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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-15796
CORPORATE REALTY INCOME FUND I, L. P.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3311993
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
475 Fifth Avenue, New York, NY 10017
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 212-696-0701
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Depositary Units of Limited Partnership
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No | |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
Documents Incorporated by Reference in Part IV of this Form 10-K
None.
CORPORATE REALTY INCOME FUND I, L. P.
Annual Report on Form 10-K
December 31, 2000
TABLE OF CONTENTS
PAGE
----
PART I.......................................................................1
Item 1. Business............................................................1
Item 2. Properties..........................................................7
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 7A. Quantitative and Qualitative Disclosures About Market Risk.........19
Item 8. Financial Statements and Supplementary Data ........................20
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.......................................21
PART III.....................................................................22
Item 10. Directors and Executive Officers of the Registrant.................22
Item 11. Executive Compensation.............................................23
Item 12. Security Ownership of Certain Beneficial Owners and Management.....24
Item 13. Certain Relationships and Related Transactions.....................25
ITEM IV......................................................................27
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...27
PART I
Item 1. Business.
General
Corporate Realty Income Fund I, L.P. ("Registrant") is a Delaware
limited partnership organized on November 25, 1985 pursuant to the Delaware
Revised Uniform Limited Partnership Act. The general partners of Registrant are
1345 Realty Corporation, a Delaware corporation (the "Corporate General
Partner"), and Robert F. Gossett, Jr. (the "Individual General Partner")
(collectively, the "General Partners"). The limited partners of Registrant are
hereinafter collectively referred to as the "Limited Partners."
Registrant organized two subsidiaries in March 1999 in connection with
the financing of its property at 475 Fifth Avenue, New York, New York. One
subsidiary, 475 Fifth Avenue Limited Partnership (the "Subsidiary Partnership"),
a Delaware limited partnership, owns 475 Fifth Avenue. The other subsidiary, 475
Fifth-GP, Inc. (the "Subsidiary Corporation"), a Delaware corporation, is the
sole general partner of the Subsidiary Partnership. Registrant is the sole
limited partner of the Subsidiary Partnership, with a 99% interest in all items
of income, gain, loss, and deduction, and the sole shareholder of the Subsidiary
Corporation.
Registrant's business consists of owning and leasing to others the
properties described in Item 2 below. Registrant's properties are leveraged as
described below.
On March 26, 1986, Registrant commenced an offering (the "Offering") of
$80,000,000 of depositary units of limited partnership interest (the "Units").
Registrant terminated the Offering in September 1987, having issued 3,200,000
Units ($80,000,000) and received net proceeds from the Offering (after deduction
for organization and offering expenses of $5,948,103) aggregating $74,051,897.
Since the Offering, Registrant has invested aggregate funds in excess of
$100,000,000 (including $40,000,000 of financing proceeds) in acquiring and
improving its properties, which currently number six.
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, 1998, 1999 and 2000:
a. For 1998, GTE Directories Corporation ("GTE") as tenant in the
Directory Building (14%).
b. For 1999, GTE as tenant in the Directory Building (16%).
c. For 2000, GTE as tenant in the Directory Building (18%).
475 Fifth Avenue Loan
On August 9, 1999, the Subsidiary Partnership obtained a first mortgage
loan (the "475 Loan") from Heller Financial, Inc. ("Heller") in the amount of
$32,000,000. On such date, Registrant paid down approximately $23,381,000 of the
Fleet Loan (see "Fleet Bank Loan" below) to release the lien of the Fleet Loan
from 475 Fifth Avenue and subject the property to the lien of the 475 Loan. The
balance of proceeds borrowed by the Subsidiary Partnership from Heller after
payment of loan broker fees and costs of approximately $329,000 and other
closing costs of approximately $505,000, were used to provide cash to fund
capital improvements and leasing costs at 475 Fifth Avenue and to augment
working capital. As of March 15, 2001, the outstanding principal balance of the
475 Loan was approximately $31,666,937.
1
The 475 Loan is evidenced by a Consolidated and Restated Promissory
Note, a Mortgage Consolidation, Assignment of Rents, Security Agreement and
Fixture Filing, and a Hazardous Substance Indemnification Agreement
(collectively, the "475 Loan Agreements").
The 475 Loan matures on September 1, 2009 and bears interest at a rate
of 8.27% per annum. The 475 Loan requires monthly payments of interest plus
principal payments based on a 30-year amortization schedule. The monthly
payments amount to $240,855.
No prepayments are permitted, in whole or in part, prior to the fourth
loan year (commencing September 2, 2002). From September 2, 2002, the Subsidiary
Partnership may prepay the 475 Loan, in full but not in part, on the first day
of any calendar month and upon at least 30 days' prior written notice, upon
payment of all accrued and unpaid interest and any fees and costs, together with
an additional payment equal to the greater of (i) an amount equal to one percent
(1%) of the then outstanding principal amount or (ii) a yield maintenance amount
equal to the present value of a series of monthly amounts assumed to be paid
from the date of prepayment through the maturity date of the 475 Loan. The yield
maintenance amount preserves for the holder of the 475 Loan Agreements (the
"Holder") a fixed yield tied to a United States Treasury obligation with a term
equal to that remaining on the 475 Loan on the date of prepayment.
