the
Tumi Building in New Jersey and 475 Fifth Avenue in New York. As a consequence
of these lease terminations and the bankruptcy of Gdynia America Line, Inc. ( a
tenant in the Tumi Building), rental revenues in 1999 decreased by 5.8% from
1998. Interest and other income in 1999 aggregating approximately $65,000,
consisting of interest income from notes receivable for lease termination and
certain reimbursable tenant services, increased total income to $4,012,195 in
1999 and resulted in just a 4.3 % reduction from 1998.
Interest expense increased by 12.8% from 1998 to 1999 because of additional
borrowing under the Loan in the second half of 1998, obtaining the Mortgage Loan
in August 1999 and higher interest rates. Depreciation increased by 7.3% in 1999
from 1998 because of additional capital improvements made by Registrant.
Amortization increased by 21.4% because of additional leasing commissions,
increased loan costs, and a shorter amortization period. The 24.3% increase in
property operating costs from 1998 to 1999 reflects increased expenses in
utilities, repairs and ground maintenance due to more warm summer days, and
costs related to the replacement of certain key building employees. Management
fees decreased by 3.7% from 1998 to 1999 owing to the decrease in rental income.
General and administrative expenses increased by 104% in 1999 primarily because
of non-recurring legal costs related to a prospective mortgage financing.
Operations during the three months ended September 30, 1999, therefore,
resulted in a net loss of $395,310 as compared to net income of $478,624 in
1998.
Year 2000 Considerations
Registrant has received assurances from its significant suppliers, large
customers and financial institutions that those parties have appropriate plans
to remediate Year 2000 issues where their systems interface with Registrant's
systems or otherwise impact its operations. Registrant has also replaced its own
computer systems, conducted a review of any impact on operation of its buildings
and taken any steps it deems necessary to prepare for Year 2000. However,
Registrant has not contacted any of the tenants at its buildings to inquire as
to their state of readiness for Year 2000.
Registrant's costs to remediate Year 2000 concerns have been minimal
(approximately $1,000 or less). None of such costs were incurred in the quarter
ended September 30, 1999 and no additional costs are expected to be incurred.
Registrant does not anticipate any significant impact on its operations
should any of the foregoing systems prove non- compliant for Year 2000 purposes.
A possible scenario of non-compliance would involve a tenant who is rendered
unable or unwilling to make rental payments because of deteriorating financial
condition due to its own failure to remediate Year 2000 concerns. Registrant has
not developed a contingency plan to address this scenario because it believes
the scenario unlikely.
While Registrant believes its planning effort is adequate to address its
Year 2000 concerns, there can be no guarantee that the systems of other
companies on which Registrant's systems and operations rely will be converted on
a timely basis, and will not have a material effect on Registrant.
11 of 14
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) No reports on Form 8-K were filed during the quarter in which
this report is filed.
12 of 14
<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.
CORPORATE REALTY INCOME FUND I, L.P
(Registrant)
Date: November 15, 1999 By: /s/Robert F. Gossett, Jr.
-----------------------------
Robert F. Gossett, Jr.
President, Director
Date: November 15, 1998 By: /s/Paula G. Gossett
-----------------------------
Paula G. Gossett
Treasurer, Vice President
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
registrant's audited financial statements as at and for the year ended
December 31, 1998 and unaudited financial statements as at and for the nine
months ended September 30, 1999 and 1998 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,798,045
<SECURITIES> 0
<RECEIVABLES> 1,060,533
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,477,540
<PP&E> 116,694,703
<DEPRECIATION> 24,042,338
<TOTAL-ASSETS> 106,883,031
<CURRENT-LIABILITIES> 2,954,452
<BONDS> 52,746,994
0
0
<COMMON> 0
<OTHER-SE> 51,181,585
<TOTAL-LIABILITY-AND-EQUITY> 106,883,031
<SALES> 11,298,086
<TOTAL-REVENUES> 11,982,131
<CGS> 0
<TOTAL-COSTS> 8,619,425
<OTHER-EXPENSES> 1,373,024
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,563,695
<INCOME-PRETAX> (574,013)
<INCOME-TAX> 0
<INCOME-CONTINUING> (574,013)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (574,013)
<EPS-BASIC> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
