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THIS DOCUMENT IS A COPY OF THE ANNUAL REPORT ON FORM 10-K FILED ON APRIL 1,
1997 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
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 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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.)
406 East 85th Street, NY, NY 10028
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 794-3292
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- ----------------
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Depositary Units of Limited Partnership Interest
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ____ No __X__
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, 1996
Table of Contents
Page
----
PART I............................. 1
Item 1. Business........................................................ 1
Item 2. Properties...................................................... 9
Item 3. Legal Proceedings............................................... 13
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 8. Financial Statements and Supplementary Data..................... 18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................. 18
PART III........................... 19
Item 10. Directors and Executive Officers of the
Registrant...................................................... 19
Item 11. Executive Compensation.......................................... 20
Item 12. Security Ownership of Certain Beneficial Owners
and Management.................................................. 21
Item 13. Certain Relationships and Related Transactions.................. 21
PART IV............................ 23
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K............................................. 23
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's business consists of owning and leasing to others the
properties described in Item 2 below. Starting in September 1996, Registrant
leveraged its properties and used the financing proceeds to acquire additional
commercial properties, 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, 1994, 1995 and 1996:
a. For 1994, The Austin Company ("Austin") as a tenant in the Austin Place
Building (19%); James River Corporation of Nevada, Inc. ("James River") as a
tenant in the James River Warehouse (20%); and Mesa Operating Limited
Partnership ("Mesa") as assignee of Tenneco Oil Company ("Tenneco"), the tenant
under the original lease for the Marathon Oil Building (24%). In addition, in
1994, Registrant received cash in the aggregate amount of $3,657,374 from the
redemption and sale of securities issued by National Gypsum Company ("Gypsum"),
a tenant in the Austin Place Building, pursuant to Gypsum's bankruptcy
reorganization plan. Registrant realized gain on Gypsum securities in the amount
of $930,750, which amount, if included in rental revenue, would have
approximated 11% of total rental revenue.
b. For 1995, GTE Directories Corporation ("GTE") as tenant for the
Directory Building (16%); Austin as a tenant in the Austin Place Building (16%);
James River as tenant in the James River Warehouse (16%); and Mesa, the tenant
under the original lease to Tenneco for the Marathon Oil Building (20%).
c. For 1996, GTE as tenant for the Directory Building (25%); Austin as a
tenant in the Austin Place Building (29%); and James River as tenant in the
James River Warehouse (16%).
In 1996, Registrant first extended and increased its secured, revolving
line of credit and then replaced such financing with a new first mortgage
line-of-credit loan, the proceeds of which were used to finance the purchase of
an office building in New York, New York. In February and March, 1997,
Registrant sold the James River Warehouse and used the proceeds from such sale
to purchase an office building in San Antonio, Texas.
In March 1996, Registrant obtained an extension of its secured credit line
from PNC Bank, N.A., to September 30, 1996, and a $2,000,000 increase in the
maximum principal amount of such credit facility (to $9,800,000). Registrant
paid a loan fee in the amount of $24,500 in connection with this transaction.
This loan bore interest at a variable rate equal to one-half percent (0.5%)
above the lender's prime rate and required monthly payments of interest only.
The PNC Bank loan was secured by a first mortgage lien on the GE Medical Systems
Office Building, the Directory Building, the Austin Place Building, and the
James River Warehouse and a negative pledge agreement (an agreement not to sell
or encumber without the lender's consent) with respect to the Flatiron Building
and the Marathon Oil Building.
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, from Metropolitan Life Insurance Company ("Met Life"), pursuant to the
terms of a Sale Agreement dated as of November 13, 1996. The property contains a
multi-tenant office building comprised of approximately 240,000 square feet and
is located on the southeast corner of 41st Street and Fifth Avenue in New York
City; Registrant owns fee title to 475 Fifth Avenue, subject to the lien of the
Fleet Bank loan, described below.
475 Fifth Avenue is a 24-story office building with approximately 20,000
square feet of retail space on the first floor, 210,400 square feet of office
space, and 4,400 square feet of basement space. As of March 6, 1997,
approximately 86% of the rentable square footage in the building was leased
(including approximately 86% of the office space, 85% of the retail space, and
54% of the basement space), at an average current base rent of approximately
$24.55 per square foot (approximately $22.37 per square foot of office space and
$50.86 per square foot of retail space). Following is a schedule of the
expirations of such leases.
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2
================================================================================
Avg. Current
Expiration Approximate Base Rent/
Year Square Feet % of Total Sq. Ft.
- --------------------------------------------------------------------------------
1997 25,075 10.7% $23.90
- --------------------------------------------------------------------------------
1998 55,750 23.7% $18.02
- --------------------------------------------------------------------------------
1999 7,740 3.3% $16.47
- --------------------------------------------------------------------------------
2000 7,375 3.1% $23.34
- --------------------------------------------------------------------------------
2001 21,300 9.1% $27.31
- --------------------------------------------------------------------------------
2003 1,780 0.8% $32.00
- --------------------------------------------------------------------------------
2004 40,925 17.4% $27.66
- --------------------------------------------------------------------------------
2005 24,470 10.4% $34.71
- --------------------------------------------------------------------------------
2006 14,825 6.3% $24.95
- --------------------------------------------------------------------------------
2007 2,085 0.9% $23.00
- --------------------------------------------------------------------------------
================================================================================
Registrant intends to seek increases in rental income from 475 Fifth Avenue
by leasing vacant space, attempting to convert some office space to additional
retail space, and upgrading the building's facilities and appearance. Over the
next five years, Registrant expects to refurbish the lobby, upgrade the heating
and electrical systems, replace the windows, and repair the roof and exterior
facade. The cost of such improvements and necessary tenant improvements is
expected to aggregate approximately $2,000,000 over such five-year period.
Registrant expects to initially fund such improvements from working capital and
loan drawdowns, and eventually from anticipated increased rental income from the
building.
475 Fifth Avenue is situated in the Grand Central district of the New York
City midtown market. Such district includes 84 buildings with approximately
49,800,000 aggregate rentable square feet, of which approximately 13.6% is
currently vacant. Asking rents in this district average approximately $35.50 per
square foot. The entire midtown market includes 261 buildings with approximately
165,800,000 aggregate rentable square feet, an approximate 11.9% vacancy rate,
and average asking rents of approximately $37.40 per square foot. Registrant
expects asking rents of approximately $27.75 (including electric charges) per
square foot for 475 Fifth Avenue.
The purchase price paid by Registrant for 475 Fifth Avenue, including
capitalized closing and related costs, was $27,439,998. The purchase price was
paid as follows: (i) the sum of $3,000,000.00 was paid as a downpayment prior to
closing; (ii) the
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3
amount of $77,025.00 was credited to the purchase price in consideration of
Registrant indemnifying Met Life against a pending action in New York Supreme
Court; and (iii) the balance of $24,362,973.00 was paid at closing. The purchase
price was financed from proceeds of a first mortgage loan from Fleet Bank,
National Association, as described below.
The $27,439,998 purchase price for 475 Fifth Avenue has been allocated
$5,488,000 to the land and $21,951,998 to the building and improvements.
