Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
475 Fifth Avenue, New York, NY 10017
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 212-696-0701
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Depositary Units of Limited Partnership
(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 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|
Documents Incorporated by Reference in Part IV of this Form 10-K
None.
CORPORATE REALTY INCOME FUND I, L. P.
Annual Report on Form 10-K
December 31, 1999
TABLE OF CONTENTS
PAGE
----
PART I ...................................................................................... 1
Item 1. Business ........................................................................... 1
Item 2. Properties ......................................................................... 6
Item 3. Legal Proceedings .................................................................. 12
Item 4. Submission of Matters to a Vote of Security-Holders ................................ 13
PART II ..................................................................................... 14
Item 5. Market for Registrant's Securities and Related Security-Holder Matters ............. 14
Item 6. Selected Financial Data ............................................................ 15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations .......................................................... 16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ........................ 19
Item 8. Financial Statements and Supplementary Data ........................................ 20
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 20
PART III .................................................................................... 21
Item 10. Directors and Executive Officers of the Registrant ................................ 21
Item 11. Executive Compensation ............................................................ 22
Item 12. Security Ownership of Certain Beneficial Owners and Management .................... 23
Item 13. Certain Relationships and Related Transactions .................................... 24
ITEM IV ..................................................................................... 26
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .................. 26
PART I
Item 1. Business.
General
Corporate Realty Income Fund I, L.P. ("Registrant") is a Delaware limited
partnership organized on November 25, 1985 pursuant to the Delaware Revised
Uniform Limited Partnership Act. The general partners of Registrant are 1345
Realty Corporation, a Delaware corporation (the "Corporate General Partner"),
and Robert F. Gossett, Jr. (the "Individual General Partner") (collectively, the
"General Partners"). The limited partners of Registrant are hereinafter
collectively referred to as the "Limited Partners."
Registrant organized two subsidiaries in March 1999 in connection with the
financing of its property at 475 Fifth Avenue, New York, New York. One
subsidiary, 475 Fifth Avenue Limited Partnership (the "Subsidiary Partnership"),
a Delaware limited partnership, owns 475 Fifth Avenue. The other subsidiary, 475
Fifth-GP, Inc. (the "Subsidiary Corporation"), a Delaware corporation, is the
sole general partner of the Subsidiary Partnership. Registrant is the sole
limited partner of the Subsidiary Partnership, with a 99% interest in all items
of income, gain, loss, and deduction, and the sole shareholder of the Subsidiary
Corporation.
Registrant's business consists of owning and leasing to others the
properties described in Item 2 below. Registrant's properties are leveraged as
described below.
On March 26, 1986, Registrant commenced an offering (the "Offering") of
$80,000,000 of depositary units of limited partnership interest (the "Units").
Registrant terminated the Offering in September 1987, having issued 3,200,000
Units ($80,000,000) and received net proceeds from the Offering (after deduction
for organization and offering expenses of $5,948,103) aggregating $74,051,897.
Since the Offering, Registrant has invested aggregate funds in excess of
$100,000,000 (including $40,000,000 of financing proceeds) in acquiring and
improving its properties, which currently number seven.
Rental revenue from the following tenants at Registrant's properties each
accounted for more than 10% of Registrant's total rental revenue for each of the
years ended December 31, 1997, 1998 and 1999:
a. For 1997, GTE Directories Corporation ("GTE") as tenant in the Directory
Building (16%); and The Austin Company ("Austin") as a tenant in the Austin
Place Building (10%).
b. For 1998, GTE as tenant in the Directory Building (14%).
c. For 1999, GTE as tenant in the Directory Building (16%).
475 Fifth Avenue Loan
On August 9, 1999, the Subsidiary Partnership obtained a first mortgage
loan (the "475 Loan") from Heller Financial, Inc. ("Heller") in the amount of
$32,000,000. On such date, Registrant paid down approximately $23,381,000 of the
Fleet Loan (see "Fleet Bank Loan" below) to release the lien of the Fleet Loan
from 475 Fifth Avenue and subject the property to the lien of the 475 Loan. The
balance of proceeds borrowed by the Subsidiary Partnership from Heller after
payment of loan broker fees and costs of approximately $329,000 and other
closing costs of approximately $505,000, were used to provide cash to fund
capital improvements and leasing costs at 475 Fifth Avenue and to augment
working capital. As of March 23, 2000, the outstanding principal balance of the
475 Loan was approximately $31,891,000.
1
The 475 Loan is evidenced by a Consolidated and Restated Promissory Note, a
Mortgage Consolidation, Assignment of Rents, Security Agreement and Fixture
Filing, and a Hazardous Substance Indemnification Agreement (collectively, the
"475 Loan Agreements").
The 475 Loan matures on September 1, 2009 and bears interest at a rate of
8.27% per annum. The 475 Loan requires monthly payments of interest plus
principal payments based on a 30-year amortization schedule. The monthly
payments amount to $240,855.
No prepayments are permitted, in whole or in part, prior to the fourth loan
year (commencing September 2, 2002). From September 2, 2002, the Subsidiary
Partnership may prepay the 475 Loan, in full but not in part, on the first day
of any calendar month and upon at least 30 days' prior written notice, upon
payment of all accrued and unpaid interest and any fees and costs, together with
an additional payment equal to the greater of (i) an amount equal to one percent
(1%) of the then outstanding principal amount or (ii) a yield maintenance amount
equal to the present value of a series of monthly amounts assumed to be paid
from the date of prepayment through the maturity date of the 475 Loan. The yield
maintenance amount preserves for Heller a fixed yield tied to a United States
Treasury obligation with a term equal to that remaining on the 475 Loan on the
date of prepayment.
Any payments not received by Heller within 10 days after the due date will
incur a late charge equal to five percent (5%) of the amount of such payment.
Overdue amounts, whether at maturity, by acceleration, or otherwise will bear
interest at a rate equal to five percent (5%) above the otherwise applicable
interest rate.
The 475 Loan is secured by a first mortgage lien, an assignment of rents, a
security agreement, and a fixture filing on 475 Fifth Avenue, including the
improvements, machinery, equipment, mechanical systems, personal property,
management contracts, permits, certificates, licenses, agreements, trademarks,
tradenames, books and records, and any monies on deposit with or for the benefit
of Heller relating to this property. This loan also is secured by an assignment
of Registrant's management agreement with the Subsidiary Partnership.
The 475 Loan established the following four separate reserves:
1. The first, a property tax reserve, requires monthly payments sufficient
to enable Heller to pay all real estate taxes against 475 Fifth Avenue before
they become due and payable;
2. The second, a replacement reserve, was funded with $200,000 of the
proceeds of the 475 Loan. This reserve is to be utilized to fund capital
improvements reasonably approved in advance by Heller. The replacement reserve
accrues interest for the Subsidiary Partnership's benefit at a "non-personal
money market rate." If the balance of this reserve falls below $200,000, the
Subsidiary Partnership must make monthly deposits of $4,000 until the balance of
the replacement reserve equals $200,000. As of April 13, 2000, the Subsidiary
Partnership had not utilized any funds from the replacement reserve and the
balance in this account was approximately $202,290;
3. The third, a capital improvements reserve, was funded with $1,967,000 of
the proceeds of the 475 Loan. This reserve is to be utilized to fund capital
improvements determined in the Subsidiary Partnership's sole discretion. The
capital improvements reserve accrues interest for the Subsidiary Partnership's
benefit at a "non-personal money market rate." As of April 13, 2000, the
Subsidiary Partnership had not funded any capital improvements from the capital
improvements reserve and the balance in this account was approximately
$1,990,332; and
2
4. The fourth, a tenant improvements and leasing reserve, was funded with
$850,000 of the proceeds of the 475 Loan. This reserve is to be utilized to fund
specified tenant improvements and leasing commissions at 475 Fifth Avenue. The
Subsidiary Partnership has utilized this entire reserve to fund tenant
improvements and leasing commissions.
The 475 Loan Agreements require Heller's prior written consent to the
execution or material modification or amendment of any lease of 15,000 or more
rentable square feet at 475 Fifth Avenue.
An event of default under the 475 Loan Agreements includes the following:
1. the failure to make any payment within 10 days of the due date thereof;
2. any sale or transfer of 475 Fifth Avenue or any interest therein or any
controlling interest therein;
3. the imposition of any lien against 475 Fifth Avenue; and
4. filing of any petition under the United States Bankruptcy Code or any
similar law or regulation by or against Registrant, the Subsidiary Partnership,
or the Subsidiary Corporation.
Upon the occurrence of an event of default under the 475 Loan Agreements,
Heller may enforce one or more of its remedies, including the following:
1. the right to declare all principal, interest, and other amounts due
under the 475 Loan to be due and payable immediately;
2. the right to require that 475 Fifth Avenue (including all equipment,
fixtures, agreements, and other rights and interests relating thereto) be sold
at auction to the highest bidder; and
3. to take possession of, manage, and collect the rents from the property.
The Subsidiary Partnership and Robert F. Gossett, Jr., the Individual
General Partner of Registrant, have agreed to indemnify and hold harmless Heller
and its officers, directors, employees, shareholders, agents, and affiliates
from and against any and all liabilities, obligations, deficiencies, demands,
claims, actions, assessments, losses, costs, expenses, interest, fines,
penalties, and damages resulting from or arising out of or by virtue of the
presence of hazardous materials on or from 475 Fifth Avenue. Mr. Gossett also
has assumed joint and several liability to pay Heller for certain losses,
damages, costs, and expenses incurred by Heller in connection with the 475 Loan.
Fleet Bank Loan
Registrant's properties, other than 475 Fifth Avenue, are subject to the
lien of a first mortgage line-of-credit loan (the "Fleet Loan") from Fleet Bank,
National Association ("Fleet"). On August 9, 1999, the Fleet Loan was divided
into the following two notes: a note in the amount of $22,594,880 and secured by
a mortgage on 475 Fifth Avenue, which note was repaid in full to Fleet and which
mortgage was consolidated with and into Heller's mortgage on that property; and,
a note in the amount of $26,405,120 and secured by Registrant's six other
properties. As of March 24, 2000, the outstanding principal balance of the Fleet
Loan was approximately $23,433,561.
The Fleet Loan is evidenced by a Secured Promissory Note, a Loan Agreement,
an Environmental Compliance and Indemnification Agreement, a First Amendment of
Loan Agreement and
3
Note, a Second Amendment of Loan Agreement, and a Third Amendment of Loan
Agreement and Second Amendment of Note (collectively, the "Fleet Loan
Agreements"). The Fleet Loan is secured by a first mortgage lien, an assignment
of rents, a security agreement, and a fixture filing on and from each of
Registrant's properties, other than 475 Fifth Avenue, including the
improvements, equipment, furnishings, proceeds, books and records, and all
payments related thereto, which consists of the following six properties: the
Monterey Park Building (formerly the American Color Building and the GE Medical
Systems Office Building); the Directory Building; the Tumi Building (formerly
the Austin Place Building); the Flatiron Building; the Marathon Oil Building;
and the Alamo Towers.
The Fleet Loan matures on September 24, 2000 and Fleet is not required to
fund any further advances. The Fleet Loan requires payment of a front-end fee in
an amount equal to one and one-half percent (1.5%) of the amount of the total
loan commitment, which amounts have aggregated approximately $711,000 to date,
none of which were paid in 1999. In addition, for each six month period ending
September 30 and March 31, Registrant must pay an unused loan commitment fee
equal to one-half percent (0.5%) of the difference between the average maximum
loan commitment for the period and the average outstanding principal balance of
the Fleet Loan for such period. In 1999, Registrant paid approximately $12,344
in such fees.
The Fleet Loan bears interest on each advance of funds from the date of
such advance at Fleet's Peg Rate, plus one-half percent (0.5%) per annum or, if
Registrant so chooses, at the LIBOR rate (offered rates for Eurodollar deposits)
or other market rate offered to Fleet (any such rate, a "Fixed Rate"), plus two
percent (2.0%) per annum. The Peg Rate is the rate announced from time to time
by Fleet as a means of pricing some of its loans to customers (not necessarily
the lowest rate actually charged to any customer class or category). Registrant
may elect to pay interest based on a Fixed Rate on the whole or a portion of the
outstanding principal amount, upon notice to Fleet, but only in amounts of at
least $1,000,000 and in additional integral multiples of $100,000. As of March
24, 2000, the Peg Rate was 8.75% (interest using this rate would be at 9.25%)
and the 180-day Fixed Rate was 5.9125% (interest using this rate would be at
7.9125%). The entire aggregate outstanding balance of the Fleet Loan as of March
24, 2000 bears interest at the rate of 7.9125%.
