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 June 30, 2000
[_] 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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CORPORATE REALTY INCOME FUND I, L.P.
and SUBSIDIARIES
Index
Page No.
Part I Financial information 3
Item 1 Financial Statements 3
Consolidated Balance Sheets --
June 30, 2000 and December 31, 1999 4
Consolidated Statements of Operations --
For the three months ended June 30, 2000 and 1999 5
Consolidated Statements of Operations --
For the six months ended June 30, 2000 and 1999 6
Consolidated Statements of Cash Flows --
For the six months ended June 30, 2000 and 1999 7
Notes to Consolidated Financial Statements 8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3 Quantitative and Qualitative Disclosures about Market Risk 12
Part II Other information 13
Item 6 Exhibits and Reports on Form 8-K 13
Signatures 14
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Part I. Financial Information
Item 1. 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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CORPORATE REALTY INCOME FUND I, L.P.
and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2000 and December 31, 1999
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Real estate, at cost:
Land $ 18,795,477 $ 19,875,846
Buildings and improvements 91,237,747 98,067,344
Equipment and furniture 242,302 242,302
------------- -------------
110,275,526 118,185,492
Less accumulated depreciation (23,574,890) (24,361,971)
------------- -------------
86,700,636 93,823,521
Cash and cash equivalents at cost,
which approximates market value 2,128,371 3,322,319
Accounts receivable 469,309 578,480
Due to general partner 19,560 0
Notes receivable, net of unamortized discount of
$26,024 in 2000 and $32,464 in 1999 206,287 244,643
Step rent receivables 2,328,601 2,479,583
Deferred financing costs, net of accumulated amortization
of $1,803,582 in 2000 and $1,625,303 in 1999 787,213 965,492
Lease commissions and legal fees, net of accumulated amortization
of $1,692,930 in 2000 and $1,583,597 in 1999 2,520,430 2,168,412
Escrow deposits 3,945,916 2,866,682
Deposits and other assets 207,342 806,575
------------- -------------
Total assets $ 99,313,665 $ 107,255,707
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Mortgage loan payable $ 45,115,925 $ 55,539,288
Accounts payable and accrued expenses 2,608,268 2,599,574
Due to general partner 0 63,534
Other liabilities 1,431,269 1,031,820
------------- -------------
Total liabilities 49,155,462 59,234,216
------------- -------------
Partners' Capital:
General partners:
Capital contributions 1,000 1,000
Net income 406,404 366,955
Cash distributions (621,309) (603,227)
------------- -------------
(213,905) (235,272)
------------- -------------
Limited partners: ($25 per unit; 4,000,000 units
authorized, 2,983,531 issued and
outstanding in 2000 and 1999)
Capital contributions, net of offering costs 71,724,856 71,724,856
Net income 40,233,881 36,328,418
Cash distributions (61,586,629) (59,796,511)
------------- -------------
50,372,108 48,256,763
------------- -------------
Total partners' capital 50,158,203 48,021,491
------------- -------------
Total liabilities and partners' capital $ 99,313,665 $ 107,255,707
============= =============
</TABLE>
See accompanying notes to financial statements.
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CORPORATE REALTY INCOME FUND I, L.P.
and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Income:
Rental $ 3,751,488 $ 3,860,792
Lease Cancellation 70,251 --
Interest and other income 133,428 354,565
----------- -----------
3,955,167 4,215,357
----------- -----------
Expenses:
Interest 1,146,924 833,835
Depreciation 887,015 790,860
Amortization 228,783 256,632
Property operating 1,794,518 1,747,784
Management fees 274,726 277,031
Bad debt expenses 49,154 39,479
General and administrative 139,205 141,377
----------- -----------
4,520,325 4,086,998
----------- -----------
Net income/(loss) from operations (565,158) 128,359
Gain from sale of real estate 5,111,392 --
----------- -----------
Net income $ 4,546,234 $ 128,359
=========== ===========
To the general partners $ 45,462 $ 1,284
To the limited partners 4,500,772 127,075
----------- -----------
$ 4,546,234 $ 128,359
=========== ===========
Net income per unit of limited partnership interest $ 1.51 $ 0.04
=========== ===========
Distribution per unit of limited partnership interest $ 0.30 $ 0.30
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
CORPORATE REALTY INCOME FUND I, L.P.