Fleet Bank Loan
On September 26, 1996, Registrant obtained a first mortgage line-of-credit
loan (the "Loan") from Fleet Bank, National Association (the "Bank") in the
initial maximum amount of $24,000,000. On such date, Registrant borrowed
$11,200,000 under the Loan and simultaneously satisfied in full the existing
$9,800,000 secured, revolving line-of-credit loan made by PNC Bank, N.A. The
balance of proceeds borrowed by Registrant on such date were used to fund the
Bank's front-end fee, a broker's commission, and other closing costs and to
provide approximately $500,000 in working capital.
On November 13, 1996, Registrant borrowed an additional $3,000,000 under
the Loan to fund the downpayment made to Met Life upon execution of the Sale
Agreement for the purchase of 475 Fifth Avenue. On December 6, 1996, the terms
of the Loan were amended, including an increase in the maximum loan facility to
$44,000,000, and the amount borrowed was increased to $40,000,000 to fund
Registrant's purchase of 475 Fifth Avenue and to pay additional front-end fees,
broker's commission, and closing costs. On March 17, 1997, the terms of the Loan
were further amended to add the Alamo Towers in San Antonio, Texas as a project
securing the Loan (see "Alamo Towers" below in this Item 1). As of March 26,
1997, the outstanding principal balance of the Loan was $39,715,200.
The Loan is evidenced by a Secured Promissory Note, a Loan Agreement, an
Environmental Compliance and Indemnification Agreement, a First Amendment of
Loan Agreement and Note, and a Second Amendment of Loan Agreement (collectively,
the "Loan Agreements"). The 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, including the improvements, equipment, furnishings,
proceeds, books and records, and all payments related thereto, which consists of
the following seven properties: the GE Medical Systems Office Building; the
Directory Building; the Austin Place Building; the Flatiron Building; the
Marathon Oil Building; 475 Fifth Avenue; and the Alamo Towers.
The Loan matures on September 24, 2000 and the Bank is not required to fund
any advances after September 30, 1999. The 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,
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4
which amounts have aggregated $660,000 to date. In addition, commencing March
26, 1997 and thereafter 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 Loan for such
period.
The Loan bears interest on each advance of funds from the date of such
advance at the Bank'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 the Bank (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 the Bank 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 the Bank, but only
in amounts of at least $1,000,000 and in additional integral multiples of
$100,000. As of March 26, 1997, the Peg Rate was 8.5% (interest using this rate
would be at 9.0%) and the 180-day Fixed Rate was 5.9% (interest using this rate
would be at 7.9%). The aggregate outstanding balance of the Loan as of March 26,
1997 bears interest at rates ranging from 7.4375% (on $28,627,200) to 8.0% (on
$10,950,000) to 9.0% (on $138,000), all but the last of which reflect
Registrant's election to base interest on LIBOR rates.
The Loan requires monthly payments of interest plus principal payments
equal to 1/500th of the then outstanding principal balance. The 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 the Bank 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. Amounts
repaid to the Bank may be reborrowed by Registrant provided, however, that
amounts repaid in monthly amortization payments and amounts repaid on account of
475 Fifth Avenue may not be reborrowed.
Any payments not received by the Bank 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 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 cash from
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5
operations to a constant loan amortization 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 Loan to the appraised value of its 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
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. Registrant must also obtain the Bank'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 475 Fifth Avenue and Alamo Towers).
The Bank's mortgage lien against any of Registrant's 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 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), the Bank may enforce one or more of its remedies, including the right to
(i) declare all principal and interest on the Loan to be due and payable
immediately, (ii) require any or all of Registrant's 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 the Bank 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 properties.
James River Warehouse
On February 28, 1997, Registrant sold the land, buildings, and other
improvements commonly known as the James River Warehouse, and situated in
Woodland, California, to Pacific Gulf Properties, Inc., pursuant to the terms of
a Purchase and Sale Agreement dated as of February 5, 1997, as amended on
February 21, 1997. The James River Warehouse contains approximately 570,000 net
rentable square feet, is used for general warehousing, distribution, and office
purposes, and is net leased to James River Corporation of Nevada, Inc.
The sale price for the James River Warehouse was $12,875,000, exclusive of
closing costs and commissions aggregating approximately $225,313 which were paid
by Registrant. The purchase price was paid as follows: (i) the sum of
$300,000.00 was paid as
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6
an earnest money deposit prior to closing; (ii) the amount of $131,998.00 was
credited to the purchase price on account of deferred maintenance required for
the property; and (iii) the balance of $12,443,002.00 was paid at closing.
Registrant acquired the James River Warehouse in October 1987 for a
purchase price of approximately $14,551,456, inclusive of acquisition fees. At
the time of its sale, Registrant had a tax basis of approximately $11,500,000 in
this property and resulting gain for tax purposes of approxmately $1,000,000.
The net proceeds of the sale of the James River Warehouse have been reinvested
in the Alamo Towers property described below.
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, from St. Paul Properties, Inc. pursuant to the terms of a Purchase and
Sale Agreement dated as of January 28, 1997 and amended on February 19, 1997.
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 Loan.
The Alamo Towers is a 9-story office building with approximately 195,000
square feet of office space and 900 square feet of basement space. As of
February 18, 1997, approximately 75% of the rentable square footage in the Alamo
Towers was leased, at an average current base rent of approximately $11.93 per
square foot. Additional space aggregating approximately 9% of the rentable
square footage was used by the prior owner as non-rented offices for its own
use, which space will be largely available to Registrant for leasing. Following
is a schedule of the expirations of such leases.
================================================================================
Avg. Current
Expiration Approximate Base Rent/
Year Square Feet % of Total Sq. Ft.
- --------------------------------------------------------------------------------
1997 28,632 14.6% $10.45
- --------------------------------------------------------------------------------
1998 11,824 6.0% $11.40
- --------------------------------------------------------------------------------
1999 41,860 21.4% $12.35
- --------------------------------------------------------------------------------
2000 29,167 14.9% $13.10
- --------------------------------------------------------------------------------
2001 29,045 14.8% $11.90
- --------------------------------------------------------------------------------
2004 6,889 3.5% $11.50
- --------------------------------------------------------------------------------
================================================================================
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7
Registrant does not expect the property to require significant expenditures
for capital improvements over the next five years.
The San Antonio office market includes approximately 18,300,000 aggregate
rentable square feet, of which approximately 12% is currently vacant. Asking
rents in this market range from approximately $12-$15 per square foot. The
north-central San Antonio market includes approximately 3,450,000 aggregate
rentable square feet, of which approximately 10% is vacant and for which asking
rents range from approxmately $13 to $15 per square foot.
The purchase price paid by Registrant for the Alamo Towers, including
capitalized closing and related costs, was $12,002,375. The purchase price was
paid as follows: (i) the sum of $200,000.00 was paid as a deposit prior to
closing; and (ii) the balance of $11,802,375.00 was paid at closing. The
purchase price was financed from proceeds of the sale of the James River
Warehouse, as described above.
The $12,002,375 purchase price for the Alamo Towers has been allocated
$2,840,000 to the land and $9,162,375 to the building and improvements.