The Fleet Loan requires monthly payments of interest plus principal
payments equal to 1/500th of the then outstanding principal balance. The Fleet
Loan may be prepaid at any time, on notice, in whole or in part (a minimum of
$1,000,000 and additional integral multiples of $100,000). Any such prepayment
will be without premium or penalty with respect to funds bearing interest based
on the Peg Rate or, if the prepayment is made on the last day of the applicable
interest period, with respect to funds bearing interest based on a Fixed Rate;
however, a prepayment at any other time of funds bearing interest based on a
Fixed Rate will require payment of a breakage fee, which guarantees Fleet a
fixed rate yield maintenance tied to United States Treasury obligations for the
period from the date of prepayment to the end of the applicable interest period.
No breakage fee was required to be paid to Fleet in connection with the August
1999 prepayment of the note secured by 475 Fifth Avenue. Amounts repaid to Fleet
may be reborrowed by Registrant provided, however, that amounts repaid in
monthly amortization payments may not be reborrowed.
Any payments not received by Fleet within 10 days after the due date will
incur a late charge equal to four percent (4%) of the amount of such payment.
Overdue amounts, whether at maturity, by acceleration, or otherwise will bear
interest at a rate equal to four percent (4%) above the otherwise applicable
interest rate.
The Fleet Loan Agreements contain continuing covenants regarding
Registrant's financial condition and the conduct of its operations. Registrant's
debt service coverage ratio (the ratio of the sum of cash from operations plus
certain fees paid to the General Partners to a constant loan amortization
4
payment) cannot be less than 1.40 to 1.0 and its loan to value ratio (the ratio
of the outstanding principal balance of the Fleet Loan to the appraised value of
the secured properties) cannot exceed fifty-five percent (55%). In addition,
Registrant must maintain a liquid net worth (cash, short-term investments, and
marketable securities) of at least $2,000,000. The Fleet Loan Agreements also
provide that Registrant may distribute to its partners up to 90% of the sum of
its operating net income plus depreciation and amortization, including any step
rent adjustments. Compliance with this distribution provision is tested as of
the last day of each fiscal quarter for the preceding 12 consecutive calendar
months. Registrant must also obtain Fleet's consent, not to be unreasonably
withheld or delayed, to any lease of 10,000 or more rentable square feet (5,000
square feet for Alamo Towers). Registrant may not incur unsecured debt owing to
the General Partners in amounts in excess of $3,000,000.
Registrant has calculated that its cash distributions for the 12 months
ended December 31, 1999 exceeded the limit imposed by the Fleet Loan Agreement
by approximately $173,000. As a consequence, Registrant has informed Fleet that
it will increase to $10,000,000 the amortization payment it will make on the
Fleet Loan upon the sale of the Flatiron Building. Registrant has further
informed Fleet that if such amortization payment is not made on or before June
30, 2000, Registrant, until it makes this $10,000,000 payment, will (i) limit
quarterly distributions to the current level of $.30 per Unit and (ii) increase
its liquid net worth requirement by $173,000 to $2,173,000. Although Registrant
has solicited offers to purchase the Flatiron Building, Registrant has not
entered into any agreement to sell the Flatiron Building and there is no
assurance when or if it will sell this building or the terms of any such sale.
Fleet's mortgage lien against any of Registrant's secured properties will
be released only upon payment of an amount equal to 110% of the loan amount
allocated to such property. In addition, such lien will be released only if
Registrant's remaining properties satisfy the debt service coverage ratio and
loan to value ratio.
Upon the occurrence of an event of default under the Fleet Loan Agreements
(which includes the failure to make any payment within 10 days of the due date
thereof and a failure to comply with its financial covenants which continues for
60 days), Fleet may enforce one or more of its remedies, including the right to
(i) declare all principal and interest on the Fleet Loan to be due and payable
immediately, (ii) require any or all of Registrant's secured properties
(including all equipment, fixtures, agreements, and other rights and interests
relating thereto) to be sold at auction to the highest bidder, and (iii) collect
any and all rents from the properties.
Registrant has also agreed to indemnify and hold harmless Fleet and its
officers, directors, employees, agents, representatives, contractors and
subcontractors, and their respective successors and assigns from and against any
and all claims, liability, costs, and expenses arising out of the presence
and/or clean-up of hazardous materials on or affecting Registrant's secured
properties.
Financing Policies
The General Partners expect to approximate Registrant's original intention
of a loan to value ratio of 50%. Accordingly, it is expected that Registrant's
total borrowings will approximate 50% of the sum of (i) the appraised values of
its five remaining original properties plus (ii) the purchase price of
additional properties acquired by Registrant. Registrant is not limited by its
Partnership Agreement as to borrowing for any individual property; the aggregate
borrowings on all properties may not exceed an amount equal to the sum of (x)
60% of the aggregate purchase price of all properties which are not refinanced
plus (y) 80% of the aggregate value of all refinanced properties. As of December
31, 1999, Registrant had a loan to value ratio of approximately 53.8%.
5
The Fleet Loan and the 475 Loan have enabled Registrant to acquire and
improve properties, but have increased the risk of loss on its properties.
Registrant may acquire additional properties, the purchase of which would be
funded out of the proceeds of sale of one or more of Registrant's current
properties. Registrant has no current agreements to sell any of its existing
properties. To be profitable, Registrant's properties must generate cash flow in
amounts sufficient to not only cover operating expenses but also to pay all
financing costs.
Registrant's objectives in making its investments continue to be to (i)
preserve and protect Registrant's capital; (ii) provide long term capital
appreciation, generating long term capital gains for federal income tax purposes
upon sale of the properties; (iii) build up equity through the reduction of
mortgage loans encumbering the properties; and (iv) provide cash distributions
from operations which may be partially tax-sheltered. There is no assurance that
these objectives will be achieved.
Competition
The Directory Building is fully leased to a single tenant on a net lease or
substantially equivalent basis and does not face competition from other
properties during the terms of such lease. However, upon termination of this
lease, and for any of Registrant's other properties, Registrant does, and will
continue to, compete with other properties for tenants. Depending upon market
conditions and occupancy rates at the time and place of any vacancies in
Registrant's properties, there is currently and there may be, in the future,
intense competition in obtaining tenants to fill such vacancies. Furthermore,
such competition has resulted and may result, because of reduced rental rates
and required concessions to tenants, in decreases in the rental revenue received
by Registrant and capital outlays necessary to fund tenant improvements. See
Item 2 - "Properties" for a discussion of market conditions in the areas in
which Registrant currently competes for tenants.
Employees
Registrant currently employs 15 persons (3 of which are part-time
employees). The business of Registrant is managed by the General Partners. See
Item 10 - "Directors and Executive Officers of the Registrant" and Item 13 -
"Certain Relationships and Related Transactions."
Item 2. Properties.
Monterey Park Building
(formerly American Color Building and GE Medical Systems Office Building)
On July 10, 1986, Registrant acquired the Monterey Park Building, located
in Monterey Park, California, for approximately $4,182,000, inclusive of
acquisition fees. Registrant owns fee title to the Monterey Park Building and
its 90,000 square feet of underlying land, subject to the lien of the Fleet Loan
(See Item 1. - "Business-Fleet Bank Loan"). The property was built in 1985 and
contains 20,250 net rentable square feet, of which approximately 71% is office
space and the remainder is warehouse space. The building contains an unusually
high percentage of office space for a mixed use property, but Registrant prefers
to avoid reconfiguring the space, both to avoid the construction cost and to
obtain the higher rates for office space. As of March 24, 2000, the property is
approximately 44.9% leased, with 9,085 square feet leased to the General
Services Administration (as discussed below).
In March 1999, Registrant executed a lease with the General Services
Administration (for the U.S. Census Bureau) for 9,085 square feet (approximately
75% of which is office space). The lease provides for a 17 month term commencing
July 1, 1999 and ending November 30, 2000, at a gross rent of
6
$21.15 per square foot (approximately $192,167 in annual gross rent). Registrant
expended approximately $79,900 in 1999 in tenant improvements in connection with
this lease.
In July 1999, American Color Graphics, Inc. ("American Color") terminated
its lease for 9,650 square feet in the building, upon payment of a lease
cancellation fee of $140,000. This fee represented approximately 50% of American
Color's lease obligations for the then remaining lease term of two years.
American Color had paid a net rent of $9.00 per square foot, plus reimbursement
of its proportionate share of operating expenses.
The sole tenant, the General Services Administration, will vacate the
building upon expiration of the lease term at the end of November 2000.
Registrant prefers to find a single tenant for the entire building and is
marketing the space accordingly.
Market conditions in the Monterey Park area have improved in recent years.
The vacancy rate for commercial properties in such area approximates 4.1% for
office buildings and 12.8% for mixed (office and industrial) space. The Monterey
Park Building is situated next to a 200,000 square foot Public Storage facility
which, like the Monterey Park Building, consists of a front office with
warehouse space in the rear. Such facility is currently approximately 91%
occupied; rents approximate $6.36 per square foot. Gross rents approximate
$21.00 per square foot for office space and $13.00 per square foot for mixed
office/warehouse space in this area.
The Directory Building (formerly, the IBM Building)
On October 27, 1986, Registrant acquired the Directory Building, located in
Las Colinas, Texas, for a purchase price of approximately $24,580,000, inclusive
of acquisition fees. Registrant owns fee title to the Directory Building and its
6.67 acres of underlying land, subject to the lien of the Fleet Loan. The
Directory Building was built in 1982 and contains approximately 152,100 net
rentable square feet (reduced from 154,300 square feet during IBM's tenancy).
The building is 100% leased to GTE pursuant to a lease dated as of April
20, 1994, as subsequently amended by amendments dated as of July 29, 1994 and as
of February 22, 1995. The initial term of the lease expires on September 30,
2000, subject to a five-year renewal option at a rate equal to 95% of the then
market rate. Registrant and GTE have engaged in negotiations concerning an
extension of the lease for a three year term, but a definitive agreement has yet
to be reached. There is no assurance that the GTE lease will be extended or the
terms of any such extension.
The amended lease requires approximate monthly rent of $173,800 through
September 30, 2000. GTE must also pay additional rent equal to excess electric
charges and operating expenses over base levels.
Registrant incurred approximately $63,350 in capital expenditures at the
building during 1999, in connection with replacement of the fire alarm and
panel. In connection with the GTE lease, Registrant has expended approximately
$2,628,000 for tenant improvements, none of which was in 1999. In the event
GTE's lease is extended, Registrant expects to incur capital expenditures,
maintenance expenses and leasing commissions aggregating approximately $850,000
in 2000. Improvements would include ADA renovations to the common areas and
certain bathrooms, fire alarm and panel replacement, bathroom lighting and other
upgrades, and sidewalk and gutter repairs.
The Las Colinas office market includes approximately 20,018,000 leasable
square feet (approximately 10,988,000 square feet of Class "A" office space), of
which approximately 84.1% (83.1%
7
for Class "A" office space) was leased as of December 31, 1999. Weighted average
rental rates for new leases at such properties range from approximately $24.65
to $25.53 per square foot.
Tumi Building
(formerly Austin Place Building)
On December 30, 1986, Registrant acquired the Tumi Building, a two-wing
office building located in South Plainfield, New Jersey, for a purchase price of
approximately $16,473,000, inclusive of acquisition fees. Registrant owns fee
title to the Tumi Building and its underlying five acres of land, subject to the
lien of the Fleet Loan. The property was built in 1986 and contains
approximately 106,600 net rentable square feet for use as a multi-tenant
facility (reduced from 108,000 square feet as a single tenant facility).
As of March 24, 2000, the property is approximately 60.0% leased, with
45,700 square feet leased to Tumi, Inc. (as discussed below) and the remainder
at an average current rent of approximately $14.46 per square foot. Such other
leases expire in October 2005 (approximately 10,000 square feet) and March 2014
(approximately 9,600 square feet).
On March 9, 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, with a term
expiring in May 2007 and annual rental payments of approximately $446,000, was
rejected in the bankruptcy proceeding. During 1999, Registrant wrote off
approximately $718,000 of deferred rent and other receivables attributable to
this lease. Registrant has commenced an action in the United States District
Court in Newark, New Jersey against Polish Ocean Lines, seeking $4 million in
damages. Registrant has succeeded in serving Polish Ocean Lines in this action.