Any payments not received by the Holder within 10 days after the due
date will incur a late charge equal to five percent (5%) of the amount of such
payment. Overdue amounts, whether at maturity, by acceleration, or otherwise
will bear interest at a rate equal to five percent (5%) above the otherwise
applicable interest rate.
The 475 Loan is secured by a first mortgage lien, an assignment of
rents, a security agreement, and a fixture filing on 475 Fifth Avenue, including
the improvements, machinery, equipment, mechanical systems, personal property,
management contracts, permits, certificates, licenses, agreements, trademarks,
tradenames, books and records, and any monies on deposit with or for the benefit
of the Holder relating to this property. This loan also is secured by an
assignment of Registrant's management agreement with the Subsidiary Partnership.
Heller sold the 475 Loan pursuant to a mortgage-backed securitized plan
as of February 10, 2000. The 475 Loan is currently serviced by Midland Loan
Services.
The 475 Loan currently has three separate reserves:
1. The first, a property tax reserve, requires monthly payments
sufficient to enable all real estate taxes against 475 Fifth Avenue to be paid
before they become due and payable. The property tax reserve has a balance of
approximately $479,242 as of March 23, 2001;
2. The second, a replacement reserve, was funded with $200,000 of the
proceeds of the 475 Loan. This reserve is to be utilized to fund capital
improvements reasonably approved in advance by Heller. The replacement reserve
accrues interest for the Subsidiary Partnership's benefit at a "non-personal
money market rate." If the balance of this reserve falls below $200,000, the
Subsidiary Partnership must make monthly deposits of $4,000 until the balance of
the replacement reserve equals $200,000. As of March 23, 2001, the Subsidiary
Partnership had not utilized any funds from the replacement reserve and the
balance in this account was approximately $209,089;
3. The third, a repair reserve, was funded with $1,967,000 of the
proceeds of the 475 Loan. This reserve is to be utilized to fund capital
improvements determined in the Subsidiary Partnership's sole
2
discretion. The capital improvements reserve accrues interest for the Subsidiary
Partnership's benefit at a "non-personal money market rate." As of March 23,
2001, the Subsidiary Partnership had funded capital improvements aggregating
approximately $560,664 from the repair reserve. The balance in this account was
approximately $1,377,204.
The 475 Loan Agreements require the Holder's prior written consent to
the execution or material modification or amendment of any lease of 15,000 or
more rentable square feet at 475 Fifth Avenue.
An event of default under the 475 Loan Agreements includes the
following:
1. the failure to make any payment within 10 days of the due date
thereof;
2. any sale or transfer of 475 Fifth Avenue or any interest therein
or any controlling interest therein;
3. the imposition of any lien against 475 Fifth Avenue; and
4. filing of any petition under the United States Bankruptcy Code or
any similar law or regulation by or against Registrant, the Subsidiary
Partnership, or the Subsidiary Corporation.
Upon the occurrence of an event of default under the 475 Loan
Agreements, the Holder may enforce one or more of its remedies, including the
following:
1. the right to declare all principal, interest, and other amounts
due under the 475 Loan to be due and payable immediately;
2. the right to require that 475 Fifth Avenue (including all
equipment, fixtures, agreements, and other rights and interests relating
thereto) be sold at auction to the highest bidder; and
3. to take possession of, manage, and collect the rents from the
property.
The Subsidiary Partnership and Robert F. Gossett, Jr., the Individual
General Partner of Registrant, have agreed to indemnify and hold harmless the
Holder and its officers, directors, employees, shareholders, agents, and
affiliates from and against any and all liabilities, obligations, deficiencies,
demands, claims, actions, assessments, losses, costs, expenses, interest, fines,
penalties, and damages resulting from or arising out of or by virtue of the
presence of hazardous materials on or from 475 Fifth Avenue. Mr. Gossett also
has assumed joint and several liability to pay the Holder for certain losses,
damages, costs, and expenses incurred by the Holder in connection with the 475
Loan.
Fleet Bank Loan
Registrant's properties, other than 475 Fifth Avenue, are subject to
the lien of a first mortgage line-of-credit loan (the "Fleet Loan") from Fleet
National Bank ("Fleet"). On August 9, 1999, the Fleet Loan was divided into the
following two notes: a note in the amount of $22,594,880 and secured by a
mortgage on 475 Fifth Avenue, which note was repaid in full to Fleet and which
mortgage was consolidated with and into Heller's mortgage on that property; and,
a note in the amount of $26,405,120 and secured by Registrant's six other
properties. On October 12, 2000 Registrant entered into an Amended and Restated
Loan Agreement providing for maximum gross borrowings of $25,000,000. Registrant
obtained an advance of approximately $19,641,440 on October 12, 2000 under the
amended Fleet Loan, which included the outstanding balance of approximately
$13,141,440 under the Fleet Loan immediately prior to the amendment. During the
first quarter of 2001, Registrant obtained an additional
3
advance so that as of February 28, 2001, the outstanding principal balance of
the Fleet Loan was approximately $21,323,828.