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 March
17, 1997, Registrant had a loan to value ratio of approximately 47% to 52%.
The Loan has enabled Registrant to acquire additional properties, but has
increased the risk of loss on its 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.
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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. The Austin Place Building and the
Flatiron Building are also currently fully leased. However, upon termination of
these and any other leases, 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 six persons, which number is expected to
increase to 14 within the next month as a result of the acquisition of the Alamo
Towers. 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.
GE Medical Systems Office Building
On July 10, 1986, Registrant acquired the GE Medical Systems Office
Building, located in Monterey Park, California, for approximately $4,182,000,
inclusive of acquisition fees. Registrant owns fee title to the GE Building and
its 90,000 square feet of underlying land, subject to the lien of the 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 60% is office
space and the remainder is warehouse space. General Electric Company ("GE")
leases 10,600 square feet in the building, on a net lease basis, until October
31, 2000. Annual net rent is $95,400 ($9.00 per square foot); GE also reimburses
Registrant for its proportionate share of operating expenses. In 1996,
Registrant reimbursed GE approximately $125,000 for tenant improvements
necessitated by GE's decision to vacate the other 9,650 square feet in the
building. Registrant is seeking a tenant for the vacant portion (47.7%) of the
property. 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 rent for office
space.
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Market conditions in the Monterey Park area have improved recently but
still have declined from those prevailing at the time GE executed its initial
lease for the building. The vacancy rate for commercial properties in such area
approximates 17% to 18% for office buildings and 6% to 7% for industrial space.
The GE Building is situated next to a 200,000 square foot Public Storage
facility which, like the GE Building, consists of a front office with warehouse
space in the rear. Such facility is currently 92% occupied; rents approximate
$8.50 per square foot. Rents for mixed office/warehouse space in this area
generally approximate $7.50 to $8.25 per square foot. Registrant can expect to
fund tenant improvements and leasing commissions in connection with leasing any
vacant space in the GE Building. Such expenditures are expected to be funded out
of working capital or, if necessary, out of loan proceeds. See Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
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 $24,580,375, 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 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.
The amended lease requires approximate monthly rent of $167,500 through
August 31, 1997; and $173,800 from September 1, 1997 through September 30, 2000.
GTE must also pay additional rent equal to excess electric charges and operating
expenses over base levels.
In connection with the GTE lease, Registrant has expended approximately
$2,628,000 for tenant improvements.
The Las Colinas office market includes approximately 11,860,000 leasable
square feet, of which approximately 95% was leased as of December 31, 1996.
Weighted average rental rates for such properties approximate $19.50 per square
foot.
Austin Place Building
On December 30, 1986, Registrant acquired the Austin Place 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
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Austin Place Building and its underlying five acres of land, subject to the lien
of the Loan. The property was built in 1986 and contains approximately 105,000
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 15, 1997, the property is fully leased, with 45,700 square feet
leased to Austin (as discussed below) and the remainder at an average current
rent of approximately $17.20 per square foot. Such other leases expire on June
30, 1997 (approximately 4,100 square feet), February 1998 (approximately 17,300
square feet), December 2000 (approximately 17,900 square feet), and May 31, 2007
(approximately 21,650 square feet). South Plainfield is included in the Route
287 submarket (approximately 6,900,000 square feet of which 17% is vacant), the
Somerset County area (approximately 10,260,000 square feet, of which 15% is
vacant), and the Central New Jersey Profit Center (approximately 45,840,000
square feet, of which 15% is vacant). Average rents for office space in such
area approximate $17.50 to $18.45 per square foot. Registrant has expended
approximately $2,205,000, including approximately $10,000 in 1996, for tenant
improvements on the space originally leased to Gypsum.
Austin's lease is for 45,700 square feet and expires on December 31, 2001.
It requires monthly rent payments of $92,009, adjusted to reflect consumer price
index changes. Austin's lease also requires it to pay Registrant an amount equal
to the operating costs of its allocable share of the property. Austin has
vacated its space but has continued to make its lease payments in full. Austin
has approached Registrant to discuss terminating its lease; because Austin's
lease requires rent payments at a rate which is approximately 75% above
prevailing rates, Registrant would require a substantial payment from Austin to
terminate such lease. Any such payment would be used to fund tenant improvements
and offset lower rents from any replacement leases.
The James River Warehouse (formerly, the Crown Zellerbach Warehouse)
On February 28, 1997, Registrant sold the James River Warehouse (formerly,
the Crown Zellerbach Warehouse). See Item 1 - "Business-James River Warehouse."
Flatiron Building (formerly, the Cadnetix Building)
On January 5, 1988, Registrant acquired the Flatiron Building, located in
Flatiron Industrial Park, Boulder, Colorado, for $9,003,085, 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 Loan. The property contains
approximately 96,070 net rentable square feet for use as a multi-tenant facility
(reduced from 102,000 square feet as a single tenant facility).
c:\crif\10-K.97
11
As of March 15, 1997, Registrant has rented all available space in the
building to various tenants pursuant to leases providing for an average current
rent of approximately $9.05 per square foot (exclusive of expenses). Such leases
expire in 1997 (approximately 3,370 square feet), in 1998 (approximately 81,880
square feet), and in 2001 (approximately 10,820 square feet). Market conditions
in the Boulder area remain favorable for owners of commercial buildings. The
market for the Boulder area contains approximately 6.5 million square feet of
commercial space of which approximately 5% is vacant. Average rents for office
space in such area range from approximately $8.50 to $12.00 per square foot,
exclusive of expenses. Registrant has expended approximately $455,000, none of
which was in 1996, 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 $10,736,200, 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 Loan. The property contains 90,925 net rentable
square feet on two floors, plus a 10,016 square foot basement.
Marathon and its affiliate, Delhi Gas Pipeline Corporation ("Delhi"), lease
62,625 square feet (including 4,344 in the basement) and 24,704 square feet
(including 567 in the basement), respectively, in the building. Marathon's lease
expires in 2001, subject to two five-year renewal options; Delhi's lease expires
in 1998, with an option to extend for three additional years.
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 Delhi must
also pay additional rent equal to their proportionate share of any increases in
operating costs of the building after 1996. Registrant funded tenant
improvements of approximately $350,000 for Marathon and Delhi in 1996.
Registrant leased approximately an additional 5,600 square feet in the
building in January 1997 for a five-year term at a rent of $11.00 per square
foot. The remaining space (approximately 3.2% of the office space, plus
approximately 51% of the basement) is vacant and Registrant is seeking a tenant
for such space.
Market conditions in the northwest section of Oklahoma City have recently
improved, although they have declined from those prevailing at the time Tenneco
executed its lease for the building. Such market contains approximately 4.8
million square feet of commercial space of which approximately 8% is vacant.
Average rents for commercial space range from $9.00 to $17.00 per square foot.
Registrant has incurred tenant improvements of approximately $71,000 in 1997 and
can expect to fund tenant improvements and leasing commissions in connection
with leasing any remaining vacant
c:\crif\10-K.97
12
space in the Marathon Oil Building. Such expenditures are expected to be funded
out of working capital or, if necessary, out of loan proceeds. See Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
475 Fifth Avenue
On December 6, 1996, Registrant acquired 475 Fifth Avenue in New York, New
York. See Item 1 - "Business - 475 Fifth Avenue."