Tumi's lease is for 45,700 square feet and expires on January 19, 2009. It
requires rent payments equal to $15.00 per square foot until January 2002,
$16.00 per square foot from February 2002 to January 2006, and $17.00 per square
foot from February 2006 to January 2009. The lease includes two 5-year renewal
terms, the first at a base rent of $20.00 per square foot and the second at a
then fair market rental. Tumi is also obligated to pay for its electric current
consumption and its proportionate share (42.3%) of increases in operating
expenses, taxes, and insurance over base year 1999 levels. In 1999, Tumi's lease
was amended to increase Registrant's obligation for tenant improvements to
$1,045,000 (from $350,000) in return for increasing rent payments to $15 per
square foot (from $9.00) until January 2002 and to $16 per square foot (from
$15) from February 2002 to January 2006.
South Plainfield is included in the Route 287 submarket (approximately
6,850,000 square feet of which 11% is vacant) of Middlesex County (approximately
16,400,000 square feet, of which 11.2% is vacant). Average rents for office
space in such area approximate $21.00 per square foot. Registrant has expended
approximately $3,000,000 for tenant improvements, of which approximately
$1,163,100 was incurred in 1999. Registrant expended approximately $118,000 in
tenant improvements in 1999 for tenants other than Tumi.
Flatiron Building (formerly, the Cadnetix Building)
On January 5, 1988, Registrant acquired the Flatiron Building, located in
Flatiron Industrial Park, Boulder, Colorado, for approximately $9,003,000,
inclusive of acquisition fees. Registrant owns fee title to the Flatiron
Building and its 5 acres of underlying land, subject to the lien of the Fleet
Loan. The
8
property contains approximately 96,000 net rentable square feet for use as a
multi-tenant facility (reduced from 102,000 square feet as a single tenant
facility).
As of March 24, 2000, Registrant has rented 100% of the space in the
building to various tenants pursuant to leases providing for an average current
rent of approximately $15.98 per square foot (exclusive of expenses). Such
leases expire in 2000 (approximately 31,822 square feet), in 2001 (approximately
20,421 square feet), in 2002 (approximately 16,237 square feet) and in 2003
(approximately 27,264 square feet).
The Flatiron Building is zoned IG (Industrial General), which permits
office use by manufacturers and industrial users (including software
developers), but does not permit general office use by service providers such as
attorneys and accountants. Registrant does not believe that such classification
adversely affects its ability to fully lease this building at market rates, and
such classification does not affect any existing tenants.
Market conditions in the Boulder area remain favorable for owners of
commercial buildings. The market for the Boulder area contains approximately 9.3
million square feet of commercial space of which approximately 9.1% is vacant.
Average rents for office space in such area approximate $16.49 per square foot,
exclusive of expenses. Registrant has expended approximately $717,600, of which
approximately $262,200 was spent in 1999, for tenant improvements for the
Flatiron Building.
Marathon Oil Building (formerly, the Tenneco Building)
On March 21, 1988, Registrant acquired the Marathon Oil Building (formerly
the Tenneco Building), an office building located in Oklahoma City, Oklahoma,
for approximately $10,736,000, inclusive of acquisition fees. Registrant owns
fee title to the Marathon Oil Building with its 6.1 acres of underlying land,
subject to the lien of the Fleet Loan. The property contains 90,925 net rentable
square feet on two floors, plus a 10,016 square foot basement.
Marathon and its former affiliate, Koch Midstream Services Company
("Koch"), lease approximately 65,000 square feet (including approximately 4,300
in the basement) and 22,300 square feet (including approximately 550 in the
basement), respectively, in the building. Marathon's lease expires in 2001,
subject to two five-year renewal options; Koch's lease also expires in 2001, but
without any renewal option.
Annual rent under such leases is approximately $750,600 ($8.75 per square
foot, plus $6.00 per square foot for basement space). Marathon and Koch must
also pay additional rent equal to their proportionate share of any increases in
operating costs of the building after 1996. Registrant has funded tenant
improvements of approximately $350,000 for Marathon and Delhi, none of which was
expended in 1999.
Registrant has leased approximately an additional 5,800 square feet in the
building for a five-year term ending in December 2001 at an annual rent of
approximately $65,000 ($11.00 per square foot, plus $6.00 per square foot for
basement space). Registrant has funded tenant improvements of approximately
$74,000 in connection with this lease, none of which was expended in 1999. The
remaining space (approximately 3.2% of the office space, plus approximately 41%
of the basement) is vacant and Registrant is seeking a tenant for such space;
however, the space is difficult to rent and would require significant tenant
improvements. As an alternative, Registrant may demolish and reconfigure this
space to improve its marketability. Registrant expended approximately $53,800 on
replacing and upgrading lighting fixtures in the building in 1999.
9
Market conditions in the northwest section of Oklahoma City have continued
recent improvements from the declines experienced after Registrant acquired the
building. Such market contains approximately 4.9 million square feet of
commercial space of which approximately 11.0% is vacant. Average rents for
commercial space range from $8.50 to $18.75 per square foot, with a weighted
average rate of $14.21 per square foot. Although the vacancy rate increased
slightly during 1999, rental rates continued the increases of recent years.
475 Fifth Avenue
On December 6, 1996, Registrant purchased the land, building and other
improvements commonly known as 475 Fifth Avenue, and situated in New York, New
York, for approximately $27,440,000 including capitalized costs and related
costs. The property contains a multi-tenant office building comprised of
approximately 238,000 square feet and is located on the southeast corner of 41st
Street and Fifth Avenue in New York City; the Subsidiary Partnership owns fee
title to 475 Fifth Avenue, subject to the lien of the 475 Loan.
475 Fifth Avenue is a 23-story office building with approximately 20,000
square feet of retail space on the first floor and basement, 213,000 square feet
of office space, and 5,100 square feet of basement storage space. As of March
24, 2000, approximately 94.4% of the rentable square footage in the building was
leased (including approximately 96.2% of the office space, 83.7% of the retail
space, and 60.0% of the basement space), at an average current rent (base rent
plus electric charges and prior year adjustments) of approximately $32.58 per
square foot (approximately $31.07 per square foot of office space and $56.02 per
square foot of retail space). Following is a schedule of the expirations of such
leases.
==========================================================================
Approximate Avg. Current
Expiration Year Square Feet % of Total Rent/Sq. Ft.
- --------------------------------------------------------------------------
2000 13,430 5.7% $31.05
- --------------------------------------------------------------------------
2001 19,733 8.3% $36.53
- --------------------------------------------------------------------------
2002 7,191 3.0% $33.18
- --------------------------------------------------------------------------
2003 7,558 3.2% $31.67
- --------------------------------------------------------------------------
2004 19,783 8.3% $43.53
- --------------------------------------------------------------------------
2005 34,410 14.5% $37.06
- --------------------------------------------------------------------------
2006 22,630 9.5% $26.90
- --------------------------------------------------------------------------
2007 6,794 2.9% $27.16
- --------------------------------------------------------------------------
2008 47,399 20.0% $26.76
- --------------------------------------------------------------------------
2009 37,625 15.8% $32.27
- --------------------------------------------------------------------------
2010 7,513 3.2% $36.23
==========================================================================
Registrant's leases generally provide for a base rent, inclusive of an
electricity charge, plus additional rent in the form of operating expense and
real estate tax escalation factors. In 1997, Registrant
10
commenced a capital improvement program, designed to increase rental rates and
the value of the building. In connection with obtaining the 475 Loan, a capital
reserve schedule was prepared for 475 Fifth Avenue, detailing improvements
aggregating approximately $1,840,000 over a 12-year period. These and other
improvements that Registrant intends to make include the following: mechanical,
electrical, and plumbing systems, including upgrading objective service and
closets (approximately $360,000), consolidating DC service and relocating
additional AC service (approximately $90,000), purchasing electrical equipment
(approximately $300,000), continue installation of hot water heating system
(approximately $315,000), and installation of new riser and drain lines
(approximately $350,000); structural repairs, including roofing, facade, and
parapet repairs (approximately $415,000) and installation of new windows
(approximately $140,000); elevator repairs and refurbishment, including
replacement of controls (approximately $345,000); and improvements to comply
with building codes and Americans with Disabilities Act requirements, including
renovation of restrooms (approximately $240,000) and stair handrail and
extensions (approximately $48,000). In 1999, Registrant funded capital
improvements aggregating approximately $158,400 and tenant improvements
aggregating approximately $1,200,300 at 475 Fifth Avenue. Certain capital
improvements can only be made as tenancies expire. Capital improvements and
tenant improvements have been, and are expected in the future to be, funded from
working capital and loan drawdowns and from anticipated increases in rental
income.
475 Fifth Avenue is situated in the Grand Central district of the New York
City midtown market. Such district includes approximately 50,385,000 aggregate
rentable square feet (vacancy rate of approximately 5.2%), of which
approximately 44,485,000 are Class A buildings (5.2% vacancy rate) and 5,900,000
are Class B buildings (5.4% vacancy rate). Asking rents in this district average
approximately $49.32 per square foot ($50.23 for Class A buildings and $42.45
for Class B buildings). The entire midtown market includes approximately
236,805,000 aggregate rentable square feet (187,345,000 in Class A buildings and
49,460,000 in Class B buildings), an approximate 3.6% vacancy rate (3.4% for
Class A buildings and 4.5% for Class B buildings), and average asking rents of
approximately $50.50 per square foot ($53.92 for Class A buildings and $37.55
for Class B buildings).
Alamo Towers
On March 17, 1997, Registrant purchased the land, building and other
improvements commonly known as the Alamo Towers, and situated in San Antonio,
Texas for approximately $12,002,000, including capitalized closing and related
costs. The Alamo Towers contains a multi-tenant office building comprised of
approximately 196,000 square feet. Registrant owns fee title to the Alamo
Towers, subject to the lien of the Fleet Loan.
The Alamo Towers is an office building consisting of two stand-alone
8-story towers with approximately 186,000 square feet of office space and 8,000
square feet of basement space. As of March 24, 2000, approximately 75.8% of the
rentable square footage of office space in the Alamo Towers was leased, at an
average current rent (base rent plus escalation adjustments) of approximately
$14.40 per square foot. Following is a schedule of expiration of such leases.
11
=============================================================================
Approximate Avg. Current
Expiration Year Square Feet % of Total Rent/Sq.Ft.
- -----------------------------------------------------------------------------
2000 29,110 17.0% $14.99
- -----------------------------------------------------------------------------
2001 46,202 26.9% $13.59
- -----------------------------------------------------------------------------
2002 27,784 16.2% $14.22
- -----------------------------------------------------------------------------
2003 6,838 4.0% $14.80
- -----------------------------------------------------------------------------
2004 18,403 10.7% $15.61
- -----------------------------------------------------------------------------
2005 1,822 1.1% $15.00
=============================================================================
The Alamo Towers has yet to achieve sustainable increases in occupancy
rates, primarily because of the absence of a covered parking garage.
Registrant's planned significant capital improvements for this building were
delayed in large part because of the capital improvements made at 475 Fifth
Avenue. Registrant now intends to fully implement its program at Alamo Towers.
In 1999, it completed renovation of the lobby in the East Tower at an
approximate cost of $314,800. Renovation of the West Tower lobby is expected to
cost approximately $400,000. Registrant also plans to relocate the building's
mechanical plant, including replacement of all heating, ventilation, and air
conditioning equipment, and upgrade the electrical capacity and distribution, at
an approximate cost of $2,250,000. Relocation of this plant will enable
Registrant to construct a covered parking garage at an estimated cost of
$6,000,000. Construction of the garage is tentatively scheduled for 2001 and is
expected to take six to eight months to complete. Registrant also may separate
the heating and air conditioning systems to better regulate temperature through
the building (estimated to cost $40,000) and recaulk glass walls and windows
(approximately $200,000). Registrant may install sprinklers on all floors of the
towers, at an estimated cost of $250,000, but any such installation is unlikely
to occur in the near future. Registrant intends to finance these capital
improvements from the proceeds of loan drawdowns and/or from proceeds from any
sales of properties. In 1999, Registrant expended approximately $55,500 in
tenant improvements and $532,100 in capital improvements to the Alamo Towers.
The San Antonio office market includes approximately 21,190,000 aggregate
rentable square feet, of which approximately 13.7% is currently vacant. Asking
rents in this market now average $17.14 per square foot. The north-central San
Antonio market includes approximately 7,578,000 aggregate rentable square feet,
of which approximately 12.9% is vacant and for which asking rents average
approximately $17.98 per square foot. Class B buildings, including the Alamo
Towers, feature an approximate 11.1% vacancy rate and an average asking rental
rate of $16.71 per square foot.
Item 3. Legal Proceedings.
Except for its action against Polish Ocean Lines, Inc., Registrant does not
know of any material legal proceedings, other than ordinary immaterial routine
litigation incidental to its business, pending against or involving Registrant
or any of its properties. The action against Polish Ocean Lines, Inc. is
attributable to the rejection of its subsidiary's lease for space in the Tumi
Building. See "Item 2. Properties - Tumi Building." The action was commenced in
the United States District Court in Newark, New Jersey on November 22, 1999.
