<PAGE>
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, 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 --
September 30, 2000 and December 31, 1999 4
Consolidated Statements of Operations --
For the three months ended September 30, 2000 and 1999 5
Consolidated Statements of Operations --
For the nine months ended September 30, 2000 and 1999 6
Statements of Cash Flows --
For the nine months ended September 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 11
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.
3 of 15
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CORPORATE REALTY INCOME FUND I, L.P.
and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2000 and December 31, 1999
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Real estate, at cost:
Land $ 18,795,477 $ 19,875,846
Buildings and improvements 93,340,566 98,067,344
Equipment and furniture 242,302 242,302
------------ ------------
112,378,345 118,185,492
Less accumulated depreciation 24,398,204 24,361,971
------------ ------------
87,980,141 93,823,521
Cash and cash equivalents at cost,
which approximates market value 1,241,973 3,322,319
Accounts receivable 360,628 578,480
Notes receivable, net of unamortized discount of
$23,169 in 2000 and $32,464 in 1999 195,606 244,643
Step rent receivables 2,437,290 2,479,583
Deferred financing costs, net of accumulated amortization
of $1,847,129 in 2000 and $1,625,303 in 1999 743,666 965,492
Lease commissions and legal fees, net of accumulated amortization
of $1,803,103 in 2000 and $1,583,597 in 1999 2,477,646 2,168,412
Escrow deposits 3,110,621 2,866,682
Deposits and other assets 514,117 806,575
------------ ------------
Total assets $ 99,061,688 $107,255,707
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Mortgage loan payable $ 44,959,849 $ 55,539,288
Accounts payable and accrued expenses 4,102,345 2,599,574
Due to general partner -- 63,534
Other liabilities 1,563,947 1,031,820
------------ ------------
Total liabilities 50,626,141 59,234,216
------------ ------------
Partners' Capital:
General partners:
Capital contributions 1,000 1,000
Net income 398,219 366,955
Cash distributions (630,167) (603,227)
------------ ------------
(230,948) (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 39,423,511 36,328,418
Cash distributions (62,481,872) (59,796,511)
------------ ------------
48,666,495 48,256,763
------------ ------------
Total partners' capital 48,435,547 48,021,491
------------ ------------
Total liabilities and partners' capital $ 99,061,688 $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 September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Income:
Rental $3,511,888 $3,946,204
Interest and other income 87,393 65,991
---------- ----------
3,599,281 4,012,195
---------- ----------
Expenses:
Interest 971,375 897,841
Depreciation 823,314 790,860
Amortization 153,720 256,632
Property operating 2,008,308 1,955,383
Management fees 275,241 271,920
General and administrative 185,878 234,869
---------- ----------
4,417,836 4,407,505
---------- ----------
Net loss from operations $ (818,555) $ (395,310)
========== ==========
Net loss allocated:
To the general partners $ (8,186) $ (3,953)
To the limited partners (810,369) $ (391,357)
---------- ----------
$ (818,555) $ (395,310)
========== ==========
Net loss per unit of limited partnership interest $ (0.27) $ (0.13)
========== ==========
Distribution per unit of limited partnership interest $ 0.30 $ 0.30
========== ==========
</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 nine months ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Income:
Rental $11,192,736 $11,298,086
Lease cancellation 102,469 --
Interest and other income 282,504 684,045
----------- -----------
11,577,709 11,982,131
----------- -----------
Expenses:
Interest 3,259,216 2,563,695
Depreciation 2,597,344 2,372,580
Amortization 588,132 769,896
Property operating 5,765,129 5,476,949
Management fees 822,065 813,315
Bad debt expenses 49,154 95,499
General and administrative 481,704 464,210
----------- -----------
13,562,744 12,556,144
----------- -----------
Net loss from operations $(1,985,035) $ (574,013)
Gain from sale of real estate 5,111,392 --
----------- -----------
Net income/(loss) $ 3,126,357 $ (574,013)
=========== ===========
Net income/(loss) allocated:
To the general partners $ 31,264 $ (5,740)
To the limited partners 3,095,093 (568,273)
----------- -----------
$ 3,126,357 $ (574,013)
=========== ===========
Net income/(loss) per unit of limited partnership interest $ 1.04 $ (0.19)
=========== ===========
Distribution per unit of limited partnership interest $ 0.90 $ 0.90
=========== ===========
</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 nine months ended September 30, 2000 and 1999
Increase/(Decrease) in Cash
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ 3,126,357 $ (574,013)
----------- -----------
Adjustments to reconcile net income/(loss)
to net cash provided by operating activities:
Depreciation and amortization 3,185,476 3,142,476
Gain on sale of real estate (5,111,392) --
Changes in operating assets and liabilities:
Decrease/(increase) in:
Accounts receivable 217,852 120,479
Due from partners -- (20,802)
Notes receivable 49,037 80,984
Step rent receivables 42,293 (261,030)
Lease commissions and legal fees (819,803) (337,106)
Escrow deposits (243,939) --
Other assets 292,458 (247,375)
Increase/(decrease) in:
Accounts payable and accrued expenses 1,502,771 (1,254,940)
Due to general partner (63,534) --
Other liabilities 532,127 (155.912)
----------- -----------
Total adjustments (416,654) 1,066,774
----------- -----------
Net cash provided by operating activities 2,709,703 492,761
----------- -----------
Cash flows from investing activities:
Proceeds from sale of real estate 12,089,550 --
Acquisition of real estate (3,587,859) $(1,199,529)
Escrow cash -- (3,993,634)
----------- -----------
Net cash provided by/(used in) investing activities 8,501,691 (5,193,163)
----------- -----------
Cash flows from financing activities:
Mortgage proceeds -- 32,000,000
Mortgage paid (10,579,439) (26,183,806)
Deferred charges -- (736,519)
Cash distributions to partners (2,712,301) (2,696,663)
----------- -----------
Net cash (used in)/provided by financing activities (13,291,740) 2,383,012
----------- -----------
Net decrease in cash and cash equivalents (2,080,346) (2,317,390)
Cash and cash equivalents at beginning of period 3,322,319 4,115,435
----------- -----------
Cash and cash equivalents at end of period $ 1,241,973 $ 1,798,045
=========== ===========
</TABLE>
See accompanying notes to financial statements.
7 of 15
<PAGE>
CORPORATE REALTY INCOME FUND I, L.P.
and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 nine months ended September 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 Nine Months Ended
September 30 September 30
---------------------------- -----------------------------
2000 1999 2000 1999
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Rental income billed $3,403,199 $3,859,194 $11,136,869 $11,037,056
Step rent receivables 108,689 87,010 55,867 261,030
---------- ---------- ----------- -----------
Rental income recognized $3,511,888 $3,946,204 $11,192,736 $11,298,086
========== ========== =========== ===========
</TABLE>
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<PAGE>
CORPORATE REALTY INCOME FUND I, L.P.
and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
3. Leases
Minimum future rentals under noncancellable operating leases as of September
30, 2000 are approximately as follows:
Year ending December 31
2000 $ 1,768,000
2001 8,296,000
2002 7,367,000
2003 6,891,000
2004 5,998,000
Thereafter 15,900,000
-----------
Total $46,220,000
===========
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 nine months ended
September 30, 2000 and 1999, escalation charges amounted to $369,712 and
$1,454,308 in 2000 and $524,064 and $1,512,458 in 1999, respectively.
4. Transactions with General Partners and Affiliates
Fees incurred and reimbursable expenses for the nine months ended September
30, 2000 are:
Three Nine
Months Months
-------- --------
Partnership management fees $ 63,287 $189,861
Property management fees 211,954 632,204
5. Supplemental Disclosure of Cash Flow Information
Cash paid for interest during the nine months ended September 30, 2000 and
1999 amounted to $3,346,471 and $2,563,695 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.
9 of 15
<PAGE>
CORPORATE REALTY INCOME FUND I, L.P.
and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
7. Subsequent Event
The Fleet Loan which matured in September, 2000 was refinanced in October,
2000.
8. Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101 ("SAB 101"), Revenue Recognition, which discusses
the SEC's views on the recognition of revenues from certain transactions. SAB
101 is required to be adopted by the end of the 2000 fiscal year. The
Partnership does not anticipate a material impact on its financial position and
results of operations as a result of adopting SAB 101.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended, which is required to be adopted
effective January 1, 2001 for entities with fiscal years ending December 31,
2000. SFAS No. 133, as amended, requires the recognition of all derivatives on
the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. Derivatives that are hedges, depending on
the nature of the hedge, will either be adjusted to fair value by offsetting the
change in the hedged assets, liabilities, or firm commitments through earnings,
or recognized in other comprehensive income until the hedged item is recognized
in earnings. The ineffective portion of a derivative's change in fair value will
be immediately recognized in earnings. Because the Partnership does not use
derivatives, management does not anticipate that the adoption of SFAS No. 133,
as amended, will have an effect on the earnings or the financial position of the
Partnership.