The Fleet Loan is evidenced by an Amended and Restated Promissory Note,
an Amended and Restated Loan Agreement, and an Environmental Compliance and
Indemnification Agreement (collectively, the "Fleet Loan Agreements"). The Fleet
Loan is secured by a first mortgage lien, an assignment of rents, a security
agreement, and a fixture filing on and from each of Registrant's properties,
other than 475 Fifth Avenue, including the improvements, equipment, furnishings,
proceeds, books and records, and all payments related thereto, which consists of
the following five properties: the Monterey Park Building (formerly the American
Color Building and the GE Medical Systems Office Building); the Directory
Building; the Tumi Building (formerly the Austin Place Building); the Marathon
Oil Building; and the Alamo Towers.
The Fleet Loan has an initial maturity date of September 30, 2003
which, subject to Registrant's compliance with certain financial covenants, may
be extended by Registrant for two additional one year periods. Upon exercising
each extension, Registrant must pay an extension fee equal to 0.25% of the then
outstanding principal balance. Registrant incurred fees and expenses aggregating
$609,259 upon amending the Fleet Loan, including a loan facility fee of
$250,000.
Registrant may borrow additional amounts during the term of the Fleet
Loan up to an aggregate of $25,000,000, which amount is permanently reduced by
required monthly payments of principal and by any prepayments or other
repayments of principal made by Registrant.
The Fleet Loan bears interest on each advance of funds from the date of
such advance at Fleet's Prime Rate, plus one-half percent (0.5%) per annum or,
if Registrant so chooses, at the LIBOR rate (offered rates for Eurodollar
deposits) (any such rate, a "Fixed Rate"), plus two percent (2.0%) per annum.
The Prime Rate is the rate announced from time to time by Fleet as a means of
pricing some of its loans to customers (not necessarily the lowest rate actually
charged to any customer class or category). Registrant may elect to pay interest
based on a Fixed Rate on the whole or a portion of the outstanding principal
amount, upon notice to Fleet, but only in amounts of at least $1,000,000 and in
additional integral multiples of $100,000. As of March 23, 2001, the Prime Rate
was 8.0% (interest using this rate would be at 8.5%) and the 30-day Fixed Rate
was 5.0% (interest using this rate would be at 7.0%). Except for $39,048 of
principal that bears interest at 8.5% (Prime Rate plus 0.5%), the entire
aggregate outstanding balance of the Fleet Loan as of March 23, 2001 bears
interest at the rate of 7.1875%.
The Fleet Loan requires monthly payments of interest plus principal
payments equal to 1/500th of the then outstanding principal balance. The Fleet
Loan may be prepaid at any time, on notice, in whole or in part (a minimum of
$1,000,000 and additional integral multiples of $100,000). Any such prepayment
will be without premium or penalty with respect to funds bearing interest based
on the Prime Rate or, if the prepayment is made on the last day of the
applicable interest period, with respect to funds bearing interest based on a
Fixed Rate; however, a prepayment at any other time of funds bearing interest
based on a Fixed Rate will require payment of a breakage fee, which guarantees
Fleet a fixed rate yield maintenance tied to United States Treasury obligations
for the period from the date of prepayment to the end of the applicable interest
period.
Any payments not received by Fleet within 10 days after the due date
will incur a late charge equal to four percent (4%) of the amount of such
payment. Overdue amounts, whether at maturity, by acceleration, or otherwise
will bear interest at a rate equal to four percent (4%) above the otherwise
applicable interest rate.
4
The Fleet Loan Agreements contain continuing covenants regarding
Registrant's financial condition and the conduct of its operations. Registrant's
debt service coverage ratio (the ratio of projected net income from operations
of Registrant's properties, adjusted for depreciation, amortization, fees paid
to the General Partners, and step rent receivables, to projected loan
amortization payments) cannot be less than 1.50 to 1.0 and its loan to value
ratio (the ratio of the outstanding principal balance of the Fleet Loan to the
appraised value of the secured properties) cannot exceed fifty-five percent
(55%). In addition, Registrant must maintain a liquid net worth (cash,
short-term investments, and marketable securities) of at least $1,000,000 and
its total liabilities may not exceed sixty percent (60%) of the appraised value
of the secured properties. The Fleet Loan Agreements also provide that
Registrant may distribute to its partners up to 90% of the sum of its cumulative
net income from real estate operations, adjusted for depreciation, amortization
and write-off of step rent receivables. Compliance with this distribution
provision is tested as of the last day of each fiscal quarter for the period
from and including January 1, 2001 through the date as of which compliance is
tested. Registrant must also obtain Fleet's consent, not to be unreasonably
withheld or delayed, to any lease of 10,000 or more rentable square feet.