Alamo Towers
On March 17, 1997, Registrant acquired the Alamo Towers in San Antonio,
Texas. See Item 1 - "Business-Alamo Towers."
Item 3. Legal Proceedings.
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.
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.
c:\crif\10-K.97
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.
The General Partners have adopted a Unit Repurchase Plan, pursuant to which
Registrant may, in its discretion, purchase outstanding Units. Any such
purchases are made at prices no higher than the lowest current independent offer
quotation. During 1996, Registrant repurchased 84,778 Units at a price of $10.75
per Unit.
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.
c:\crif\10-K.97
14
As of March 25, 1997, there were 3,068 Unitholders of record.
The following represents per Unit cash distributions to investors for the
fiscal years ended December 31, 1996 and 1995.
Distribution
Quarter Ended Per Unit Payment Date
- ------------- -------- ------------
December 31, 1996 $ 0.30 February 1997
September 30, 1996 $ 0.30 November 1996
June 30, 1996 $ 0.30 August 1996
March 31, 1996 $ 0.30 May 1996
December 31, 1995 $ 0.30 February 1996
September 30, 1995 $ 0.30 November 1995
June 30, 1995 $ 0.30 August 1995
March 31, 1995 $ 0.30 May 1995
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 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,
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
Operating
Revenues $ 9,142,369 $ 9,827,431 $ 8,957,620 $ 11,205,823 $ 9,989,266
Net Income $ 677,914 $ 2,008,688 $ 2,450,563 $ 5,060,250 $ 3,655,955
Net Income
per Unit (1) $ 0.22 $ 0.62 $ 0.76 $ 1.57 $ 1.13
Total Assets $102,983,279 $ 74,460,139 $ 76,388,992 $ 76,891,703 $ 76,939,783
Long-Term
Obligations $ 39,955,200 $ 7,800,000 $ 7,800,000 $ 7,800,000 $ 7,800,000
Distributions
per Unit
(1)(2) $ 1.20 $ 1.20 $ 1.00 $ 1.40 $ 1.90
- ---------
c:\crif\10-K.97
15
(1) Per Unit numbers are based on 3,200,000 Units for all years except 1996 and
1995, which use a weighted average number of Units of 3,087,170 and
3,184,222, 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, 1996, Registrant had cash and receivables of approximately
$2,565,000 and a liquid net worth (excess of current assets over current
liabilities) of approximately $535,000. Registrant expects sufficient cash flow
to continue to be generated from operations to meet its current operating and
debt service requirements on a short-term and long-term basis. The Loan also
provides a source of additional capital should Registrant's working capital and
cash flow prove inadequate.
The expiration of the GE Medical Systems Office Building lease in October
1995 and the Marathon Oil Building lease in February 1996 placed additional
demands on Registrant's capital resources and liquidity. Registrant was obliged
to fund tenant improvements and leasing commissions to re-lease such buildings.
Registrant expended approximately $489,000 on tenant improvements during 1996
for such buildings. Registrant's acquisition of 475 Fifth Avenue and the Alamo
Towers provide the opportunity to increase rental revenues but at the cost of
tenant improvements and leasing commissions for new tenants. In addition,
Registrant expects to make significant capital improvements to 475 Fifth Avenue
over the next five years. See "Item 1. Business - 475 Fifth Avenue."
To date, Registrant has funded its capital requirements from the 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 1996 was $0.30 per Unit. Registrant intends to maintain this level
of distributions through 1997 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 Loan has 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. Upon maturity of the Loan in 2000,
Registrant anticipates satisfying the 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
c:\crif\10-K.97
16
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 Loan Agreements to 90% of cash
from operations plus depreciation and amortization.
Results of Operations
1996 versus 1995
Rental revenues in 1996 decreased slightly from 1995 primarily as a result
of the expiration of Tenneco's original lease for the Marathon Oil Building in
February 1996 and the subsequent leasing of less than all of such space to
Marathon and Delhi at lower rents. Other income dropped significantly from 1995
to 1996, reflecting the receipt in 1995 of $227,000 of other income attributable
to Gypsum (a former tenant of the Austin Place Building) and Registrant's
receipt in 1995 of a large real estate tax refund attributable to the Austin
Place Building.
Interest expense in 1996 increased from 1995, primarily because of the
replacement of the PNC Bank loan with the greater amount of the Fleet Bank loan.
Depreciation increased because of additional tenant improvements made by
Registrant and the purchase in December 1996 of 475 Fifth Avenue. Amortization
increased in 1996 primarily due to financing costs incurred in connection with
the Fleet Bank loan. The acquisition of 475 Fifth Avenue in December 1996 is
largely responsible for the increase in property operation expenses.
Professional fees decreased in 1996 in comparison to the increased level of due
diligence investigations of possible property acquisitions in 1995. General and
administrative expenses increased in 1996 primarily due to significant due
diligence expenses incurred by Registrant in 1996 in investigating possible
property acquisitions which were not ultimately consummated.
Net income was $677,914 in 1996 as compared to $2,008,688 in 1995. After
adjusting for non-cash items (principally deferred revenue, depreciation, and
amortization), operations generated cash flows of approximately $3,620,000 in
1996 and $4,160,000 in 1995.
1995 versus 1994
Rental revenues in 1995 increased from 1994 primarily as a result of GTE's
full occupancy of the Directory Building in 1995 as contrasted to the vacancy
and partial occupancy of such building in 1994. Such increase in rental revenues
was partially offset by the recognition in 1994 of approximately $958,000 in
gain from Gypsum securities as compared to the receipt in 1995 of approximately
$227,000 of other income attributable to Gypsum.
Interest expense in 1995 increased over 1994, reflecting higher rates of
interest under the Loan. Depreciation increased because of additional tenant
improvements made by Registrant. Property operating expenses increased from 1994
to 1995 primarily
c:\crif\10-K.97
17
because the Directory Building was not fully utilized in 1994. Management fees
increased in 1995, reflecting the increase in adjusted cash from operations and
the fees attributable to replacement leases. Professional fees increased in 1995
primarily as a result of due diligence investigations of possible property
acquisitions following Unitholder approval of Registrant's plan to acquire
additional properties. General and administrative expenses increased in 1995,
primarily reflecting inclusion of Registrant's employees for a full year in
1995.
Net income was $2,008,688 in 1995 as compared to $2,450,563 in 1994. After
adjusting for non-cash items (principally deferred revenue, depreciation, and
amortization), operations generated cash flows of approximately $4,160,000 in
1995 and $2,202,000 in 1994.
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 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.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
c:\crif\10-K.97
18
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. 53 President, Treasurer
and Director 1994
Pauline G. Gossett 53 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
---- --- -------- -----
Howard F. Husum 47 Executive Director 1994
Madeline Matlak 31 Fund Administrator 1994
c:\crif\10-K.97
19
Howard F. Husum is the Executive Director of the Registrant. Mr. Husum
formerly practiced law in New York City and acted as General Counsel to Shaheen
Natural Resources Company, Inc., an independent international oil company (1981
through 1987), and as General Counsel and Vice President of Aeronautics and
Astronautics Services, Inc., an international aircraft leasing company (1990
through 1993). Mr. Husum was in private practice as an attorney from 1987 to
1990. He graduated cum laude from Harvard College and earned a law degree from
The University of Chicago Law School. He is a member of the New York Bar.