12
Item 4. Submission of Matters to a Vote of Security-Holders.
There were no matters submitted to a vote of Limited Partners or
Unitholders and none were required to be submitted during the fourth quarter of
the fiscal year covered by this report through the solicitation of proxies or
otherwise.
13
PART II
Item 5. Market for Registrant's Securities and Related Security-Holder Matters.
The Units of Registrant are not traded in any established public trading
market. Because of certain provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), as described below, the General Partners have not applied
to include the Units for quotation or listing on any national or regional stock
exchange or any other established securities market.
Registrant has administered a Unit Repurchase Plan since 1995, pursuant to
which Registrant, in its discretion, has purchased outstanding Units. Any such
purchases are made at prices no higher than the lowest current independent offer
quotation. During 1999, Registrant did not repurchase any Units. Registrant is
limited by the terms of the Fleet Loan to an aggregate of $3,000,000 in Unit
repurchases. In addition, repurchases both divert funds otherwise available for
capital improvements and require a monthly reallocation of Unitholders'
interests. For these reasons, Registrant limits future repurchases, if any, to
the final one or two months of a calendar year. To provide an alternative outlet
for Unit sales, the General Partners and their affiliates have, during any
periods of suspension in Registrant's Unit Repurchase Plan, purchased Units on
the same terms and conditions as under the Unit Repurchase Plan.
Provisions found in Section 7704 of the Code have an adverse impact on
investors in a "publicly traded partnership" ("PTP"). A PTP is a partnership
whose interests are traded on an established securities market or readily
tradeable on a secondary market (or the substantial equivalent thereof). If
Registrant were classified as a PTP, (i) Registrant may be taxed as a
corporation or (ii) income derived from an investment in Registrant would be
treated as non-passive income.
The IRS has established alternative safe harbors that allow interests in a
partnership to be transferred or redeemed in certain circumstances without
causing the partnership to be characterized a PTP. Although the Units are not
listed or quoted for trading on an established securities market, it is possible
that transfers of Units could occur in a secondary market in sufficient amount
and frequency to cause Registrant to be treated as a PTP. To the extent that any
proposed transfer of Units in secondary market transactions would exceed a safe
harbor volume limitation, the proposed transfer will be restricted pursuant to a
policy adopted by Registrant. Such a restriction could impair the ability of an
investor to liquidate its investment quickly and thus, possibly prevent the
reclassification of Registrant as a corporation pursuant to Code Section 7704.
It is anticipated that Registrant's policy will remain in effect until such
time, if ever, as further clarification of Code Section 7704 permits Registrant
to lessen the scope of its policy.
The General Partners, if so authorized, will take such steps as are
necessary, if any, to prevent the reclassification of Registrant as a PTP.
As of April 13, 2000, there were 2,784 Unitholders of record.
14
The following represents per Unit cash distributions to investors for the
fiscal years ended December 31, 1999 and 1998.
Distribution
Quarter Ended Per Unit Payment Date
- ------------- ------------- ------------
December 31, 1999 $ 0.30 February 2000
September 30, 1999 $ 0.30 November 1999
June 30, 1999 $ 0.30 August 1999
March 31, 1999 $ 0.30 May 1999
December 31, 1998 $ 0.30 February 1999
September 30, 1998 $ 0.30 November 1998
June 30, 1998 $ 0.30 August 1998
March 31, 1998 $ 0.30 May 1998
There are no material legal restrictions upon Registrant's present or
future ability to make distributions in accordance with the provisions of
Registrant's Agreement of Limited Partnership, as amended through the date of
this report. However, the Fleet Loan Agreements limit distributions to 90% of
the sum of cash from operations, depreciation and amortization. See, however,
Item 7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of economic conditions affecting
Registrant's ability to make distributions in the future.
Item 6. Selected Financial Data
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
Operating
Revenues $16,695,999 $19,752,206 $14,958,799 $9,142,369 $9,827,431
Net Loss/Income $(2,828,104) $1,930,984 $(420,892) $677,914 $2,008,688
Net Loss/Income
Per Unit (1) $(0.94) $0.64 $(0.14) $0.22 $0.62
Total Assets $107,255,707 $105,748,365 $100,946,968 $102,983,279 $74,460,139
Long-Term
Obligations $55,539,288 $46,930,800 $41,578,800 $39,955,200 $7,800,000
Distributions
Per Unit
(1)(2) $1.20 $1.20 $1.20 $1.20 $1.20
15
(1) Per Unit numbers are based on 2,983,531 Units for 1999 and a weighted
average number of Units of 2,986,460, 3,022,492, 3,087,170, and 3,184,222,
for 1998, 1997, 1996, and 1995, respectively.
(2) Each year's distributions include funds distributed after the end of the
year which are attributable to that year.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
At December 31, 1999, Registrant had cash and receivables of approximately
$3,900,000 as contrasted to accounts payable and accrued expenses of
approximately $2,600,000. 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
the Fleet Loan and/or sell assets.
In August 1999, Registrant organized 475 Fifth Avenue Limited Partnership
and 475 Fifth-GP, Inc. as wholly-owned subsidiaries. The Subsidiary Partnership
owns 475 Fifth Avenue and the Subsidiary Corporation is the sole general partner
of the Subsidiary Partnership. Registrant is the sole limited partner of the
Subsidiary Partnership, with a 99% interest in all items of income, gain, loss,
and deduction, and the sole shareholder of the Subsidiary Corporation.
In August 1999, the Subsidiary Partnership acquired ownership of 475 Fifth
Avenue from Registrant and obtained the 475 Loan. 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. Financial statements of Registrant and its subsidiaries are
consolidated and intercompany accounts and transactions are eliminated.
Registrant has been investing capital in acquiring additional properties
and improving its existing and additional properties with a view to increasing
its revenues from real estate operations and ultimately realizing appreciation
in property values. Capital resources have been employed since the beginning of
1999 to make the following capital improvements: approximately $158,400 in
capital improvements and $1,200,300 in tenant improvements at 475 Fifth Avenue;
approximately $1,163,100 in tenant improvements at the Tumi Building;
approximately $79,900 in tenant improvements and $9,500 in capital improvements
at the Monterey Park Building; approximately $63,350 in capital improvements at
the Directory Building; approximately $262,200 in tenant improvements and
$39,200 in capital improvements at the Flatiron Building; approximately $53,800
in capital improvements at the Marathon Oil Building; and approximately $532,100
in capital improvements and $55,500 in tenant improvements at Alamo Towers.
Registrant may also require capital to fund additional tenant improvements as
tenancies turn over at its properties as well as further capital improvements at
475 Fifth Avenue (estimated at $1,840,000) and Alamo Towers (estimated at
$9,140,000). These additional capital improvements are expected to be made over
several years, as tenancies expire.
16
In March 1999, Gdynia America Line, Inc., which leased approximately 20% of
the Tumi Building pursuant to a lease expiring in May 2007, 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 has instituted suit against Polish Ocean Lines for
amounts due over the eight years remaining in the term of the lease. Although
this lease's rental payments constituted only approximately three percent of
Registrant's aggregate 1998 property revenues, Registrant wrote off
approximately $718,000 in deferred rent and other receivables in 1999 as a
result of the rejection of this lease. To the extent all or a portion of this
space is unproductive for any length of time, and if Registrant is unsuccessful
in collecting damages from Polish Ocean Lines, Registrant may face an additional
capital demand.
During 1999, Registrant received an aggregate of approximately $330,000 in
connection with early termination of leases: approximately $140,000 from
American Color with respect to the Monterey Park Building; and approximately
$190,000 from 2 tenants at 475 Fifth Avenue. To the extent such space remains
vacant, as in the Monterey Park Building, Registrant's operations may be
affected and its capital demands increased. However, these leases did not
represent a significant portion of Registrant's property revenues.
To date, Registrant has funded its capital requirements from the 475 Loan,
the Fleet Loan and, previously, out of working capital and through reductions in
distributions to partners. Registrant's quarterly distribution to partners for
each of the four quarters of 1999 was $0.30 per Unit. Registrant intends to
maintain this level of distributions through 2000 and, if possible, thereafter.
However, to the extent Registrant's sources of capital are inadequate for its
requirements, Registrant may need to reduce or suspend distributions to
partners, incur additional indebtedness, and/or dispose of one or more of its
properties.
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 cost
of such financing ultimately must be offset by increased property revenues or
Registrant's operations and capital will be compromised. The Fleet Loan matures
on September 24, 2000. Registrant anticipates satisfying the Fleet Loan out of
the proceeds of a refinancing or a sale of assets.
Registrant has used working capital reserves provided from the net proceeds
of the Offering, loan proceeds, and any undistributed cash from operations as
its primary source of liquidity. Registrant generally intends to distribute its
distributable cash from operations to Unitholders. However, such distributions
are subject to suspension or reduction to meet capital requirements and are also
limited by the Fleet Loan Agreements to 90% of cash from operations plus
depreciation and amortization.
Results of Operations
1999 versus 1998
Rental revenues decreased by 0.8% from 1998 to 1999, primarily because the
rejection of the Gdynia lease in the Tumi Building more than offset increased
occupancy and rental rates at the Flatiron Building and, more importantly, 475
Fifth Avenue. In addition, lease cancellation fees decreased by $3,837,623 in
1999 from the significant amounts received in 1998 with respect to the Monterey
Park, Tumi, 475 Fifth Avenue, and Alamo Towers buildings. As a result, total
revenues decreased by 15.5% from 1998 to 1999.
17
Interest expense in 1999 increased by 12.5% in 1999 from 1998, both 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
4.5% in 1999 primarily because of capital improvements made at 475 Fifth Avenue,
the Tumi Building, and Alamo Towers during 1997, 1998 and 1999. Amortization
increased by 75.8% primarily because of the write-off of leasing commissions on
leases that were terminated early and financing costs under the Fleet Loan
following partial prepayment of the loan. Property operation expenses increased
by 3.9% in 1999 primarily because of increases in cleaning and electricity
attributable to increased occupancy at 475 Fifth Avenue, the Tumi Building, and
the Flatiron Building and because of higher real estate taxes at 475 Fifth
Avenue, the Directory Building, and the Flatiron Building. Management fees
decreased by 19.0% in 1999 from 1998 because of property management fees
computed as a percentage of Registrant's decreased revenues from rental revenues
and lease cancellation fees. Professional fees increased by 12.3%, and general
and administrative expenses decreased by 16.9%, from 1998 to 1999 primarily
because of the reclassification of transfer agent fees and other expenses as
professional fees rather than general and administrative expenses. The 46.7%
increase in bad debt expense is primarily attributable to the write-off of
unpaid rent and deferred rent receivable from the Gdynia lease in the Tumi
Building and from tenants vacating space prior to termination of their leases in
475 Fifth Avenue.
Registrant realized a net loss of $2,828,104 in 1999 as compared to income
of $1,930,984 in 1998. After adjusting for non-cash items (depreciation,
amortization and bad debt expense), operations generated cash flows of
approximately $3,574,475 in 1999 and $7,048,258 in 1998 (a 49.3% decrease). The
significant decrease in net cash provided by operating activities is largely
attributable to the increased interest expense and the reduction in lease
cancellation fees from the extraordinary amounts of 1998.
The recognition of a net loss is largely due to the non-cash write-off of
receivables related to the Gdynia lease at the Tumi Building and several leases
at 475 Fifth Avenue. Registrant has focused its capital improvement program at
475 Fifth Avenue, which has increased occupancy and rental rates. Registrant
intends to implement its program at Alamo Towers in 2000 and 2001, with a view
towards leasing vacant space (approximately 24.2% of office space) and releasing
space covered by expiring leases. If successful this will provide additional
rental revenues with little additional operating expenses (but necessitating
significant capital expenditures).
1998 versus 1997
Rental revenues increased by 4.2% from 1997 to 1998, primarily because of
increased occupancy and rental rates at 475 Fifth Avenue. In addition,
Registrant received $4,167,685 in lease cancellation fees in 1998 with respect
to the Monterey Park, Tumi, and 475 Fifth Avenue buildings. As a result, total
revenues increased by 32.0% from 1997 to 1998.
Interest expense in 1998 increased by 3.5% in 1998 from 1997, primarily as
a result of additional drawdowns under the Fleet Loan aggregating $6,400,000.