and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the six months ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
1999 2000
----------- -----------
<S> <C> <C>
Income:
Rental $ 7,680,848 $ 7,351,882
Lease Cancellation 102,469 --
Interest and other income 195,111 618,054
----------- -----------
7,978,428 7,969,936
----------- -----------
Expenses:
Interest 2,287,841 1,665,854
Depreciation 1,774,030 1,581,720
Amortization 434,412 513,264
Property operating 3,756,821 3,521,566
Management fees 546,824 541,395
Bad debt expenses 49,154 95,499
General and administrative 295,826 229,341
----------- -----------
9,144,908 8,148,639
----------- -----------
Net loss from operations (1,166,480) (178,703)
Gain from sale of real estate 5,111,392 --
----------- -----------
Net income/(loss) $ 3,944,912 $ (178,703)
=========== ===========
Net income/(loss) allocated:
To the general partners $ 39,449 $ (1,787)
To the limited partners 3,905,463 (176,916)
----------- -----------
$ 3,944,912 $ (178,703)
=========== ===========
Net income/(loss) per unit of limited partnership interest $ 1.31 $ (0.06)
=========== ===========
Distribution per unit of limited partnership interest $ 0.60 $ 0.60
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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CORPORATE REALTY INCOME FUND I, L.P.
and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2000 and 1999
Increase/(Decrease) in Cash
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ 3,944,912 $ (178,703)
------------ ------------
Adjustments to reconcile net income/(loss)
to net cash provided by operating activities:
Depreciation and amortization 2,208,442 2,094,984
Gain on sale of real estate (5,111,392) --
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable 109,171 295,400
Due from partners (83,094) (12,726)
Note receivable 38,356 58,443
Step rent receivables 150,982 (174,020)
Lease commissions and legal fees (752,415) (225,864)
Deferred charges -- (47,500)
Escrow deposits (1,079,234) --
Other assets 599,233 84,077
Increase (decrease) in:
Accounts payable and accrued expenses 8,694 (1,297,217)
Other liabilities 399,449 751,519
------------ ------------
Total adjustments (3,511,808) 1,527,096
------------ ------------
Net cash provided by operating activities 433,104 1,348,393
------------ ------------
Cash flows from investing activities:
Proceeds from sale of real estate 12,089,550 --
Acquisition of real estate (1,485,039) (793,176)
------------ ------------
Net cash provided by/(used in) investing activities 10,604,511 (793,176)
------------ ------------
Cash flows from financing activities:
Mortgage paid (10,423,363) (2,568,000)
Cash distributions to partners (1,808,200) (1,803,557)
------------ ------------
Cash used in financing activities (12,231,563) (4,371,557)
------------ ------------
Net decrease in cash and cash equivalents (1,193,948) (3,816,340)
Cash and cash equivalents at beginning of period 3,322,319 4,115,435
------------ ------------
Cash and cash equivalents at end of period $ 2,128,371 $ 299,095
============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
CORPORATE REALTY INCOME FUND I, L.P.
and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
1. General
The accompanying unaudited condensed financial statements have been
prepared in accordance with the generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six months ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant Company and Subsidiaries' annual
report on Form 10-K for the year ended December 31, 1999.
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 interest 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 billed to rental income recognized.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------- ----------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Rental income billed $ 3,897,790 $ 3,773,782 $ 7,733,670 $ 7,177,862
Step rent receivables (146,302) 87,010 (52,822) 174,020
----------- ----------- ----------- -----------
Rental income recognized $ 3,751,488 $ 3,860,792 $ 7,680,848 $ 7,351,882
=========== =========== =========== ===========
</TABLE>
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CORPORATE REALTY INCOME FUND I, L.P.
and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
3. Leases
Minimum future rentals under noncancellable operating leases as of June 30,
2000 are approximately as follows:
Year ending December 31
2000 $ 4,801,000
2001 8,296,000
2002 7,367,000
2003 6,891,000
2004 5,998,000
Thereafter 15,900,000
-----------
Total $49,253,000
===========
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 six months ended
June 30, 2000 and 1999, escalation charges amounted to $563,554 and $1,084,596,
in 2000 and $513,503 and $988,389 in 1999, respectively.
4. Transactions with General Partners and Affiliates
Fees incurred and reimbursable expenses for the three and six months ended
June 30, 2000 are:
Three Six
Months Months
-------- --------
Partnership management fees $ 63,287 $126,574
Property management fees 211,439 420,250
5. Supplemental Disclosure of Cash Flow Information
Cash paid for interest during the six months ended June 30, 2000 and 1999
amounted to $2,304,321 and $1,665,854, respectively.