Fleet's mortgage lien against any of Registrant's secured properties
will be released only upon payment of an amount equal to 110% of the loan amount
allocated to such property (or 100% of the gross sales price or principal amount
of refinancing, if greater, for Alamo Towers and the Directory Building). In
addition, such lien will be released only if Registrant's remaining properties
satisfy the debt service coverage ratio and loan to value ratio.
Upon the occurrence of an event of default under the Fleet Loan
Agreements (which includes the failure to make any payment within 10 days of the
due date thereof and a failure to comply with its financial covenants which
continues for 30 days), Fleet may enforce one or more of its remedies, including
the right to (i) declare all principal and interest on the Fleet Loan to be due
and payable immediately, (ii) require any or all of Registrant's secured
properties (including all equipment, fixtures, agreements, and other rights and
interests relating thereto) to be sold at auction to the highest bidder, and
(iii) collect any and all rents from the properties.
Registrant has also agreed to indemnify and hold harmless Fleet and its
officers, directors, employees, agents, representatives, contractors and
subcontractors, and their respective successors and assigns from and against any
and all claims, liability, costs, and expenses arising out of the presence
and/or clean-up of hazardous materials on or affecting Registrant's secured
properties.
Financing Policies
The General Partners expect to approximate Registrant's original
intention of a loan to value ratio of 50%. Accordingly, it is expected that
Registrant's total borrowings will approximate 50% of the sum of (i) the
appraised values of its six properties plus (ii) the purchase price of
additional properties acquired by Registrant. Registrant is not limited by its
Partnership Agreement as to borrowing for any individual property; the aggregate
borrowings on all properties may not exceed an amount equal to the sum of (x)
60% of the aggregate purchase price of all properties which are not refinanced
plus (y) 80% of the aggregate value of all refinanced properties. As of December
31, 2000, Registrant had a loan to appraised value ratio of approximately 50.3%.
The Fleet Loan and the 475 Loan have enabled Registrant to acquire and
improve properties, but have increased the risk of loss on its properties.
Registrant may acquire additional properties, the purchase of which would be
funded out of the proceeds of sale of one or more of Registrant's current
properties. Registrant has no current agreements to sell any of its existing
properties. To be profitable, Registrant's properties must generate cash flow in
amounts sufficient to not only cover operating expenses but also to pay all
financing costs.
5
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.
Flatiron Building (formerly, the Cadnetix Building)
On June 30, 2000, Registrant sold the land, buildings, and other
improvements commonly known as the Flatiron Building and located in Flatiron
Industrial Park, Boulder, Colorado, to Invesco Realty Advisors ("Invesco"),
pursuant to the terms of a Purchase and Sale Agreement dated as of May 22, 2000.
The Flatiron Building contains approximately 96,000 net rentable square feet for
use as a multi-tenant office building.
The sale price for the Flatiron Building was $13,050,000, exclusive of
closing costs of approximately $473,000. From the sale proceeds, the sum of
$434,466 was placed into escrow pending resolution of the bankruptcy of one of
the tenants in the building. Upon the expected rejection of the lease in
bankruptcy, the space may be leased by Invesco to a replacement tenant (in which
case Registrant would receive the escrowed funds, less any shortfall to Invesco
from the replacement lease) or, failing that, will be leased by Registrant
pursuant to a master lease that would permit Registrant to re-lease the premises
to a third party (in which case Registrant would guarantee payment of the rent).
The amount in escrow will be released to Registrant, less any amount utilized to
make up any shortfall in rent from any replacement tenant, upon execution of a
replacement tenant's lease or upon satisfaction rental payments under a master
lease with Registrant through the December 31, 2003 lease termination date.
Registrant acquired the Flatiron Building in January 1988 for a
purchase price of approximately $9,003,000, inclusive of acquisition fees.
Registrant recognized a gain of approximately $5,111,000, excluding the amount
held in escrow as described above, for financial accounting purposes. At the
time of its sale, Registrant had a tax basis of approximately $6,320,000 in this
property and resulting gain for income tax purposes of approximately $6,257,000.
$10,000,000 of the proceeds of the sale of the Flatiron Building were used to
partially pay down the Fleet Loan.
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 Monterey Park Building is also
now fully leased to a single tenant on a net lease or substantially equivalent
basis. However, upon termination of these 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.
6
Employees
Registrant currently employs 14 persons (one of whom is a part-time
employee). The business of Registrant is managed by the General Partners. See
Item 10 - "Directors and Executive Officers of the Registrant" and Item 13 -
"Certain Relationships and Related Transactions."
Item 2. Properties.