10 of 15
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
At September 30, 2000, Registrant had cash and receivables of approximately
$1,603,000 as contrasted to accounts payable and accrued expenses of
approximately $4,102,000. 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 may draw down on its
line-of-credit loan (the "Fleet Loan") and/or sell assets.
In June 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 values of the
remaining properties and for leasing commissions related to new and renewed
leases.
During the quarter ended September 30, 2000, Registrant funded
approximately $2,103,000 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 which matured in September, 2000 was subsequently refinanced with a
$25,000,000 credit facility maturing on September 30, 2003. 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 September
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
Nine Months Ended September 30, 2000 versus 1999
Rental income in 2000 is comparable to that of 1999 despite the sale of the
Colorado building as a result of the expiration of certain rent abatements in
New York and escalations in rental rates at the New York and New Jersey
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 58.7% 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 27.1% 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 9.5% 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
23.6% because of the write-off of leasing commissions for tenants who moved out
of the New York building in December 1999 and May 2000 and the write-off of
Colorado leasing commissions upon sale of the property in June 2000. The 5.3%
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 1.1% from 1999 to 2000 due to increased rental
income billed. The bad debt expense pertains to the write-off of a receivable
from a Colorado tenant. General and administrative expenses increased by 3.8% in
2000 primarily because of costs associated with changing Registrant's transfer
agent, increased expenses incurred in preparing unitholders' tax information,
and increased auditing fees.
11 of 15
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations (continued)
Nine Months Ended September 30, 2000 versus 1999 (continued)
Operations during the nine months ended September 30, 2000 resulted in a
net loss of $1,985,035 as compared to a net loss of $574,013 in 1999. After
adjusting for non-cash items (depreciation, amortization and bad debt expense),
operations generated cash flows of approximately $1,249,595 during the first
three quarters of 2000 and $2,663,962 in 1999 (a 53.1% 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, the lease cancellation
fee in California and the loan break-up fee received in 1999.
Three Months Ended September 30, 2000 versus 1999
Rental income in 2000 decreased by 11.0% from that of 1999 as a result of
the sale of the Colorado property. Other income in 2000 increased by 32.4% due
to the collection of a New York receivable written-off in the prior year.
Interest expense increased by 8.2% because of increased indebtedness from
the New York refinancing in September 1999. Depreciation increased by 4.1% 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 40.1% because of the write-off of leasing commissions
for tenants who moved out of the New York building in December 1999 and May 2000
and of Colorado leasing commissions upon sale of the property in June 2000. The
2.7% increase in property operating costs from 1999 to 2000, despite the sale of
the Colorado property, reflects increased utilities and other operating costs in
certain properties. Management fees are close to those of similar period last
year. General and administrative expenses decreased by 20.9% in 2000 primarily
because of the legal fee paid in 1999 relating to the loan break-up fee.
Operations during the three months ended September 30, 2000 resulted in a
net loss of $818,555 as compared to a net loss of $395,310 in 1999. After
adjusting for non-cash items (depreciation and amortization), operations
generated cash flows of approximately $158,479 during the third quarter of 2000
and $652,182 in 1999 (a 75.7% decrease). This decrease in net cash provided by
operating activities is largely attributable to the increased interest expense
after the New York refinancing and increased utilities and other operating costs
in certain properties.
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 September 30, 2000,
Registrant had approximately $13,168,000 of outstanding debt subject to variable
rates (approximately 29% of outstanding debt) and approximately $31,792,000 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
8.63% at September 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
$132,000, based upon the balances outstanding on variable rate instruments at
September 30, 2000.
12 of 15
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Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) 27. Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
13 of 15
<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, there unto duly authorized.
CORPORATE REALTY INCOME FUND I, L.P.
(Registrant)
By: 1345 REALTY CORPORATION
AS CORPORATE GENERAL PARTNER
Date: November 15, 2000 By: /s/ Robert F. Gossett, Jr.
--------------------------------
President
Date: November 15, 2000 By: /s/ Pauline G. Gossett
--------------------------------
Secretary
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