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 received by it during
1996, and written representations from reporting persons that no Forms 5 were
required for such persons for 1996, 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 1996 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.
Summary Compensation Table
Share of
Adjusted Cash Management Leasing Expense
Name Year from Operations Fees Commissions Reimbursement
- ---- ---- --------------- ---- ----------- -------------
Corporate General
Partner 1996 $ 30,071 $452,415 $ 88,467 $132,829
Individual General
Partner 1996 $ 7,518 $113,104 $ 22,117 $ 33,207
Corporate General
Partner 1995 $ 31,006 $445,625 $194,490 $106,714
Individual General
Partner 1995 $ 7,752 $111,406 $ 48,623 $ 26,679
Corporate General
Partner 1994 $ 25,859 $253,670 $613,355 $ 58,540
Individual General
Partner 1994 $ 6,465 $ 63,417 $153,339 $ 7,509
See Item 13 - "Certain Relationships and Related Transactions" for a
discussion of the above compensation.
c:\crif\10-K.97
20
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of March 15, 1997 no person was known by Registrant to be the beneficial
owner of more than five percent (5%) of the outstanding Units of Registrant.
As of March 15, 1997, neither the Individual General Partner nor the
Corporate General Partner nor any of its directors or officers owned any Units
of Registrant.
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 $37,589 ($30,071 to the Corporate General
Partner and $7,518 to the Individual General Partner) as their allocable share
(1%) of adjusted cash from operations with respect to the year ended December
31, 1996. For the year ended December 31, 1996, $6,779 (1%) of Registrant's net
income was allocated to the General Partners ($5,423 to the Corporate General
Partner and $1,356 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 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, 1996, the General Partners earned and were paid an aggregate
of $565,519 of such management fees ($452,415 to the Corporate General Partner
and $113,104 to the Individual General Partner). At December 31, 1996, all of
such fees had 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
c:\crif\10-K.97
21
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, 1996, the General Partners were paid an
aggregate of $110,584 ($88,467 to the Corporate General Partner and $22,117 to
the Individual General Partner).
During the year ended December 31, 1996, the General Partners were also
entitled to reimbursement for expenses incurred in connection with Registrant's
operations aggregating $166,036 ($132,829 to the Corporate General Partner and
$33,207 to the Individual General Partner).
c:\crif\10-K.97
22
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) Lease for Los Angeles District Sales and Service Office,
Monterey Park, California, dated as of December 15, 1984
between James E. Pohrer & Associates and General Electric
Company, incorporated by reference to Exhibit 10(e) to Form 8,
Amendment No. 1 to Registrant's Current Report on Form 8-K
Dated July 10, 1986.
c:\crif\10-K.97
23
Sequential
Page
Number
------
(c) Lease Amendment dated October 31, 1989 by and between
Registrant and General Electric Company, incorporated by
reference to Exhibit 10(c) to Registrant's Report on Form 10-K
for the year ended December 31, 1989.
(d) Lease dated as of December 30, 1986 by and between Registrant
and Austin, incorporated by reference to Exhibit 10(b) to
Registrant's Current Report on Form 8-K Dated December 30,
1986.
(e) 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.
(f) Lease dated as of April 20, 1994 between Registrant and GTE.(1)
(g) Amendment No. 1 to Lease dated as of July 29, 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.
c:\crif\10-K.97
24
Sequential
Page
Number
------
(h) Amendment No. 2 to Lease dated as of February 22, 1995 between
Registrant and GTE.(1)
(i) Secured Promissory Note dated September 26, 1996, made by
Registrant.
(j) Loan Agreement dated as of September 26, 1996 between
Registrant and Fleet Bank, N.A.
(k) Environmental Compliance and Indemnification Agreement dated
__________, 1996, made by Registrant.
(l) First Amendment of Loan Agreement and Note dated December __,
1996 between Registrant and Fleet Bank, N.A.
(m) Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Filing dated September 26, 1996, made by Registrant
with respect to the GE Medical Systems Office Building.
(n) First Amendment to Deed of Trust dated December __, 1996, made
by Registrant with respect to the GE Medical Systems Office
Building.
(o) Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Filing dated September 26, 1996,
c:\crif\10-K.97
25
Sequential
Page
Number
------
made by Registrant with respect to the Flatiron Building.
(p) First Amendment to Deed of Trust dated December __, 1996, made
by Registrant with respect to the Flatiron Building.
(q) Mortgage, Assignment of Leases and Rents and Security
Agreement dated September 26, 1996, made by Registrant with
respect to the Austin Place Building.
(r) First Amendment to Mortgage dated December __, 1996, made by
Registrant with respect to the Austin Place Building.
(s) Mortgage, Assignment of Leases and Rents and Security
Agreement dated December __, 1996, made by Registrant with
respect to 475 Fifth Avenue.
(t) 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.
(u) First Amendment to Mortgage dated December __, 1996, made by
Registrant with respect to the Marathon Oil Building.
c:\crif\10-K.97
26
Sequential
Page
Number
------
(v) Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Filing dated September 26, 1996, made by Registrant
with respect to the Directory Building.
(w) First Amendment to Deed of Trust dated December __, 1996, made
by Registrant with respect to the Directory Building.
(x) Sale Agreement dated as of November 13, 1996 between
Metropolitan Life Insurance Company and Registrant with
respect to 475 Fifth Avenue, including as Exhibits:
(i) Bargain and Sale Deed;
(ii) Form of Assignment of Leases;
(iii) Form of Assignment of Contracts.
(y) Purchase and Sale Agreement dated as of February 5, 1997
between Registrant and Pacific Gulf Properties Inc. with
respect to the James River Warehouse, including as Exhibits:
(i) Assignment and Assumption Agreement;
(ii) Form of Deed.
(z) First Amendment to Purchase and Sale Agreement dated February
21, 1997 with respect to the James River Warehouse.
c:\crif\10-K.97
27
Sequential
Page
Number
------
(aa) Purchase and Sale Agreement dated as of January 28, 1997
between St. Paul Properties, Inc. and Registrant with respect
to the Alamo Towers, including as Exhibits:
(i) Bill of Sale;
(ii) Assignment and Assumption Agreement;
(iii) Form of Deed.
(bb) First Amendment to Purchase and Sale Agreement dated February
19, 1997 with respect to the Alamo Towers.
(cc) Second Amendment of Loan Agreement dated March 17, 1997 among
Fleet Bank, First American Bank Texas SSB, and Registrant.
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.
c:\crif\10-K.97
28
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: March 27, 1997 By: /s/ Robert F. Gossett, Jr.
--------------------------
ROBERT F. GOSSETT, JR.,
President
Dated: March 27, 1997 By: /s/ ROBERT F. GOSSETT, JR.
--------------------------
ROBERT F. GOSSETT, JR.
Individual General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities (with respect to the Corporate General Partner)
and on the dates indicated.