Monterey Park Building
(formerly American Color Building and GE Medical Systems Office Building)
On July 10, 1986, Registrant acquired the Monterey Park Building,
located in Monterey Park, California, for approximately $4,182,000, inclusive of
acquisition fees. Registrant owns fee title to the Monterey Park Building and
its 90,000 square feet of underlying land, subject to the lien of the Fleet Loan
(See Item 1. - "Business-Fleet Bank Loan"). The property was built in 1985 and
contains 22,250 net rentable square feet (increased from 20,250 square feet for
previous tenancies). The property had been a unique combination of office space
(approximately 71%) and warehouse space, but the building is being reconfigured
solely for use as office, design and development space for use pursuant to a net
lease for the entire premises.
The building is 100% leased to LightCross, Inc. pursuant to a lease
dated as of November 17, 2000. The initial term of the lease is ten (10) years
from the earlier of completion of construction or September 17, 2001, subject to
two five-year renewal options.
The lease requires approximate annual net rent of $433,915 for the
first two years ($19.50 per square foot), increasing to $446,197 in the third
and fourth years ($20.05 per square foot), $458,970 in the fifth and sixth years
($20.63 per square foot), $472,254 in the seventh and eighth years ($21.22 per
square foot), and $486,070 in the ninth and tenth years ($21.85 per square
foot). The lease shall require payment of a fair market rental during any
renewal periods. This lease is a net lease and, except for certain structural
and mechanical conditions, the tenant is responsible for all costs, expenses,
and obligations relating to the premises and the use, operation, occupancy,
management, maintenance, and repair of the building, including insurance and
real estate taxes. LightCross is expected to be a large user of electricity.
Electric rates in this area have recently risen by approximately 46%, the effect
of which could adversely affect LightCross's financial condition.
Registrant has agreed to expend approximately $1,390,000 in capital
improvements in connection with this lease. The improvements include enclosing
the rear loading bays, converting warehouse space to office space, building a
new entrance area, improving distribution of electricity, and contributing to
the tenant's construction of a dust-free "clean room." Construction is expected
to be completed in or about June 2001.
The tenant has been granted a right of first offer to purchase the
Monterey Park Building on the same terms and conditions on which Registrant may
be willing to sell the building to a third party.
Upon expiration of its lease in November 2000, the General Services
Administration vacated the approximate 45% of the building it had occupied at a
gross rent of $21.15 per square foot. In July 1999, American Color Graphics,
Inc. ("American Color") terminated its lease for 9,650 square feet in the
building, upon payment of a lease cancellation fee of $140,000. This fee
represented approximately 50% of American Color's lease obligations for the then
remaining lease term of two years. American Color had paid a net rent of $9.00
per square foot, plus reimbursement of its proportionate share of operating
expenses.
7
During 2000, Registrant expended approximately $51,300 in capital
expenditures at the building.
Market conditions in the Monterey Park area have improved in recent
years. The vacancy rate for commercial properties in such area approximates 5.9%
for office buildings. Net rents (like the LightCross lease) for office space
approximate $13.50 to $15.75 per square foot and gross rents approximate $20.00
to $22.00 per square foot in this area.
The Directory Building (formerly, the IBM Building)
On October 27, 1986, Registrant acquired the Directory Building,
located in Las Colinas, Texas, for a purchase price of approximately
$24,580,000, inclusive of acquisition fees. Registrant owns fee title to the
Directory Building and its 6.67 acres of underlying land, subject to the lien of
the Fleet Loan. The Directory Building was built in 1982 and contains
approximately 152,100 net rentable square feet (reduced from 154,300 square feet
during IBM's tenancy).
The building is 100% leased to GTE pursuant to a lease dated as of
April 20, 1994, as subsequently amended by amendments dated as of July 29, 1994
and as of February 22, 1995 and as extended by an Extension Agreement and
Supplement dated as of March 31, 2000. The renewed initial term of the lease
expires on September 30, 2003, subject to two (2) five-year renewal options at a
rate equal to the then market rate.
The renewed lease requires approximate monthly rent of $259,873 through
September 30, 2003 ($20.50 per square foot). GTE must also pay additional rent
equal to excess electric charges and operating expenses over base levels.
Registrant has agreed to cap most operating expenses at cumulative increases of
five percent (5%) per annum for purposes of this lease.
In connection with the lease extension, Registrant agreed to complete
certain deferred maintenance projects. Registrant incurred approximately
$462,800 in capital expenditures at the building during 2000. Registrant has
expended an aggregate of approximately $3,281,900 in capital expenditures and
tenant improvements at the building. Improvements made pursuant to the renewed
lease include ADA renovations to the common areas and certain bathrooms, fire
alarm and panel replacement, bathroom lighting and other upgrades, correction of
water leaks, and sidewalk and gutter repairs.
The Las Colinas office market includes approximately 12,120,463 square
feet of Class "A" office space, of which approximately 86.8% was leased as of
December 31, 2000. Weighted average rental rates for new leases at such
properties are approximately $24.69 per square foot.