Depreciation increased by 7.1% in 1998 primarily because of capital improvements
made at 475 Fifth Avenue and Alamo Towers during 1997 and 1998. Amortization
increased by 17.7% primarily because of additional financing costs related to
the Fleet Loan. Management fees increased by 34.7% in 1998 from 1997 primarily
due to property management fees computed as a percentage of Registrant's
increased rental revenues. Professional fees increased by 50.4% from 1997 to
1998 primarily because of legal fees incurred in connection with amending the
Fleet Loan, negotiating lease buyouts, and increased leasing activity. The 93.3%
increase in general and administrative expenses in 1998 from 1997 is primarily
attributable to the write-off of deferred rent receivable upon early lease
terminations of approximately $815,300 in 1998 and $158,900 in 1997.
18
Registrant realized income from real estate operations of $1,930,984 in
1998 as compared to a net loss of $1,333,393 in 1997. After adjusting for
non-cash items (principally depreciation and amortization), operations generated
cash flows of approximately $5,467,000 in 1998 and $2,708,000 in 1997 (a 101.9%
increase).
The recognition of net income and significant increase in net cash provided
by operating activities is largely due to realization of Registrant's capital
improvement program at 475 Fifth Avenue, which has increased occupancy and
rental rates. Registrant intends to continue its capital improvement program at
475 Fifth Avenue, and implement its program at Alamo Towers, in 2000.
Inflation
In the past, inflation has not had a material impact on Registrant's
operations or financial condition, as certain leases of Registrant's properties
provide for increases in rents based on changes in the consumer price index, and
other leases provide lease payments that escalate over time. Registrant's
properties with performing leases are protected by arrangements whereby the
tenants pay to Registrant an amount equal to all or a portion of the operating
costs of the properties, with Registrant's share of expenses, if any, subject to
a predetermined limit. These arrangements help to insulate Registrant from the
effects of any increases in operating costs. However, to the extent that there
is vacant space or nonperforming leases at any of the Registrant's properties,
Registrant lacks this protection against inflation, particularly with regards to
increased expenses that are not reimbursed.
Item 7A. 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 has 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. Approximately
42% and 100% of Registrant's outstanding debt was subject to variable rates at
December 31, 1999 and 1998, respectively. In addition, the average interest rate
on Registrant's debt increased from 7.63% at December 1998 to 8.22% at December
31, 1999. 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.
The table below provides information about Registrant's debt instruments
that are sensitive to changes in interest rates. For debt obligations, the table
presents principal cash flows and related weighted average interest rates by
expected maturity dates. Weighted average variable rates are based on rates in
effect at the reporting date.
19
Expected Maturity Date
--------------------------------------------------------------------------------------------
There- Fair
2000 2001 2002 2003 2004 After Total Value
---- ---- ---- ---- ---- ------- ------- -------
(in thousands)
Secured Variable $23,593 $ -- $ -- $ -- $ -- $ -- $23,593 $23,593
Average
interest rate 7.9125% -- -- -- -- -- 7.9125%
Secured Fixed $228 $240 $261 $284 $301 $30,632 $31,946 $30,976
Average
interest rate 8.27% 8.27% 8.27% 8.27% 8.27% 8.27% 8.27%
Registrant believes that the interest rates given in the table for fixed
rate borrowings are below the rates Registrant could currently obtain for
instruments of similar terms and maturities. The fair values of such instruments
are estimated using discounted cash flow analyses, based on borrowing rates for
similar types of borrowing arragements at December 31, 1999 (estimated at 8.75%
per annum).
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
$236,000, based upon the balances outstanding on variable rate instruments at
December 31, 1999.
Item 8. Financial Statements and Supplementary Data
See list of Financial Statements and Financial Statement Schedules at page
F-2, filed as part of this report.
Corporate Realty Income Fund I, L.P.
and Subsidiaries
List of Consolidated Financial Statements and Consolidated Financial
Statement Schedules
The following consolidated financial statements of Corporate Realty Income Fund
I, L.P. and Subsidiaries are included in Item 8:
Report of Independent Auditors - Ernst & Young LLP ....................................... F-3
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1999 and 1998 ............................. F-4
Consolidated Statements of Operations for the years ended December 31, 1999, 1998
and 1997 .............................................................................. F-5
Consolidated Statements of Changes in Partners' Capital for the years ended
December 31, 1999, 1998 and 1997 ...................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 F-7
Notes to Consolidated Financial Statements ............................................... F-8
Schedule III - Real Estate and Accumulated Depreciation .................................. F-21
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted since
(1) the information required is disclosed in the consolidated financial
statements and notes thereto; (2) the schedules are not required under the
related instructions; or (3) the schedules are inapplicable.
F-2
Report of Independent Auditors
To the Partners of
Corporate Realty Income Fund I, L.P.
We have audited the accompanying consolidated balance sheets of Corporate Realty
Income Fund I, L.P. (a Delaware limited partnership) and subsidiaries (the
"Partnership") as of December 31, 1999 and 1998 and the related statements of
operations, changes in partners' capital and cash flows for each of the three
years in the period ended December 31, 1999. We also have audited the financial
statement schedule listed on the Index at Item 14 (a). These financial
statements and the financial statement schedule are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards 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 amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Corporate Realty
Income Fund I, L.P. and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. Also in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ Ernst & Young LLP
---------------------
New York, New York
January 28, 2000
F-3
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Consolidated Balance Sheets
December 31,
1999 1998
------------------------------
Assets Real estate, at cost:
Land $ 19,875,846 $ 19,875,846
Buildings and improvements 98,067,344 95,541,299
Equipment and furniture 242,302 78,029
------------------------------
118,185,492 115,495,174
Less accumulated depreciation 24,361,971 21,669,758
------------------------------
93,823,521 93,825,416
Cash and cash equivalents at cost, which approximates market value 3,322,319 4,115,435
Accounts receivable 578,480 737,617
Due from general partners -- 95,016
Note receivable, net of unamortized discount of $32,464 in 1999 and
$50,024 in 1998 244,643 524,379
Deferred rent receivable 2,479,583 2,638,615
Deferred financing costs, net of accumulated amortization of
$1,625,303 in 1999 and $927,224 in 1998 965,492 829,552
Lease commissions, net of accumulated amortization of $1,583,597 in
1999 and $1,637,425 in 1998 2,168,412 2,726,566
Escrow deposits 2,866,682 --
Deposits and other assets 806,575 255,769
------------------------------
Total assets $ 107,255,707 $ 105,748,365
==============================
Liabilities and partners' capital
Accounts payable and accrued expenses $ 2,599,574 $ 2,983,261
Mortgage loans payable 55,539,288 46,930,800
Due to general partners 63,534 --
Other liabilities 1,031,820 1,382,043
------------------------------
Total liabilities 59,234,216 51,296,104
Commitments and contingencies
Partners' capital:
General partners:
Capital contributions 1,000 1,000
Net income 366,955 395,236
Cash distributions (603,227) (567,200)
------------------------------
(235,272) (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 36,328,418 39,128,241
Cash distributions (59,796,511) (56,229,872)
------------------------------
48,256,763 54,623,225
------------------------------
Total partners' capital 48,021,491 54,452,261
------------------------------
Total liabilities and partners' capital $ 107,255,707 $ 105,748,365
==============================
See accompanying notes.
F-4
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Consolidated Statements of Operations
For the year ended December 31,
1999 1998 1997
--------------------------------------------
Revenue:
Rental $ 15,387,502 $ 15,513,474 $ 14,885,474
Lease cancellation 330,062 4,167,685 --
Interest and other income 978,435 71,047 73,325
--------------------------------------------
16,695,999 19,752,206 14,958,799
--------------------------------------------
Expenses:
Interest 3,736,687 3,320,457 3,207,254
Depreciation 3,452,891 3,304,509 3,084,463
Amortization 1,753,623 997,515 847,297
Property operations 7,622,547 7,336,498 7,321,229
Management fees 1,099,706 1,357,671 1,008,252
Professional fees 345,000 307,208 204,301
Bad debt expense 1,196,065 815,250 158,933
General and administrative 317,584 382,114 460,463
--------------------------------------------
19,524,103 17,821,222 16,292,192
--------------------------------------------
(Loss) income from real estate operations (2,828,104) 1,930,984 (1,333,393)
Gain on sale of real estate -- -- 912,501
--------------------------------------------
Net (loss) income $ (2,828,104) $ 1,930,984 $ (420,892)
============================================
Net (loss) income allocated:
General partners $ (28,281) $ 19,310 $ (4,209)
Limited partners (2,799,823) 1,911,674 (416,683)
--------------------------------------------
$ (2,828,104) $ 1,930,984 $ (420,892)
============================================
Net (loss) income per unit of limited partnership
interest $ (0.94) $ 0.64 $ (0.14)
============================================
See accompanying notes.
F-5
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Consolidated Statements of Changes in Partners' Capital
General Limited
Total Partners Partners
--------------------------------------------
Partners' capital (deficit) at
December 31, 1996 $ 60,885,576 $ (113,035) $ 60,998,611
Redemption of units (547,120) -- (547,120)
Cash distributions to partners (3,677,381) (36,774) (3,640,607)
Net loss (420,892) (4,209) (416,683)
--------------------------------------------
Partners' capital (deficit) at
December 31, 1997 56,240,183 (154,018) 56,394,201
Redemption of units (93,310) -- (93,310)
Cash distributions to partners (3,625,596) (36,256) (3,589,340)
Net income 1,930,984 19,310 1,911,674
--------------------------------------------
Partners' capital (deficit) at
December 31, 1998 54,452,261 (170,964) 54,623,225
Cash distributions to partners (3,602,666) (36,027) (3,566,639)
Net loss (2,828,104) (28,281) (2,799,823)
--------------------------------------------
Partners' capital (deficit) at
December 31, 1999 $ 48,021,491 $ (235,272) $ 48,256,763
============================================
See accompanying notes.
F-6
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Consolidated Statements of Cash Flows
For the year ended December 31,
1999 1998 1997
--------------------------------------------
Operating activities
Net (loss) income $ (2,828,104) $ 1,930,984 $ (420,892)
--------------------------------------------
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 5,206,514 4,302,024 3,931,760
Gain on sale of real estate -- -- (912,501)
Decrease (increase) in deferred rent receivable 159,032 316,769 (10,221)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 159,137 (259,237) (46,491)
Decrease (increase) in due from general partners 158,550 63,232 (58,451)
Decrease (increase) in note receivable 279,736 (521,751) 7,684
(Increase) in escrow deposits - operating (885,658) -- --
Increase in lease commissions (497,390) (1,460,007) (765,788)
Increase in deposits and other assets (550,806) (142,613) (2,425)
(Decrease) increase in accounts payable and
accrued expenses (383,687) 996,988 787,736
(Decrease) increase in other liabilities (350,223) 240,331 197,746
--------------------------------------------
Total adjustments 3,295,205 3,535,736 3,129,049
--------------------------------------------
Net cash provided by operating activities 467,101 5,466,720 2,708,157
--------------------------------------------
Investing activities
Increase in escrow deposits - investing (1,981,024) -- --
Proceeds from sale of real estate -- -- 12,475,923
Acquisition of real estate (3,450,996) (3,606,069) (13,753,264)
--------------------------------------------
Net cash (used in) investing activities (5,432,020) (3,606,069) (1,277,341)
--------------------------------------------
Financing activities
Deferred financing costs (834,019) (234,150) --
Proceeds from mortgage loan payable 35,000,000 6,400,000 2,600,000
Repayments of mortgage loan payable (26,391,512) (1,048,000) (976,400)
Redemption of units -- (93,310) (547,120)
Cash distributions to partners (3,602,666) (3,625,596) (3,677,381)
--------------------------------------------
Net cash provided by (used in) financing activities 4,171,803 1,398,944 (2,600,901)
--------------------------------------------
Net (decrease) increase in cash and cash equivalents
(793,116) 3,259,595 (1,170,085)
Cash and cash equivalents at beginning of year 4,115,435 855,840 2,025,925
--------------------------------------------
Cash and cash equivalents at end of year $ 3,322,319 $ 4,115,435 $ 855,840
============================================
See accompanying notes.
F-7
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999
1. Organization
Corporate Realty Income Fund I, L.P. ("CRIF") was formed as a limited
partnership on November 25, 1985 under the laws of the State of Delaware. CRIF
was formed for the purpose of acquiring and owning income-producing commercial
and industrial real estate properties for lease to others. CRIF will terminate
on December 31, 2010 or sooner, in accordance with the Partnership Agreement.
During 1999, in connection with refinancing a portion of its debt, CRIF formed a
wholly-owned subsidiary to which it transferred ownership of its New York City
property.
The general partners of CRIF are 1345 Realty Corporation, the corporate general
partner, and Robert F. Gossett, Jr., the individual general partner.