1345 REALTY CORPORATION
Dated: March 27, 1997 By: /s/ ROBERT F. GOSSETT, JR.
--------------------------
Robert F. Gossett, Jr.
President, Director
Dated: March 27, 1997 By: /s/ PAULINE G. GOSSETT
----------------------
Pauline G. Gossett
Secretary
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14 (a) (1) and (2) AND ITEM 14 (d)
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS
DECEMBER 31, 1996
CORPORATE REALTY INCOME FUND I, L.P.
F-1
Form 10-K -- Item 14 (a) (1) and (2)
CORPORATE REALTY INCOME FUND I, L.P.
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following financial statements of Corporate Realty Income Fund I, L.P. are
included in Item 8:
Page
----
Independent Auditors' Report F-3
Financial Statements:
Balance Sheets at December 31, 1996 and 1995 F-4
Statements of Income for the years ended
December 31, 1996, 1995 and 1994 F-5
Statements of Changes in Partners' Capital
for the years ended December 31, 1996, 1995 and 1994 F-6
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 F-7
Notes to Financial Statements F-8
Schedule III - Real Estate and Accumulated Depreciation F-15
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 financial statements and notes
thereto; (2) the schedules are not required under the related instructions; or
(3) the schedules are inapplicable.
F-2
Independent Auditors' Report
The Partners
Corporate Realty Income Fund I, L.P.:
We have audited the financial statements of Corporate Realty Income Fund I, L.P.
( a Delaware limited partnership) as listed in the accompanying index. In
connection with our audits of the financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. 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 generally accepted auditing
standards. 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 financial position of Corporate Realty Income Fund I,
L.P. as of December 31, 1996 and 1995 and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1996, in conformity with generally accepted accounting principles. 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.
KPMG Peat Marwick LLP
New York, New York
February 5, 1997
F-3
CORPORATE REALTY INCOME FUND I, L.P.
(A Delaware limited partnership)
BALANCE SHEETS
December 31, 1996 and 1995
1996 1995
------------- -------------
ASSETS
Real estate, at cost:
Land $ 19,086,425 13,598,425
Buildings and improvements 93,885,121 71,444,155
------------- -------------
112,971,546 85,042,580
Less accumulated depreciation 18,553,069 15,974,431
------------- -------------
94,418,477 69,068,149
Cash and short-term investments at cost,
which approximates market value 2,025,925 397,432
Accounts receivable 431,889 437,191
Due from general partners 99,797 44,788
Note receivable 10,312 17,694
Step rent receivables 2,945,163 2,784,802
Deferred financing costs, net of accumulated amortization
of $180,636 in 1996 and $21,937 in 1995 1,395,740 7,313
Deposits 71,742 33,142
Lease commissions, net of accumulated amortization
of $1,400,260 in 1996 and $1,007,199 in 1995 1,545,245 1,628,004
Other assets 38,989 41,624
------------- -------------
Total assets $ 102,983,279 74,460,139
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses 1,198,537 1,457,029
Mortgage loan payable 39,955,200 7,800,000
Other liabilities 943,966 325,161
------------- -------------
Total liabilities 42,097,703 9,582,190
------------- -------------
Partners' capital:
General partners:
Capital contributions 1,000 1,000
Net income 380,135 373,356
Cash distributions (494,170) (456,581)
------------- -------------
(113,035) (82,225)
------------- -------------
Limited partners: ($25 per unit; 4,000,000 units
authorized, 3,043,106 and 3,127,884 issued and
outstanding in 1996 and 1995, respectively)
Capital contributions, net of offering costs 72,365,286 73,276,650
Net income 37,633,250 36,962,115
Cash distributions (48,999,925) (45,278,591)
------------- -------------
60,998,611 64,960,174
------------- -------------
Total partners' capital 60,885,576 64,877,949
------------- -------------
Total liabilities and partners' capital $ 102,983,279 74,460,139
============= =============
See accompanying notes to financial statements.
F-4
CORPORATE REALTY INCOME FUND I, L.P.
(a Delaware limited partnership)
STATEMENTS OF INCOME
For the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---------- ---------- ----------
Revenue:
Rental $9,101,611 9,127,768 7,917,328
Interest and other income 40,758 699,663 1,040,292
---------- ---------- ----------
9,142,369 9,827,431 8,957,620
---------- ---------- ----------
Expenses:
Interest 965,540 733,005 604,618
Depreciation 2,578,638 2,448,270 2,079,717
Amortization 551,760 381,533 472,776
Property operations 3,097,440 2,831,459 2,667,193
Management fees 565,519 557,031 317,087
Professional fees 207,379 543,573 155,703
General and administrative 498,179 323,872 209,963
---------- ---------- ----------
8,464,455 7,818,743 6,507,057
---------- ---------- ----------
Net income $ 677,914 2,008,688 2,450,563
========== ========== ==========
Net income allocated:
To the general partners 6,779 20,087 24,506
To the limited partners 671,135 1,988,601 2,426,057
---------- ---------- ----------
$ 677,914 2,008,688 2,450,563
========== ========== ==========
Net income per unit of
limited partnership interest $ 0.22 0.62 0.76
========== ========== ==========
See accompanying notes to financial statements.
F-5
CORPORATE REALTY INCOME FUND I, L.P.
(A Delaware limited partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the years ended December 31, 1996, 1995 and 1994
General Limited
Total Partners Partners
------------ ------------ ------------
Partners' capital at
December 31, 1993 $ 67,978,783 (58,971) 68,037,754
Cash distributions to partners (2,909,090) (29,091) (2,879,999)
Net income 2,450,563 24,506 2,426,057
------------ ------------ ------------
Partners' capital at
December 31, 1994 67,520,256 (63,556) 67,583,812
Redemptions of units (775,247) -- (775,247)
Cash distributions to partners (3,875,748) (38,756) (3,836,992)
Net income 2,008,688 20,087 1,988,601
------------ ------------ ------------
Partners' capital at
December 31, 1995 64,877,949 (82,225) 64,960,174
Redemption of units (911,364) -- (911,364)
Cash distributions to partners (3,758,923) (37,589) (3,721,334)
Net income 677,914 6,779 671,135
------------ ------------ ------------
Partners' capital at
December 31, 1996 $ 60,885,576 (113,035) 60,998,611
============ ============ ============
See accompanying notes to financial statements.
F-6
CORPORATE REALTY INCOME FUND I, L.P.