Tumi Building
(formerly Austin Place Building)
On December 30, 1986, Registrant acquired the Tumi Building, a two-wing
office building located in South Plainfield, New Jersey, for a purchase price of
approximately $16,473,000, inclusive of acquisition fees. Registrant owns fee
title to the Tumi Building and its underlying five acres of land, subject to the
lien of the Fleet Loan. The property was built in 1986 and contains
approximately 107,900 net rentable square feet for use as a multi-tenant
facility (reduced from 108,000 square feet as a single tenant facility, but
subsequently increased from 106,600 square feet due to tenant expansion into
common areas).
As of March 15, 2001, the property is approximately 78.2% leased, with
45,700 square feet leased to Tumi, Inc. (as discussed below) and the remainder
at an average current rent of approximately
8
$18.30 per square foot. Such other leases expire in August 2001 (approximately
2,700 square feet), October and November 2005 (approximately 17,400 square
feet), and June 2006 (approximately 18,600 square feet).
Tumi's lease is for 45,700 square feet and expires on January 19, 2009.
It requires rent payments equal to $15.00 per square foot until January 2002,
$16.00 per square foot from February 2002 to January 2006, and $17.00 per square
foot from February 2006 to January 2009. The lease includes two 5-year renewal
terms, the first at a base rent of $20.00 per square foot and the second at a
then fair market rental. Tumi is also obligated to pay for its electric current
consumption and its proportionate share (42.3%) of increases in operating
expenses, taxes, and insurance over base year 1999 levels. In 1999, Tumi's lease
was amended to increase Registrant's obligation for tenant improvements to
$1,045,000 (from $350,000) in return for increasing rent payments to $15 per
square foot (from $9.00) until January 2002 and to $16 per square foot (from
$15) from February 2002 to January 2006.
Registrant has also entered into five year leases with AT&T Wireless
PCS, LLC and Sprint Spectrum L.P. to permit installation and operation of
cellular telephone towers on the roof of the Tumi Building. Each lease provides
for annual rental payments of $19,800, automatic five-year renewal periods (five
for AT&T and four for Sprint) and a three percent (3%) increase in rental
payments at the commencement of each renewal period.
On March 9, 1999, Gdynia America Line, Inc., a tenant occupying
approximately 21,650 square feet (20.3%) in the Tumi Building filed for
protection under Chapter 11 of the U.S. Bankruptcy Code. Polish Ocean Lines, a
Polish corporation owned by the Polish Government, is jointly and severally
obligated under this lease. On or about April 30, 1999, the lease, with a term
expiring in May 2007 and annual rental payments of approximately $446,000, was
rejected in the bankruptcy proceeding. During 1999, Registrant wrote off
approximately $718,000 of deferred rent and other receivables attributable to
this lease. In July 2000, Registrant obtained a judgment in an action in the
Superior Court of New Jersey Law Division; Middlesex County against Polish Ocean
Lines in the approximate amount of $618,653, representing the amount of rent
then unpaid under this lease, with interest thereon. Registrant has made a
motion to increase the judgment to $4,080,200 plus interest thereon (estimated
to be approximately $500,000), which motion is scheduled to be heard in May
2001. There can be no assurance that Registrant will succeed in collecting any
part of this judgment.
South Plainfield is included in the Route 287 submarket (approximately
6,830,000 square feet of which approximately 7.7% is vacant) of Middlesex County
(approximately 16,700,000 square feet, of which 6.4% is vacant). Average rents
for office space in the Route 287 submarket and Middlesex County approximate
$19.69 and $21.74 per square foot, respectively. Registrant has expended
approximately $3,110,000 for capital expenditures and tenant improvements, of
which approximately $107,600 was incurred in 2000.
Marathon Oil Building (formerly, the Tenneco Building)
On March 21, 1988, Registrant acquired the Marathon Oil Building
(formerly the Tenneco Building), an office building located in Oklahoma City,
Oklahoma, for approximately $10,736,000, inclusive of acquisition fees.
Registrant owns fee title to the Marathon Oil Building with its 6.1 acres of
underlying land, subject to the lien of the Fleet Loan. The property contains
approximately 90,925 net rentable square feet on two floors, plus a 10,016
square foot basement.
Marathon Oil Company leases approximately 65,700 square feet (including
approximately 4,300 in the basement) in the building. Marathon renewed its lease
to extend the term from February 2001 for an additional five-year term that
expires in February 2006. The lease is subject to an additional renewal
9
option for another five-year term. Marathon's lease also was amended in February
2001 to expand its space by approximately 700 square feet.
Annual rent under Marathon's lease is approximately $716,488 ($11.25
per square foot, plus $6.00 per square foot for basement space), increasing to
approximately $793,201 ($12.50 per square foot, plus $6.00 per square foot for
basement space) in the third year and $869,915 ($13.75 per square foot, plus
$6.00 per square foot for basement space) in the fourth and fifth years.
Marathon must also pay additional rent equal to its proportionate share of any
increases in operating costs of the building after 1996.
Registrant has leased approximately an additional 17,240 square feet in
the building at an average current rent of approximately $12.72 per square foot.