On November 30, 1994, all of the outstanding capital stock of the corporate
general partner of CRIF was acquired by the individual general partner in a
transaction which was effective as of July 1, 1994. As a result of this
acquisition, the entire interest of the general partners is controlled by the
individual general partner.
The initial capital was $1,025 representing capital contributions of $1,000 by
the general partners and $25 by the original limited partner. The Partnership
commenced operations on June 2, 1986 with the acceptance of subscriptions for
1,082,640 Depositary Units of limited partnership interest (the "Units"). The
Partnership has authorized the issuance of up to 4,000,000 Units. The
Partnership sold 3,200,000 Units, representing $80,000,000, which completed the
offering. Upon the first admittance of the additional limited partners and
unitholders, the original limited partner withdrew from the Partnership.
Offering costs incurred in connection with the initial offering are
nonamortizable and have been deducted from limited partners' capital.
During 1998, 8,680 units were redeemed from unitholders and canceled. There were
no unit redemptions during 1999.
F-8
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of CRIF and its
wholly-owned subsidiaries (collectively, the "Partnership"). All significant
intercompany accounts and transactions have been eliminated.
Real Estate and Depreciation
Costs directly related to the acquisition and improvement of real estate are
capitalized. Ordinary repairs and maintenance are expensed as incurred.
Depreciation of buildings, improvements, and equipment and furniture for
financial reporting purposes is computed under the straight-line method over the
estimated economic useful life of the assets which range from five to forty
years.
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
the Partnership's assets, which are held for use, are measured by a comparison
of the carrying amount of an asset to future net cash flow expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by which the carrying amount of the
assets exceeds the fair value. Assets to be disposed of are reported at the
lower of carrying amount or fair value less costs to sell. No impairment losses
were required on any of the properties owned by the Partnership.
Deferred Financing Costs
Deferred financing costs are being amortized over the term of the loan
agreements.
Lease Commissions
Leasing commissions are capitalized and amortized over the term of the related
leases.
F-9
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Significant Accounting Policies (continued)
Deferred Rent
Rental income is recognized on the straight-line basis over the entire term of
the lease including rent-free periods. Accordingly, rental income for the years
ended December 31, 1999, 1998 and 1997, includes approximately $615,300,
$498,500 and $169,200, respectively, of the excess of income on the
straight-line basis over the actual amount billed.
During 1999, the Partnership wrote off deferred rent receivable of approximately
$774,400, of which approximately $407,200, $338,200, and $29,000 related to
tenants vacating the Tumi Building, 475 Fifth Avenue, and the Monterey Park
Building, respectively, prior to the expiration of their lease terms. During
1998, the Partnership wrote-off deferred rent receivable of approximately
$815,300, of which approximately $750,300 and $65,000 related to tenants
vacating the Tumi Building and 475 Fifth Avenue, respectively, prior to the
expiration of their lease terms. During 1997, upon the sale of the James River
Building, deferred rent receivable of approximately $158,900 was written-off.
Such write-offs are included in bad debt expense in the accompanying statements
of operations.
Income Taxes
No provision for income taxes has been made since all items of income or losses
and tax benefits are passed through to the individual partners.
Cash Equivalents
The Partnership considers all highly liquid financial instruments with a
maturity of three months or less when purchased to be cash equivalents. Cash
equivalents, which consist principally of money market funds, are carried at
cost which approximates market value.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," defines
fair value of a financial instrument as the amount at which the instrument could
be exchanged
F-10
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Significant Accounting Policies (continued)
Fair Value of Financial Instruments (continued)
in a current transaction between willing parties. The Partnership's accounts
receivable and note receivable, deposits, accounts payable and accrued expenses,
interest payable and variable rate mortgage loan payable are carried at cost,
which approximates fair value.
The fair value of the Partnership's fixed rate long term borrowings are
estimated using discounted cash flow analyses, based on current borrowing rates
for similar types of borrowing arrangements. The carrying amount and fair value
of the Partnership's fixed rate long term debt at December 31, 1999 is
approximately $31,946,010 and $30,976,200, respectively.
Recently Issued Accounting Standards
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
was issued in June 1998. The statement requires all derivatives to be recognized
on the balance sheet at fair value. SFAS No. 133 is required to be adopted in
years beginning after June 15, 2000. Management of the Partnership does not
anticipate that the new statement will have a significant effect on the
financial statements of the Partnership.
Use of Estimates
The general partners have made a number of estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent assets
and liabilities to prepare these consolidated financial statements in conformity
with generally accepted accounting principles. Actual results could differ from
those estimates.
Reclassifications
Certain 1998 and 1997 amounts have been reclassified to conform with the current
year presentation.
F-11
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Partnership Agreement
The Partnership Agreement provides that profits, losses and distributions shall
be allocated 99% to the limited partners and 1% to the general partners.
Sale or refinancing proceeds will generally be distributed 99% to the limited
partners and 1% to the general partners until the limited partners have received
an amount which, when added to all prior distributions of cash, will equal their
original invested capital plus an 8% per annum cumulative noncompounded return.
Thereafter, after payment of the subordinated disposition fee, proceeds will be
distributed 75% to the limited partners and 25% to the general partners.
The Partnership Agreement further provides that net income shall be allocated to
each calendar month of the year, and shall be apportioned on a monthly basis to
the holders of interests, in the ratio in which the number of interests owned by
each limited partner or unitholder on the first day of the month bears to the
total number of interests owned by the limited partners and unitholders as of
that date.
4. Investments in Real Estate
Monterey Park Building
On July 10, 1986, the Partnership purchased the Monterey Park Building (formerly
the American Color Building), an office building located at 2630 Corporate
Place, Monterey Park, California, and the 90,000 square feet of underlying land.
The property contains approximately 20,250 square feet of net rentable area.
The terms of the agreement with the seller provided for a purchase price,
including capitalized closing and related costs, of approximately $4,182,000.
The building was fully leased to GE through October 21, 1995. In October 1995,
GE renewed its lease with respect to 52% of the rentable area of the building
for a term which was due to expire in October 2000. During 1998, the Partnership
earned a lease cancellation fee of approximately $105,000 as GE terminated its
lease prior to the end of its lease term. The remaining 48% of the building was
leased to American Color
F-12
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Investments in Real Estate (continued)
Monterey Park Building (continued)
Graphics, Inc. for a term which was due to expire in July 2002. During 1999,
American Color Graphics vacated the property and paid a lease cancellation fee
of approximately $140,000. At December 31, 1999, the building was approximately
45% leased to one tenant under a lease which expires in November 2000.
The Directory Building
On October 27, 1986, the Partnership purchased the Directory Building (formerly
the IBM building), an office building located in Las Colinas, Texas, and the
6.67 acres of underlying land. The property contains approximately 152,100
square feet of net rentable area.
The terms of the agreement with the seller provided for a purchase price,
including capitalized closing and related costs, of approximately $24,580,000.
As of December 31, 1999, the building was 100% leased to GTE Directories
Corporation for a term which expires on September 30, 2000. Rent from the tenant
represented 16%, 14%, and 16% of the Partnership's total rental revenue in 1999,
1998, and 1997, respectively.
Tumi Building
On December 30, 1986, the Partnership purchased the Tumi Building (formerly the
Austin Place Building), an office building located in South Plainfield, New
Jersey, and the five acres of underlying land. The property contains
approximately 106,600 square feet of net rentable area.
The terms of the agreement with the seller provided for a purchase price,
including capitalized closing and related costs, of approximately $16,473,000.
As of December 31, 1999, the building was approximately 60% leased to various
tenants under leases with remaining terms ranging from six to fourteen years.
F-13
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Investments in Real Estate (continued)
Tumi Building (continued)
In March 1999, Gdynia America Line, Inc. ("Gdynia"), a tenant who had occupied
approximately 20% of the Tumi Building, filed for protection under Chapter 11 of
the U.S. Bankruptcy Code. The lease was rejected in bankruptcy proceedings and
the Partnership is currently pursuing amounts from Polish Ocean Lines, a Polish
corporation owned by the Polish government, who is jointly and severally
obligated under Gdynia's lease. During 1999, the Partnership wrote off deferred
rent and other receivables from Gdynia of approximately $718,000.
During 1998 two tenants, The Austin Company and PNC Mortgage, paid lease
cancellation fees of approximately $3,337,000 and $397,000, respectively, to
terminate their leases prior to the end of their lease terms. Rent from The
Austin Company represented 10% of the Partnership's total rental revenue in
1997.
James River Building
On October 16, 1987, the Partnership purchased the James River Building
(formerly the Crown Zellerbach building) located in Woodland, California (a
suburb of Sacramento), and the 21 acres of underlying land. The building
contains approximately 570,000 square feet of net rentable area.
The terms of the agreement with the seller provided for a purchase price,
including capitalized closing and related costs, of $14,551,456. The building
was net leased to James River Corporation of Nevada, Inc. for a term which
expires in January, 2002. On February 28, 1997, the land and building were sold
to an unrelated party for $12,875,000.
Flatiron Building
On January 5, 1988, the Partnership purchased the Flatiron Building (formerly
the Cadnetix Building) located in Boulder, Colorado, and the five acres of
underlying land. The building contains approximately 96,000 square feet of net
rentable area.
F-14
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Investments in Real Estate (continued)
Flatiron Building (continued)
The terms of the agreement with the seller provided for a purchase price,
including capitalized closing and related costs, of approximately $9,003,000.
As of December 31, 1999, the building was 100% leased to various tenants under
leases with remaining terms ranging from one to four years.
Marathon Oil Building
On March 21, 1988, the Partnership purchased the Marathon Oil Building (formerly
the Tenneco Oil Building) located in Oklahoma City, Oklahoma, and the 6.1 acres
of underlying land. The building contains approximately 90,925 net rentable
square feet plus a 10,016 square foot basement.
The terms of the agreement with the seller provided for a purchase price,
including capitalized closing and related costs, of approximately $10,736,000.
As of December 31, 1999, the building was approximately 93% leased to various
tenants under leases with original terms of five years. The Marathon Oil Company
leases approximately 62,600 square feet of space pursuant to a five-year lease
which expires in February, 2001. A former affiliate of Marathon leases
approximately 24,700 square feet of space pursuant to a lease which expires in
February, 2001. Approximately 5,600 square feet of the remaining space is leased
to another tenant for a remaining term of two years.
475 Fifth Avenue
On December 6, 1996 the Partnership purchased an office building and the
underlying land located at 475 Fifth Avenue, New York, New York (the "New York
Building"). The building contains approximately 240,000 net rentable square
feet.
The terms of the agreement with the seller provided for a purchase price,
including capitalized closing and related costs, of approximately $27,440,000.
F-15
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Investments in Real Estate (continued)
475 Fifth Avenue (continued)
As of December 31, 1999, the building was approximately 96% leased to various
tenants under operating leases with remaining terms ranging from one to ten
years.
During 1999 and 1998, the Partnership earned lease cancellation fees of
approximately $190,000 and $197,000, respectively, from tenants who terminated
their leases prior to the end of their lease terms.
Alamo Towers
On March 17, 1997, the Partnership purchased an office building and the
underlying land located in San Antonio, Texas, for a purchase price, including
capitalized closing and related costs, of approximately $12,002,000. The
building contains approximately 196,000 net rentable square feet.
As of December 31, 1999, the building was approximately 78% leased to various
tenants under operating leases with remaining terms ranging from one to five
years.
During 1998, the Partnership earned lease cancellation fees aggregating
approximately $131,000 from several tenants who terminated leases prior to the
end of their respective lease terms.
5. Leases
Minimum future rentals from tenants under noncancellable operating leases as of
December 31, 1999 are approximately as follows:
2000 $11,491,000
2001 8,296,000
2002 7,367,000
2003 6,891,000
2004 5,998,000
Thereafter 15,900,000
------------
Total $55,943,000
============
F-16
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Leases (continued)
In addition to the minimum lease amounts, the leases provide for escalation
charges to the tenants for operating expenses, electric and real estate taxes.
For the years ended December 31, 1999, 1998 and 1997, escalation charges
amounting to approximately $2,034,000, $2,152,000 and $2,735,000, respectively,
have been included in rental income.
6. Transactions With General Partners and Affiliates
The general partners or their affiliates receive a property management fee equal
to either 1% for a long-term net lease or 6% for other types of leases on the
gross revenue from the property, and a partnership management fee equal to 7% of
adjusted cash from operations, as defined, and reimbursement of administrative
expenses. The general partners also receive leasing commissions in connection
with leasing, re-leasing or leasing related services performed on behalf of the
Partnership in connection with the negotiation of tenant leases. Such
commissions are computed at a rate equal to 3% of the gross revenues for the
first five years of each lease signed where the general partners have performed
such leasing services.