6. Sale of Colorado Building
On June 30, 2000, Registrant sold its real property in Boulder, Colorado
for $13,050,000 realizing a gain of approximately $5,111,000. Proceeds from the
sale were used to partially pay-off the Fleet Loan by $10,000,000 and the
balance was used for capital improvements which increase the value of the
remaining properties and for leasing commissions related to new and renewed
leases.
An escrow account for $434,466 was established from the proceeds of the
sale to be released to the seller upon finding a replacement for a tenant who
applied for bankruptcy protection. Recognition of gain on sale, to the extent
held in such escrow, has been deferred.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
At June 30, 2000, Registrant had cash and receivables of approximately
$2,598,000 as contrasted to accounts payable and accrued expenses of
approximately $2,608,000. 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 have provided this liquidity and are expected to continue to do so.
To the extent additional funds are required, Registrant would need to refinance
its line-of-credit loan (the "Fleet Loan") and/or sell assets.
During the quarter ended June 30, 2000, Registrant sold its real property
in Boulder, Colorado for $13,050,000 realizing a gain of approximately $5.1
million. Proceeds from the sale were used to partially pay-off the Fleet Loan by
$10 million and the balance was used for capital improvements which increase the
value of the remaining properties and for leasing commissions related to new and
renewed leases.
During the quarter ended June 30, 2000, Registrant funded approximately
$1,142,000 of building and tenant improvements in New York and San Antonio.
Registrant continues to invest capital in improving its properties with the goal
of increasing revenues from real estate operations and realizing appreciation in
property values. Registrant will continue to need capital to fund additional
tenant improvements as tenancies turn over at its properties.
In August 1999, Registrant's subsidiary acquired ownership of the New York
property and obtained a $32,000,000 fixed rate mortgage loan (the "475 Loan")
secured by that property. The proceeds of the 475 Loan were used to pay down
approximately $23,381,000 of the Fleet Loan, to fund capital improvements and
leasing costs at 475 Fifth Avenue, and to augment working capital.
The 475 Loan and the Fleet Loan have provided Registrant with available
capital to acquire properties, fund improvements and leasing commissions,
repurchase outstanding Units, and otherwise fund capital requirements. The Fleet
loan matures on September 24, 2000. Registrant anticipates satisfying the
balance on the Fleet loan out of the proceeds of a refinancing. The cost of
Registrant's financing ultimately must be offset by increased property revenues
or Registrant's operations and capital will be compromised.
Cash distribution to Unitholders during the three months ended June 30,
2000 aggregated $895,059 or $0.30 per Unit. Registrant intends to maintain this
level of distribution through 2000 and, if possible, thereafter. However,
distributions are subject to suspension or reduction to meet capital
requirements and are also limited by the Fleet Loan to 90% of cash from
operations plus depreciation and amortization.
Results of Operations
Six Months Ended June 30, 2000 versus 1999
Rental income in 2000 increased by 4.5% from 1999 as a result of the
expiration of certain rent abatements in New York and escalations in rental
rates at the New York, New Jersey and Colorado buildings. Lease cancellation
fees were paid by certain tenants from New York and San Antonio who moved out
during the first half of year 2000. Other income in 2000 decreased by 68.4% from
1999 due to a tax refund for the New York building and a loan breakup fee both
received in the prior year.
Interest expense increased by 37.3% because of larger loan balances (only a
portion of the proceeds of the 475 Loan was used to pay down the Fleet Loan) and
higher interest rates. Depreciation increased by 12.2% in 2000 from 1999
primarily because of additional capital improvements made by Registrant at 475
Fifth Avenue, the Tumi Building, and Alamo Towers. Amortization decreased by
15.4% because of the write-off of lease commissions for tenants who moved out of
the New York building in December 1999 and May 2000. The 6.7% increase in
property operating costs from 1999 to 2000 reflects increased real estate taxes
at the San Antonio and Las Colinas, Texas buildings, certain non-recurring
repairs made to the various buildings and utilities and other operating costs
associated with increased occupancy at certain properties. Management fees
increased by 1.0% from 1999 to 2000 due to increased
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations (continued)
Six Months Ended June 30, 2000 versus 1999 (continued)
rental income. Bad debt expenses decreased by 48.5% primarily because of the
write-offs in 1999 of a receivable contested by a tenant in the New York
building. General and administrative expenses increased by 29.0% in 2000
primarily because of costs related to changing Registrant's transfer agent,
increased accounting costs and the imposition of a new franchise tax by the
State of Colorado.