These leases expire in December 2001 (approximately 5,900 square feet) and
February 2002 (approximately 11,300 square feet). The remaining space
(approximately 17.1% of the space) is vacant and Registrant is seeking a tenant
for such space.
Market conditions in the northwest section of Oklahoma City have
continued recent improvements from the declines experienced after Registrant
acquired the building. Such market contains approximately 4.9 million square
feet of commercial space of which approximately 15.2% is vacant. Average rents
for commercial space range from $8.50 to $21.00 per square foot, with an average
rate of $14.48 per square foot. Although the vacancy rate increased slightly
during 2000, rental rates continued the increases of recent years. Registrant
has expended approximately $441,000 on capital and tenant improvements at this
building, none of which were spent in 2000.
475 Fifth Avenue
On December 6, 1996, Registrant purchased the land, building and other
improvements commonly known as 475 Fifth Avenue, and situated in New York, New
York, for approximately $27,440,000 including capitalized costs and related
costs. The property contains a multi-tenant office building comprised of
approximately 240,000 square feet and is located on the southeast corner of 41st
Street and Fifth Avenue in New York City; the Subsidiary Partnership owns fee
title to 475 Fifth Avenue, subject to the lien of the 475 Loan.
475 Fifth Avenue is a 23-story office building with approximately
19,700 square feet of retail space on the first floor and basement, 215,400
square feet of office space, and 5,100 square feet of basement storage space. As
of March 15, 2001, approximately 96.6% of the rentable square footage in the
building was leased (including approximately 98.5% of the office space, 85.0% of
the retail space, and 60.0% of the basement space), at an average current rent
(base rent plus electric charges and prior year adjustments) of approximately
$36.07 per square foot (approximately $34.25 per square foot of office space and
$59.01 per square foot of retail space). Following is a schedule of the
expirations of such leases.
10
Approximate Avg. Current
Expiration Year Square Feet % of Total Rent/Sq. Ft.
- --------------- ----------- ---------- ------------
2001 24,893 10.5% $37.45
2002 6,799 2.9% $33.40
2003 11,416 4.8% $37.11
2004 18,783 7.9% $45.85
2005 30,714 13.0% $44.28
2006 22,243 9.4% $29.97
2007 14,537 6.1% $47.58
2008 47,399 20.0% $26.81
2009 52,095 22.0% $34.96
Registrant's leases generally provide for a base rent, inclusive of an
electricity charge, plus additional rent in the form of a porter's wage and real
estate tax escalation factors; Registrant may increase the electricity charge if
a review demonstrates that Registrant's cost of obtaining such electricity
exceeds the charge imposed on tenants. Certain tenants (leasing approximately
20% to 25% of the space in the building) have leases that provide for a base
rent, inclusive of an electricity charge, plus additional rent in the form of
operating expense and real estate tax escalation factors. In 1997, Registrant
commenced a capital improvement program, designed to increase rental rates and
the value of the building. In connection with obtaining the 475 Loan, a capital
reserve schedule was prepared for 475 Fifth Avenue, detailing improvements
aggregating approximately $1,840,000 over a 12-year period. Registrant has
prepared an updated plan scheduling renovations at the building (including those
in the capital reserve schedule), projected to cost approximately $3,915,000, of
which approximately $487,000 had been completed before February 2001. These and
other improvements that Registrant intends to make include the following:
structural repairs, including roofing, facade, parapet, drain and drain line
replacement and repairs (approximately $1,500,000); upgrading electric service
and closets, relocating additional AC service, purchasing electrical equipment,
and installing fuse panels on each floor (approximately $290,000); elevator
modernization, including mechanical cables, security system, and interiors
(approximately $575,000); continuing window replacement (approximately
$205,000); installation of a sprinkler system, including main distribution and
on each floor (approximately $800,000); continuing installation of hot water
heating system (approximately $330,000); lobby and entrance renovation
(approximately $150,000); security systems (approximately $50,000); and
renovation of restrooms to comply with Americans with Disabilities Act
requirements (approximately $15,000). In 2000, Registrant funded capital
improvements and tenant improvements aggregating approximately $1,437,400 at 475
Fifth Avenue. Certain capital improvements can only be made as tenancies expire.
Capital improvements and tenant improvements have been, and are expected in the
future to be, funded from working capital, the repair reserve under the 475
Loan, and from anticipated increases in rental income.
475 Fifth Avenue is situated in the Grand Central district of the New
York City midtown market. Such district includes approximately 49,980,000
aggregate rentable square feet (vacancy rate of approximately 1.6%), of which
approximately 43,177,000 are Class A buildings (1.5% vacancy rate) and
11
6,804,000 are Class B buildings (2.5% vacancy rate). Asking rents in this
district average approximately $61.55 per square foot ($62.71 for Class A
buildings and $54.22 for Class B buildings). The entire midtown market includes
approximately 243,940,000 aggregate rentable square feet (188,717,000 in Class A
buildings and 55,223,000 in Class B buildings), an approximate 1.9% vacancy rate
(1.7% for Class A buildings and 2.7% for Class B buildings), and average asking
rents of approximately $62.65 per square foot ($66.08 for Class A buildings and
$50.92 for Class B buildings).