(A Delaware limited partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
------------ ------------ ------------
Cash flows from operating activities:
Net income $ 677,914 2,008,688 2,450,563
------------ ------------ ------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 3,130,398 2,829,803 2,552,493
Gain on sale of marketable securities -- (27,682) (930,750)
Unrealized gain on marketable securities -- -- (26,925)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 5,302 (391,910) 181,875
Increase in due from general partners (55,009) (116,673) (16,284)
Decrease in note receivable 7,382 7,093 6,818
Increase in step rent receivables (160,361) (543,871) (476,909)
Increase in deposits (38,600) -- (207)
Increase in lease commissions (310,302) (403,296) (1,500,030)
Decrease (increase) in other assets 2,635 12,139 (10,540)
Increase (decrease) in accounts payable
and accrued expenses (258,492) 757,925 (48,187)
Increase in other liabilities 618,805 27,414 20,287
------------ ------------ ------------
Total adjustments 2,941,758 2,150,942 (248,359)
------------ ------------ ------------
Net cash provided by
operating activities 3,619,672 4,159,630 2,202,204
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of marketable securities -- 128,579 3,657,374
Acquisition of real estate (27,928,966) (502,504) (2,461,326)
------------ ------------ ------------
Net cash provided by (used in)
investing activities (27,928,966) (373,925) 1,196,048
------------ ------------ ------------
Cash flows from financing activities:
Deferred loan costs (1,547,126) (29,250) (19,500)
Proceeds from loans payable 42,000,000 -- --
Repayments of loans payable (9,844,800) -- --
Redemption of units (911,364) (775,247) --
Cash distributions to partners (3,758,923) (3,875,748) (2,909,090)
------------ ------------ ------------
Net cash provided by (used in)
financing activities 25,937,787 (4,680,245) (2,928,590)
------------ ------------ ------------
Net increase (decrease) in cash
and short-term investments 1,628,493 (894,540) 469,662
Cash and short-term investments at beginning of year 397,432 1,291,972 822,310
------------ ------------ ------------
Cash and short-term investments at end of year $ 2,025,925 397,432 1,291,972
============ ============ ============
See accompanying notes to financial statements.
F-7
CORPORATE REALTY INCOME FUND I, L.P.
(A Delaware limited partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
1. ORGANIZATION
Corporate Realty Income Fund I, L.P. (the "Partnership") was formed as a
limited partnership on November 25, 1985 under the laws of the State of
Delaware. The Partnership was formed for the purpose of acquiring and owning
income-producing commercial and industrial real estate properties for lease to
others. The Partnership will terminate on December 31, 2010 or sooner, in
accordance with the Partnership Agreement.
The general partners of the Partnership 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 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 interests (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.
During 1996 and 1995, respectively, 84,778 and 72,116 units were redeemed
from limited partners and cancelled.
2. SIGNIFICANT ACCOUNTING POLICIES
The Partnership's records are maintained on the accrual basis of accounting
for financial reporting and tax reporting purposes.
Depreciation of buildings for financial reporting purposes is computed
under the straight-line method over an estimated economic useful life of forty
years. Depreciation of buildings for tax purposes is determined in accordance
with the Accelerated Cost Recovery System.
Acquisition fees in connection with investment properties acquired have
been capitalized as a cost of the property upon acquisition.
Deferred financing costs are being amortized using the straight-line method
over the term of the associated loan.
F-8
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
In accordance with the Statement of Financial Accounting Standards No.
13 (SFAS No. 13), "Accounting for Leases," the Partnership recognizes rental
income on a straight-line basis over the fixed term of the lease period. Step
rent receivables represent unbilled future rentals. The following reconciles
rental income received in cash to rental income recognized:
1996 1995 1994
---------- ---------- ----------
Rental income billed to tenants $8,941,250 8,583,897 7,440,419
Step rent receivables 160,361 543,871 476,909
---------- ---------- ----------
Rental income recognized $9,101,611 9,127,768 7,917,328
========== ========== ==========
Offering costs are nonamortizable and have been deducted from limited
partners' capital.
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. At
December 31, 1996, the net difference between the tax bases and the reported
amounts of assets and liabilities was $14,367,316.
The Partnership Agreement 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.
The amount of net income per limited partnership unit was calculated using
the weighted average number of units outstanding of 3,087,170, 3,184,222 and
3,200,000 in 1996, 1995 and 1994, respectively.
Short-term investments, which consist principally of money market funds,
are carried at cost which approximates market value. For purposes of the
statements of cash flows, the Partnership considers short-term investments to be
cash equivalents.
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 in a current transaction between willing parties.
The Partnership's cash and short-term investments, accounts receivable and notes
receivables, deposits, accounts payable and accrued expenses, interest payable
and mortgage loan payable are carried at cost, which approximates fair value.
The Partnership adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," on
January 1, 1996. This Statement 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 assets to be held and used is 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 the amount by which the carrying
amount of the assets exceeds the fair value. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell.
No impairment losses were required on any of the properties owned by the
Partnership.
F-9
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
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.
Taxable income and tax loss generally will be allocated 99% to the limited
partners and 1% to the general partners.
4. INVESTMENTS IN REAL ESTATE
GE Medical Systems Office Building
On July 10, 1986, the Partnership purchased the GE Medical Systems Office
Building, an office building located in 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 acquisition fees, of $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 expires in October 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 acquisition fees, of $24,580,375.
As of December 31, 1996, the building was 100% leased to GTE Directories
Corporation for a term which expires on September 30, 2000. Rent from the tenant
represented 25% of the Partnership's total rental income in 1996. In connection
with this lease, the Partnership expended $2,628,000 and $1,207,000 for tenant
improvements and leasing commissions, respectively.
F-10
4. INVESTMENTS IN REAL ESTATE (continued)
Austin Place Building
On December 30, 1986, the Partnership purchased the Austin Place Building,
an office building located in South Plainfield, New Jersey, and the five acres
of underlying land. The property contains approximately 105,000 square feet of
net rentable area.
The terms of the agreement with the seller provided for a purchase price,
including acquisition fees, of $16,473,000.
As of December 31, 1996, the building had been fully leased to various
tenants under leases with terms ranging from four to fifteen years. The
Partnership has expended approximately $2,206,000 and $738,000 for tenant
improvements and leasing commissions, respectively, in connection with these
leases.
Rent from one of the tenants, The Austin Company, represented 29% of the
Partnership's total rental income in 1996.
In December 1993, the Partnership received a settlement from National
Gypsum Co., a former tenant, who filed for protection under Chapter 11 of the
U.S. Bankruptcy Code and terminated its lease. The settlement amounted to 77,476
shares of its common stock and $486,000 of 10%, ten-year debt. These securities
were recorded at their market value of $2,800,596 on the date of issuance.
During 1994, the debt securities were redeemed and 75,000 shares of the common
stock were sold at a gain of $930,750. During 1995, the remaining 2,476 shares
were sold at a gain of $27,682. The Partnership also received other income of
$227,222 in 1995 as part of the settlement.
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 acquisition fees, of $14,551,456. The building is net leased to James
River Corporation of Nevada, Inc. for a term which expires in January, 2002.
Rent from the tenant, James River Corporation of Nevada, Inc., represented
16% of the Partnership's total rental income in 1996.
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 95,500 square feet
of net rentable area.
The terms of the agreement with the seller provided for a purchase price,
including acquisition fees, of $9,003,085.
F-11
4. INVESTMENTS IN REAL ESTATE (continued)
As of December 31, 1996, 100% of the building was leased to various tenants
under leases with terms ranging from three to five years. The Partnership has
expended approximately $455,000 and $725,000 for tenant improvements and leasing
commissions, respectively, in connection with these leases.
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 terms of the agreement with the seller
provided for a purchase price, including acquisition fees, of $10,736,200. The
building contains approximately 90,925 net rentable square feet plus a 10,016
square foot basement.