Operations during the six months ended June 30, 2000 resulted in a net loss
of $1,166,480 as compared to a net loss of $178,703 in 1999. After adjusting for
non-cash items (depreciation, amortization and bad debt expense), operations
generated cash flows of $1,091,116 in the first half of 2000 and $2,011,780 in
1999 (a 45.8% decrease). This decrease in net cash provided by operating
activities is largely attributable to the increased interest expense and the
reduction in other income because of the one-time property tax refund for the
New York building and the loan break-up fee in 1999.
Three Months Ended June 30, 2000 versus 1999
Rental income in 2000 decreased by 2.8% from 1999 primarily because the
loss of revenue from the move-out of a retail tenant in the New York building in
December 1999 more than offset the escalations in rental rates at the New York,
New Jersey, and Colorado buildings. A lease cancellation fee was paid by a New
York tenant who moved out during the quarter. Other income in 2000 decreased by
62.4% from 1999 due to a tax refund for the New York building and a loan breakup
fee both received in the prior year.
Interest expense increased by 37.5% because of larger loan balances (only a
portion of the proceeds of the 475 Loan was used to pay down the Fleet Loan) and
higher interest rates. Depreciation increased by 12.2% in 2000 from 1999
primarily because of additional capital improvements made by Registrant at 475
Fifth Avenue, the Tumi Building, and Alamo Towers. Amortization decreased by
10.9% because of lease commissions written-off for tenants who moved out during
the second half of 1999. The 2.7% increase in property operating costs from 1999
to 2000 reflects operating costs associated with increased occupancy at certain
properties. Bad debt expenses increased by 24.5% because of the write-off of
unpaid receivable balances of tenants who moved out during the first quarter of
2000 as compared to that of 1999. Management fees and general and administrative
expenses are close to those of similar period last year.
Operations during the three months ended June 30, 2000 resulted in a net
loss of $565,158 as compared to net income of $128,359 in 1999. After adjusting
for non-cash items (depreciation, amortization and bad debt expense), operations
generated cash flows of $599,794 in the second quarter of 2000 and $1,215,330 in
1999 (a 50.6% decrease). This decrease in net cash provided by operating
activities is largely attributable to the increased interest expense and the
reduction in other income because of a loan break-up fee in 1999.
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Item 3: Quantitative and Qualitative Disclosures About Market Risk.
Interest Rates
Registrant's primary market risk exposure is to changes in interest rates
on its mortgage loan borrowings.
Registrant obtained the 475 Loan, a fixed rate debt instrument, to manage
its exposure to fluctuations in market interest rates. Registrant previously
obtained the Fleet Loan, a variable rate debt instrument, to enable it to draw
down funds as needed for capital improvements, tenant improvements, and leasing
commissions on its diverse portfolio of properties. As of June 30, 2000,
Registrant had approximately $13,274,000 of outstanding debt subject to variable
rates (approximately 29% of outstanding debt) and approximately $31,842,000 of
fixed rate indebtedness (approximately 71% of outstanding debt). The average
interest rate on Registrant's debt increased from 8.22% at December 31, 1999 to
8.39% at June 30, 2000. Registrant does not have any other material
market-sensitive financial instruments. It is not Registrant's policy to engage
in hedging activities for previously outstanding debt instruments or for
speculative or trading purposes.
A change of 1% in the index rate to which Registrant's variable rate debt
is tied would change the annual interest incurred by Registrant by approximately
$133,000, based upon the balances outstanding on variable rate instruments at
June 30, 2000.
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Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) 27. Financial Data Schedule.
(b) During the quarter for which this report is filed, Registrant filed a
Current Report on Form 8-K dated May 25, 2000, reporting on execution
of a contract to sell the Flatiron Building in Boulder, Colorado. No
financial statements were filed with such report.
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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)
By: 1345 REALTY CORPORATION
AS CORPORATE GENERAL PARTNER
Date: August 17, 2000 By: /s/ Robert F. Gossett, Jr.
---------------------------------
Robert F. Gossett, Jr., President
Date: August 17, 2000 By: /s/ Pauline G. Gossett
---------------------------------
Pauline G. Gossett, Secretary
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