Following is a summary of the fees earned and reimbursable expenses for the
years ended December 31, 1999, 1998 and 1997:
1999 1998 1997
------------------------------------
Partnership management fees $ 250,908 $ 254,544 $ 257,664
Property management fees 848,798 1,103,127 750,588
Administrative expenses 55,000 55,000 60,372
There were no leasing commissions billed by the general partner in 1999, 1998
and 1997.
F-17
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Loans Payable
On September 26, 1996, the Partnership entered into a $24,000,000 senior secured
revolving credit facility (the "Mortgage"). The purpose of the Mortgage was to
refinance the existing $7,800,000 secured revolving line of credit, to provide
working capital for tenant improvements and leasing commissions with respect to
the properties owned by the Partnership, and to provide funds for the
acquisition of additional properties. On December 6, 1996, the Partnership
amended the Mortgage, increasing the principal amount to $44,000,000. On
September 25, 1998, the Partnership further amended the Mortgage to increase its
existing line of credit by $5,000,000.
The terms of the Mortgage, as amended, provide for a term of four years and
provided for maximum gross borrowings of $49,000,000. On August 9, 1999, the
Partnership divided the Mortgage into two notes. One note, in the amount of
$22,594,880, was secured by the New York Building, and the second note in the
amount of $26,405,120 is secured by the six other properties owned by the
Partnership. The loan secured by the New York Building was repaid in 1999. As a
result of the Mortgage borrowing capacity reduction, approximately $251,000 of
unamortized loan fees were written off during 1999.
Borrowings under the Mortgage bear interest monthly at a rate, selected at the
option of the Partnership at the time of the associated borrowing, based on (i)
the lender's Peg Rate (as defined in the loan agreement) plus .50% or (ii) the
applicable LIBOR rate or other market rate offered to the bank plus 2%. The
Mortgage requires monthly amortization of principal in an amount equal to
1/500th of the outstanding principal amount of the Mortgage on the first day of
the applicable month with a final payment of the then outstanding balance at
maturity. The Mortgage may be prepaid at any time. Upon the sale of any
property, the Partnership is required to repay principal on the total
indebtedness under the Mortgage in an amount equal to 110% of that portion of
outstanding balance of the loan attributable to the sold property, as defined in
the Mortgage agreement. The Mortgage requires the Partnership to comply with
certain covenants, including but not limited to, maintenance of certain
financial ratios. In addition, the Mortgage provides that the Partnership may
distribute to its partners up to 90% of the sum of its operating net income plus
depreciation and amortization.
F-18
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Loans Payable (continued)
The Partnership has calculated that its cash distributions for the twelve months
ended December 31, 1999 exceeded the limit imposed by the Mortgage agreement by
approximately $173,000. The Partnership has informed the lender that it will
increase to $10,000,000 the amortization payment it will make on the Mortgage
upon the sale of one of its buildings. The Partnership has further informed the
lender that if such amortization payment is not made on or before June 30, 2000,
the Partnership, until it makes this $10,000,000 payment, will (i) limit
quarterly distributions to the current level of $.30 per Unit and (ii) increase
its liquid net worth requirement imposed by the lender by the amount of the
excess cash distributed during 1999.
At December 31, 1999, $23,593,278 was outstanding under the Mortgage at an
interest rate of approximately 8.16% based on (ii) above.
In connection with obtaining the Mortgage, the Partnership incurred fees and
expenses of $1,756,776, which have been capitalized and are being amortized over
the term of the loan agreement.
On August 9, 1999, the Partnership obtained a $32,000,000 fixed rate mortgage
(the "New York Loan"). The loan is secured by the New York Building, matures on
September 1, 2009, and bears interest on the outstanding balance, payable
monthly, at a fixed rate of 8.27%. The terms of the note require monthly
principal and interest payments of $240,855. Approximately $23,381,000 of the
loan proceeds was used to repay the note secured by the New York Building. In
connection with the New York Loan, the Partnership incurred fees aggregating
approximately $834,000. These fees have been deferred and are being amortized
over the term of the New York Loan. As of December 31, 1999, the outstanding
balance of the loan was $31,946,010. The New York Loan may not be prepaid prior
to September 2, 2002. Thereafter, the New York Loan can be prepaid in full and
not in part, subject to a prepayment penalty. Pursuant to the New York Loan
agreement, the Partnership had $2,866,682 on deposit at December 31, 1999 in
restricted funds for capital improvements, repairs and replacements, and real
estate taxes.
F-19
7. Loans Payable (continued)
Minimum future principal payments pursuant to the Partnership's loan agreements
as of December 31, 1999 are as follows:
2000 $23,820,449
2001 240,314
2002 261,256
2003 284,024
2004 301,159
Thereafter 30,632,086
------------
Total $55,539,288
============
8. Supplemental Disclosure of Cash Flow Information
1999 1998 1997
------------------------------------------
Cash paid during the year for interest $ 3,653,401 $ 3,289,728 $ 3,154,925
==========================================
9. Employee Savings Plan
During 1997, the Partnership established an employee savings plan (the "Plan")
in accordance with Section 401(K) of the Internal Revenue Code. The Plan permits
eligible employees to make contributions through salary reductions. For the
periods ended December 31, 1999, 1998, and 1997, the Partnership had not made
any contributions to the Plan.
10. Earnings per Limited Partnership Unit
Basic earnings per limited partnership unit amounts were computed based on
2,983,531, 2,986,460 and 3,022,492 weighted average limited partnership units
outstanding in 1999, 1998 and 1997, respectively.
For the three years ended December 31, 1999, there were no partnership unit
equivalents and, in accordance with the provisions of SFAS No. 128, dilutive
earnings per limited partnership unit for the three years ended December 31,
1999, were computed based on the weighted average limited partnership units
outstanding.
F-20
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1999
Costs
Capitalized
Subsequent to Gross Amount at Which
Initial Cost (B) Acquisition Carried at Close of Period
---------------------------------------------------------------------------
Encumbrances Building and Building and Building and Total
Description (A) Land Improvements Improvements Land Improvements (C)
- ------------------------------------------------------------------------------------------------------------------------------------
Office Building
Monterey Park, CA $ 747,080 $ 1,762,126 $ 2,459,141 $ 178,678 $ 1,762,126 $ 2,637,819 $ 4,399,945
Office Building
Las Colinas, TX 6,988,816 4,925,745 19,702,979 2,819,061 4,925,745 22,522,040 27,447,785
Office Building
So. Plainfield, NJ 4,145,090 3,147,912 13,378,294 3,001,499 3,147,912 16,379,793 19,527,705
Office Building
San Antonio, TX 5,783,848 2,408,000 9,636,883 891,328 2,408,000 10,528,211 12,936,211
Office Building
Boulder, CO 4,289,687 1,080,369 7,922,716 301,342 1,080,369 8,224,058 9,304,427
Office Building
Oklahoma City, OK 1,638,757 1,063,694 9,713,348 440,750 1,063,694 10,154,098 11,217,792
Office Building
New York, NY 31,946,010 5,488,000 21,951,998 5,911,629 5,488,000 27,863,627 33,351,627
--------------------------------------------------------------------------------------------------------
$ 55,539,288 $ 19,875,846 $ 84,765,359 $ 13,544,287 $ 19,875,846 $ 98,309,646 $118,185,492
========================================================================================================
Accumulated Life on Which
Depreciation Date of Depreciation
Description (D) Construction Date Acquired Is Computed
- -----------------------------------------------------------------------------------------------
Office Building
Monterey Park, CA $ 889,018 1985 July, 1986 5 to 40 years
Office Building
Las Colinas, TX 8,809,607 1982 October, 1986 5 to 40 years
Office Building
So. Plainfield, NJ 5,678,324 1986 December, 1986 5 to 40 years
Office Building
San Antonio, TX 800,257 1975/1980 March, 1997 5 to 40 years
Office Building
Boulder, CO 2,435,060 1987 January, 1988 5 to 40 years
Office Building
Oklahoma City, OK 3,140,210 1986 March, 1988 5 to 40 years
Office Building
New York, NY 2,609,495 1925 December, 1996 5 to 40 years
------------
$24,361,971
============
F-21
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Schedule III - Real Estate and Accumulated Depreciation (continued)
December 31, 1999
Notes:
(A) Encumbrances represent a loan secured by a deed of trust given with respect
to all of the properties of the Partnership.
(B) The initial cost to the Partnership represents the original purchase price
of the properties net of purchase price adjustments, including amounts
incurred subsequent to acquisition which were contemplated. The initial
cost includes the purchase price paid by the Partnership and acquisition
fees and expenses. There is no difference between costs for financial
reporting purposes and costs for federal income tax purposes.
(C) Reconciliation Summary of Transactions - Real Estate Owned
Year Ended December 31,
1999 1998 1997
-----------------------------------------------------
Balance at beginning of year $ 115,495,174 $ 112,116,734 $ 112,971,546
Net additions during the year 3,450,996 3,606,069 13,753,264
Cost of real estate sold -- -- (11,563,422)
Write off fully depreciated assets (760,678) (227,629) (3,044,654)
-----------------------------------------------------
Balance at close of year $ 118,185,492 $ 115,495,174 $ 112,116,734
=====================================================
The aggregate cost of land, buildings and improvements for federal income tax
purposes at December 31, 1999 was approximately $119,173,800.
(D) Reconciliation Summary of Transactions - Accumulated Depreciation
Year Ended December 31,
1999 1998 1997
------------------------------------------------------
Balance at beginning of year $21,669,758 $18,592,878 $18,553,069
Depreciation charged to expense 3,452,891 3,304,509 3,084,463
Write-off of fully depreciated assets (760,678) (227,629) (3,044,654)
---------------------------------------------------
Balance at close of year $24,361,971 $21,669,758 $18,592,878
===================================================
F-22
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
20
PART III
Item 10. Directors and Executive Officers of the Registrant
Registrant has no officers or directors. The General Partners manage and
control substantially all of Registrant's affairs and have general
responsibility and ultimate authority in all matters affecting Registrant's
business.
The Individual General Partner is Robert F. Gossett, Jr. The Corporate
General Partner is 1345 Realty Corporation. All of the outstanding capital stock
of 1345 Realty Corporation is owned by the Individual General Partner and his
wife.
The directors and executive officers of the Corporate General Partner are
as follows:
Officer/
Director
Name Age Position Since
---- --- -------- -----
Robert F. Gossett, Jr. 56 President, Treasurer
and Director 1994
Pauline G. Gossett 56 Secretary 1994
Information with respect to the Individual General Partner and with respect
to the above officers and directors is set forth below:
Robert F. Gossett, Jr., the Individual General Partner since 1985, is
Managing Director of Vance Capital Corporation (1981 to present), a real estate
management and finance company. Between 1978 and 1981, Mr. Gossett served as
Executive Vice President and Director of Loeb Capital Corporation. From 1974
until 1978, he was a Vice President of Oppenheimer Properties, Inc. and, between
1969 and 1974, was associated with the Investment Banking Division of Merrill,
Lynch, Pierce, Fenner & Smith, Inc. He received a B.A. degree from the
University of Texas, a J.D. degree from Georgetown University, and an M.B.A.
degree from the University of Pennsylvania. He is a member of the Texas Bar.
Pauline G. Gossett, the Secretary of the Corporate General Partner, is a
stockholder and Director of Vance Capital Corporation (1981 to present). Mrs.
Gossett received an Associate of Arts degree from Briarcliff College. Mrs.
Gossett is the wife of Robert F. Gossett, Jr.
Registrant employs the following employees who make significant
contributions to the business of Registrant:
Employee
Name Age Position Since
---- --- -------- -----
James N. Walsh 46 Property Manager 1997
Wallis J. Hoskins 46 Property Manager 1993
Veronica Rios 35 Property Manager 1999
Madeline Matlak 34 Fund Administrator 1994
21
James N. Walsh is the Property Manager for 475 Fifth Avenue. Mr. Walsh has
been designated a Real Property Administrator (RPA) by the Building Owners and
Managers Association. From 1989 to 1997, he was a building manager, comptroller,
and leasing manager for 584 Operating Corp., the owner of an office building in
New York, New York which is similarly sized to 475 Fifth Avenue. Prior thereto,
Mr. Walsh served for four years as an assistant comptroller and construction
accountant for the residential division of Cadillac Fairview. He also acted for
four years as a project accountant for residential properties owned by Olympia &
York. Mr. Walsh received a B.B.A. degree in accounting from Iona College.
Wallis J. Hoskins is the Property Manager for the Austin Place Building.