The building is net leased to Marathon Oil Company (Marathon) with respect
to 62,600 square feet of space pursuant to a five-year lease which expires in
February, 2001, and a two-year lease with an affiliate of Marathon with respect
to 24,700 square feet of space which expires in February, 1998. A lease for
approximately 5,600 square feet of the remaining space has been signed with
another tenant for a term of five years commencing in January, 1997.
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, for a purchase
price, including capitalized closing and related costs, of $27,439,998.
As of December 31, 1996, the building was 85% leased to various tenants
under operating leases with remaining terms ranging from one to eleven years.
The Partnership has expended approximately $76,000 for leasing commissions in
connection with these leases.
5. LEASES
Minimum future rentals from tenants under noncancellable operating leases
as of December 31, 1996 are approximately as follows:
Year ending December 31:
1997 $ 11,561,000
1998 10,473,000
1999 9,554,000
2000 8,811,000
2001 6,620,000
Thereafter 10,767,000
--------------
Total $ 57,786,000
==============
F-12
5. LEASES (continued)
In addition to the minimum lease amounts, the leases provide for escalation
charges to the tenants for operating expenses and real estate taxes. For the
years ended December 31, 1996, 1995 and 1994 escalation charges amounting to
$1,765,433, $1,735,411 and $1,728,374, 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% in the case of 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, 1996, 1995 and 1994:
1996 1995 1994
-------- -------- --------
Partnership management fees $263,577 $271,302 $203,636
Property management fees 301,942 285,729 113,451
Administrative expenses 166,036 133,393 66,049
======== ======== ========
In 1996 and 1995, respectively, leasing commissions of $110,584 and $243,113
were billed to the Partnership by the general partners and recorded by the
Partnership as deferred leasing commissions on the balance sheet.
7. LOAN PAYABLE
In March 1996, the Partnership extended the $7,800,000 line of credit from
PNC Bank, N.A. (the "Lender") for an additional six-month period which ended on
September 30, 1996. In connection with this extension, the structure of the
indebtedness was changed from a term loan to a secured revolving line of credit.
Interest only was payable monthly on the first day of each calendar month with
all unpaid interest and outstanding principal due on September 30, 1996. In
connection with the extension of the loan, the Partnership paid fees of $24,500.
The loan was secured by a deed of trust given with respect to the Directory,
James River, Austin Place and GE properties. In September 1996, this loan was
repaid with the proceeds of a new line of credit obtained from Fleet Bank.
On September 26, 1996, the Partnership entered into a loan agreement with Fleet
Bank, N.A. The purpose of the loan was to refinance the existing indebtedness to
PNC Bank, 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.
F-13
7. LOAN PAYABLE (continued)
The terms of the loan agreement, as amended, provide for a term of four years
and maximum gross borrowings of $44,000,000. Borrowings under the loan 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 loan requires monthly amortization
of principal in an amount equal to 1/500th of the outstanding principal amount
of the loan on the first day of the applicable month with a final payment of the
then outstanding balance at maturity. The loan may be prepaid at any time.
Borrowings under the loan agreement are secured by all of the properties of the
Partnership. Upon the sale of any property, the Partnership is required to repay
principal on the total indebtedness under the loan in an amount equal to 110% of
that portion of the outstanding balance of the loan attributable to the sold
property, as defined in the loan agreement.
Through December 31, 1996, the Partnership had borrowed $40,000,000 under the
loan, of which $39,955,200 was outstanding at December 31, 1996, at rates
ranging from 7.6% to 8.87%.
In connection with this loan, the Partnership incurred fees and expenses of
$1,522,626, which have been capitalized and are being amortized over the term of
the loan agreement.
8. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
1996 1995 1994
--------- --------- --------
Cash paid during the year for interest $ 789,306 $ 734,608 $604,618
========= ========= ========
F-14
Schedule III
CORPORATE REALTY INCOME FUND I, L.P.
(a Delaware limited partnership)
Real Estate and Accumulated Depreciation
December 31, 1996
Costs Capitalized
Subsequent to Gross Amount at which
Initial Costs (B) Acquisition Carried at Close of Period
------------------------ ------------ ----------------------------
Building and Building and
Description Encumbrances (A) Land Improvements Improvements Land Improvements
- ----------- ---------------- ---- ------------ ------------ ---- ------------
Office Building
Monterey Park, CA $ 639,300 $ 1,762,126 $ 2,459,141 $ 125,245 $ 1,762,126 $ 2,584,386
Office Building
Las Colinas, TX 5,074,300 4,925,745 19,702,979 2,627,999 4,925,745 22,330,978
Office Building
So. Plainfield, NJ 5,873,400 3,147,912 13,378,294 2,205,562 3,147,912 15,583,856
Distribution Center
Woodland, CA 6,472,700 1,618,579 12,989,498 -- 1,618,579 12,989,498
Office Building
Boulder, CO 4,035,500 1,080,369 7,922,716 455,415 1,080,369 8,378,131
Office Building
Oklahoma City, OK 1,198,700 1,063,694 9,713,348 352,926 1,063,694 10,066,274
Office Building
New York, New York 16,661,300 5,488,000 21,951,998 -- 5,488,000 21,951,998
----------- ----------- ----------- ----------- ----------- -----------
$39,955,200 $19,086,425 $88,117,974 $ 5,767,147 $19,086,425 $93,885,121
=========== =========== =========== =========== =========== ===========
Life on Which
Depreciation in
Latest Income
Accumulated Date of Date Statement
Total Depreciation Construction Acquired is Computed
----- ------------ ------------ -------- -----------
Office Building
Monterey Park, CA $ 4,346,512 $ 665,514 1985 July, 1986 40 years
Office Building
Las Colinas, TX 27,256,723 6,004,087 1982 October, 1986 40 years
Office Building
So. Plainfield, NJ 18,731,768 4,470,326 1986 December, 1986 40 years
Distribution Center
Woodland, CA 14,608,077 2,990,531 1987 October, 1987 40 years
Office Building
Boulder, CO 9,458,500 2,183,155 1988 January, 1988 40 years
Office Building
Oklahoma City, OK 11,129,968 2,193,723 1986 March, 1988 40 years
Office Building
New York, New York 27,439,998 45,733 1927 December, 1996 40 years
------------ -----------
$112,971,546 $18,553,069
============ ===========
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 any 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 cost for financial
reporting purposes and cost for federal income tax purposes.
(C) Reconciliation of real estate owned: 1996 1995 1994
---- ---- ----
Balance at beginning of period $ 85,042,580 $ 84,585,569 $82,124,243
Additions during period:
Building improvements and land 27,928,966 502,504 2,461,326
Write-off of fully depreciated assets -- (45,493) --
------------ ------------ -----------
Balance at end of period $112,971,546 $ 85,042,580 $84,585,569
============ ============ ===========
(D) Reconciliation of accumulated depreciation:
Balance at beginning of period $15,974,431 13,571,654 $11,491,937
Depreciation expense 2,578,638 2,448,270 2,079,717
Write-off of fully depreciated assets -- (45,493) --
----------- ------------ -----------
Balance at end of period $18,553,069 $ 15,974,431 $13,571,654
=========== ============ ===========
F-15