For the 20 years prior thereto he was employed by The Prudential Insurance
Company of America, from 1981 to 1992 as a facilities manager for company-owned
buildings and from 1973 to 1980 as a claims approver.
Veronica Rios is the Property Manager for Alamo Towers. Ms. Rios has been
designated a Real Property Administrator (RPA) by the Building Owners and
Managers Association. From 1995 to 1999, she was a property manager for three
office buildings owned by Mission City Properties in San Antonio. Ms. Rios was a
property manager from 1993 to 1995 for several office, office/warehouse, and
rental properties owned by the Bonner Group in San Antonio. Prior thereto, from
1989 to 1993, she was employed in various office, accounting, and property
management capacities by Commercial Real Estate Associates in San Antonio.
Madeline Matlak is the Fund Administrator of the Registrant. Mrs. Matlak
was formerly employed as a Fund Administrator in the Direct Investment
Department of Smith Barney, Inc. (1989 through 1994).
Based solely upon its review of copies of Forms 3, 4, and 5 received by it
during 1999, and written representations from reporting persons that no other
Forms 5 were required for such persons for 1999, Registrant believes that all
filing requirements applicable to its General Partners and the directors and
officers of the Corporate General Partner pursuant to Section 16(a) of the
Securities Exchange Act of 1934, as amended, for 1999 and prior years were
complied with on a timely basis except as previously reported.
Item 11. Executive Compensation
Registrant is not required to and did not pay remuneration to the officers
and directors of the Corporate General Partner. However, the General Partners
and/or their affiliates receive compensation for services performed for
Registrant.
22
Summary Compensation Table
Share of
Adjusted Cash Management Leasing Expense
Year From Operations Fees Commissions Reimbursement
---- --------------- ---- ----------- -------------
Corporate General
Partner 1999 $28,822 $879,765 $ -0- $44,000
Individual General
Partner 1999 $7,205 $219,941 $ -0- $11,000
Corporate General
Partner 1998 $29,005 $1,086,137 $ -0- $44,000
Individual General
Partner 1998 $7,251 $271,534 $ -0- $11,000
Corporate General
Partner 1997 $29,419 $806,602 $ -0- $48,298
Individual General
Partner 1997 $7,355 $201,650 $ -0- $12,074
See Item 13 - "Certain Relationships and Related Transactions" for a discussion
of the above compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information as of March 28, 2000 as to
persons known by Registrant to be the beneficial owner of more than five percent
(5%) of the outstanding Units of Registrant.
Name and Address Amount and Percent
Of Nature of Of
Beneficial Owner Beneficial Ownership Class
---------------- -------------------- -----
Vance, Teel & Company, Ltd.(1)
406 E. 85th Street 203,347 6.8%
New York, New York 10028
- ----------
(1) Each of Robert F. Gossett, Jr., the Individual General Partner and the
President of the Corporate General Partner, and Pauline G. Gossett, the
Secretary of the Corporate General Partner, own a 25% proportionate
interest in Vance, Teel & Company, Ltd.
23
The following table sets forth information as of March 28, 2000 with
respect to the beneficial ownership of Units of Registrant by (i) each of the
General Partners, (ii) each of the directors and executive officers of the
Corporate General Partner, and (iii) all General Partners and executive officers
and directors of the Corporate General Partner, as a group.
Amount and
Name of Nature of
Beneficial Beneficial Percent
Owner Ownership of Class
----- --------- --------
1345 Realty Corporation(1) -0- 0%
Robert F. Gossett, Jr.(2) 51,036.75 1.7%
Pauline G. Gossett(3) 51,036.75 1.7%
All General Partners and
Directors and Executive
Officers as a group
(3 persons) 102,073.50 3.4%
Robert F. Gossett, Jr., the Individual General Partner and an officer and
director of the Corporate General Partner, and Pauline G. Gossett, an officer of
the Corporate General Partner, own all of the outstanding capital stock of the
Corporate General Partner.
Item 13. Certain Relationships and Related Transactions
Registrant has and will continue to have certain relationships with the
General Partners and their affiliates as discussed below.
The General Partners received $36,027 ($28,822 to the Corporate General
Partner and $7,205 to the Individual General Partner) as their allocable share
(1%) of adjusted cash from operations with respect to the year ended December
31, 1999. For the year ended December 31, 1999, $28,281 (1%) of Registrant's net
loss was allocated to the General Partners ($22,625 to the Corporate General
Partner and $5,656 to the Individual General Partner).
The General Partners or their affiliates are also entitled to receive: a
partnership management fee for managing the affairs of Registrant, equal to 7%
of adjusted cash from operations less the asset management fee; an asset
management fee for managing Registrant's funds which are not invested in
properties, equal to 0.5% per annum of the average amount of outstanding funds
during each calendar month which are not otherwise invested in properties; and a
property management fee for property
- --------
1 1345 Realty Corporation is the Corporate General Partner.
2 Mr. Gossett is the Individual General Partner and the President of the
Corporate General Partner. Consists of Mr. Gossett's 25% proportionate
interest in Vance, Teel & Company, Ltd. He disclaims beneficial ownership
of the remaining 75% proportionate interest owned by his wife, Pauline
Gossett, and his two adult children.
3 Ms. Gossett is the Secretary of the Corporate General Partner. Consists of
Ms. Gossett's 25% proportionate interest in Vance, Teel & Company, Ltd. She
disclaims beneficial ownership of the remaining 75% proportionate interest
owned by her husband, Robert F. Gossett, Jr., and her two adult children.
24
management services for Registrant's properties, equal to the normal and
competitive fees customarily charged by unaffiliated parties rendering similar
services in the same geographic area, not to exceed 1% of the annual gross
revenues for leases with terms of ten years or more or 6% of the annual gross
revenues for replacement leases. During the year ended December 31, 1999, the
General Partners earned and were paid an aggregate of $1,099,706 of such
management fees ($879,765 to the Corporate General Partner and $219,941 to the
Individual General Partner). At December 31, 1999, $63,534 of such fees had not
been paid.
The General Partners are also entitled to receive leasing commissions in
connection with leasing, releasing or leasing related services performed on
behalf of the Registrant in connection with the negotiation of tenant leases.
Such fees are computed at a rate equal to 3% of the gross revenue for the first
five years of each lease signed where the General Partners performed such
leasing services. During the year ended December 31, 1999, no such fees were
paid to the General Partners.
During the year ended December 31, 1999, the General Partners were also
entitled to reimbursement for expenses incurred in connection with Registrant's
operations aggregating $55,000 ($44,000 to the Corporate General Partner and
$11,000 to the Individual General Partner).
25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1),(2) See page F-2.
Sequential
Page
Number
------
(a)(3) Exhibits:
3. Certificate of Limited
Partnership, incorporated by
reference to Exhibit 4 to
Registration Statement No.
33-2258 (the "Registration
Statement").
4.(a) Amended and Restated Agreement
of Limited Partnership dated as
of July 24, 1995, incorporated
by reference to Exhibit 4 to
Registrant's Quarterly Report on
Form 10-Q for the quarter ended
September 30, 1995.
10.(a) Property Management Agreement,
incorporated by reference to
Exhibit 10B to the Registration
Statement.
(b) Management Agreement dated
January 5, 1988 by and between
Registrant and Colorado
Management Group, incorporated
by reference to Exhibit 10(e) to
Registrant's Current Report on
Form 8-K Dated January 5, 1988.
(c) Lease dated as of April 20, 1994
between Registrant and GTE.(1)
- ----------
(1) Incorporated by reference to Exhibits 10(y), (z), and (aa) to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994.
26
(d) Amendment No. 1 to Lease dated
as of July 29, 1994 between
Registrant and GTE.(1)
(e) Amendment No. 2 to Lease dated
as of February 22, 1995 between
Registrant and GTE.(1)
(f) Secured Promissory Note dated
September 26, 1996, made by
Registrant.(2)
(g) Loan Agreement dated as of
September 26, 1996 between
Registrant and Fleet Bank,
N.A.(2)
(h) Environmental Compliance and
Indemnification Agreement dated
__________, 1996, made by
Registrant.(2)
(i) First Amendment of Loan
Agreement and Note dated
December __, 1996 between
Registrant and Fleet Bank, N.A.(2)
(j) Deed of Trust, Assignment of
Rents, Security Agreement and
Fixture Filing dated September
26, 1996, made by Registrant
with respect to the American
Color Building.(2)
(k) First Amendment to Deed of Trust
dated December __, 1996, made by
Registrant with respect to the
American Color Building.(2)
(l) Deed of Trust, Assignment of
Rents, Security Agreement and
Fixture Filing dated September
26, 1996, made by Registrant
- ----------
(1) Incorporated by reference to Exhibits 10(y), (z), and (aa) to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994.
(2) Incorporated by reference to Exhibits 10(i), (j), (k), (l), (m), (n), (o),
(p), (q), (r), (t), (u), (v), (w) and (cc) to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996.
27
with respect to the Flatiron
Building.(2)
(m) First Amendment to Deed of Trust
dated December __, 1996, made by
Registrant with respect to the
Flatiron Building.(2)
(n) Mortgage, Assignment of Leases
and Rents and Security Agreement
dated September 26, 1996, made
by Registrant with respect to
the Tumi Building.(2)
(o) First Amendment to Mortgage
dated December __, 1996, made by
Registrant with respect to the
Tumi Building.(2)
(p) Mortgage, Assignment of Leases
and Rents, Security Agreement
and Fixture Filing dated
September 26, 1996, made by
Registrant with respect to the
Marathon Oil Building.(2)
(q) First Amendment to Mortgage
dated December __, 1996, made by
Registrant with respect to the
Marathon Oil Building.(2)
(r) Deed of Trust, Assignment of
Rents, Security Agreement and
Fixture Filing dated September
26, 1996, made by Registrant
with respect to the Directory
Building.(2)
(s) First Amendment to Deed of Trust
dated December __, 1996, made by
Registrant with respect to the
Directory Building.(2)
- ----------
(2) Incorporated by reference to Exhibits 10(i), (j), (k), (l), (m), (n), (o),
(p), (q), (r), (t), (u), (v), (w) and (cc) to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996.
28
(t) Second Amendment of Loan
Agreement dated March 17, 1997
among Fleet Bank, First American
Bank Texas SSB, and Registrant.(2)
(u) Third Amendment of Loan
Agreement and Second Amendment
of Note among Fleet Bank, First
American Bank Texas SSB, and
Registrant.(3)
(v) Splitter Agreement dated as of
August 9, 1999 between Fleet
Bank and Registrant.
(w) Demand Note dated August 9, 1999
made by Registrant.
(x) Assignment of Mortgages and Note
dated as of August 9, 1999 made
by Registrant with respect to
475 Fifth Avenue.
(y) Consolidated and Restated
Promissory Note dated August 9,
1999 made by 475 Fifth Avenue
Limited Partnership.
(z) Mortgage Consolidation,
Assignment of Rents, Security
Agreement and Fixture Filing
made as of August 9, 1999 by 475
Fifth Avenue Limited Partnership
to and for the benefit of Heller
Financial, Inc.
(3) Incorporated by reference to Exhibits 10(v), to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1998.
29
(aa) Letter Agreement dated August 9,
1999 made by Robert F. Gossett,
Jr. to and for the benefit of
Heller.
(bb) Manager's Agreement,
Subordination and Consent to
Assignment dated as of August 9,
1999 made by Registrant to and
for the benefit of Heller.
(cc) Hazardous Substance
Indemnification Agreement dated
as of August 9, 1999 made by 475
Fifth Avenue Limited Partnership
and Robert F. Gossett, Jr. to
and for the benefit of Heller.
27. Financial Data Schedule.
(b) Reports on Form 8-K: No reports on Form 8-K were filed
during the last quarter of the period covered by this
report.
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.
CORPORATE REALTY INCOME FUND I, L.P.
(Registrant)
By: 1345 REALTY CORPORATION
as Corporate General Partner
Dated: April 13, 2000 By: /s/ Robert F. Gossett, Jr.
--------------------------------
ROBERT F. GOSSETT, JR.,
President
Dated: April 13, 2000 By: /s/ Robert F. Gossett, Jr.
--------------------------------
ROBERT F. GOSSETT, JR.
Individual General Partner
30
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 (with respect to the Corporate General Partner)
and on the dates indicated.
1345 REALTY CORPORATION
Dated: April 13, 2000 By: /s/ Robert F. Gossett, Jr.
----------------------------------
Robert F. Gossett, Jr.
President, Director
Dated: April 13, 2000 By: /s/ Pauline G. Gossett
----------------------------------
Pauline G. Gossett
Secretary