Alamo Towers
On March 17, 1997, Registrant purchased the land, building and other
improvements commonly known as the Alamo Towers, and situated in San Antonio,
Texas for approximately $12,002,000, including capitalized closing and related
costs. The Alamo Towers contains a multi-tenant office building comprised of
approximately 191,000 square feet (reduced from approximately 196,000 square
feet when Registrant acquired the property). Registrant owns fee title to the
Alamo Towers, subject to the lien of the Fleet Loan.
The Alamo Towers is an office building consisting of two stand-alone
8-story towers with approximately 182,700 square feet of office space and 8,300
square feet of basement space. As of March 1, 2001, approximately 83.0% of the
rentable square footage of office space in the Alamo Towers was leased, at an
average current rent (base rent plus escalation adjustments) of approximately
$14.77 per square foot. Following is a schedule of expiration of such leases.
Approximate Avg. Current
Expiration Year Square Feet % of Total Rent/Sq.Ft.
- --------------- ----------- ---------- ------------
2001 41,073 22.7% $15.27
2002 26,240 14.5% $14.65
2003 15,124 8.4% $14.88
2004 22,140 12.2% $14.86
2005 11,767 6.5% $14.23
2006 31,213 17.3% $14.35
2007 2,553 1.4% $14.00
The Alamo Towers has yet to achieve sustainable increases in occupancy
rates, primarily because of the absence of a covered parking garage.
Registrant's planned significant capital improvements for this Building were
delayed in large part because of the capital improvements made at 475 Fifth
Avenue. Registrant now intends to fully implement its program at Alamo Towers.
In 2000, it neared completion of renovation of the lobby in the West Tower at an
approximate cost of $460,000, of which $50,000 has yet to be spent. Registrant
also relocated the building's mechanical plant, including replacement of all
heating, ventilation, and air conditioning equipment, and upgraded the
electrical capacity and distribution, at an approximate cost of $2,225,000, of
which approximately $500,000 remains to be spent. Relocation of this plant will
enable Registrant to construct a covered parking garage at an estimated cost of
$6,000,000. Construction of the garage is tentatively scheduled for late in 2001
or in 2002 and is expected to take six to eight months to complete. Registrant
has also been separating the heating and air conditioning systems to better
regulate temperature through the building (estimated to cost $40,000) and may
recaulk glass walls and windows (approximately $200,000). Registrant may install
sprinklers on all
12
floors of the towers, at an estimated cost of $250,000, but any such
installation is unlikely to occur in the near future. Registrant intends to
finance these capital improvements from the proceeds of loan drawdowns and/or
from proceeds from any sales of properties. In 2000, Registrant expended
approximately $2,890,100 in tenant improvements and capital improvements to the
Alamo Towers.
The San Antonio office market includes approximately 21,700,000
aggregate rentable square feet, of which approximately 11.9% is currently
vacant. Asking rents in this market now average $17.52 per square foot. The
north-central San Antonio market includes approximately 7,875,000 aggregate
rentable square feet, of which approximately 9.7% is vacant and for which asking
rents average approximately $18.26 per square foot. Class B buildings, including
the Alamo Towers, feature an approximate 9.0% vacancy rate and an average asking
rental rate of $16.97 per square foot.
Item 3. Legal Proceedings.
Except for its action against Polish Ocean Lines, Inc., Registrant does
not know of any material legal proceedings, other than ordinary immaterial
routine litigation incidental to its business, pending against or involving
Registrant or any of its properties. The action against Polish Ocean Lines, Inc.
is attributable to the rejection of its subsidiary's lease for space in the Tumi
Building. See "Item 2. Properties - Tumi Building." Registrant obtained a
judgment in the approximate amount of $618,653 in the Superior Court of New
Jersey Law Division; Middlesex County in July 2000 and has moved to increase the
amount of the judgment to $4,080,200, plus interest.
Item 4. Submission of Matters to a Vote of Security-Holders.
There were no matters submitted to a vote of Limited Partners or
Unitholders and none were required to be submitted during the fourth quarter of
the fiscal year covered by this report through the solicitation of proxies or
otherwise.
13
PART II
Item 5. Market for Registrant's Securities and Related Security-Holder Matters.
The Units of Registrant are not traded in any established public
trading market. Because of certain provisions of the Internal Revenue Code of
1986, as amended (the "Code"), as described below, the General Partners have not
applied to include the Units for quotation or listing on any national or
regional stock exchange or any other established securities market.
Registrant has administered a Unit Repurchase Plan since 1995, pursuant
to which Registrant, in its discretion, has purchased outstanding Units. Any
such purchases are made at prices no higher than the lowest current independent
offer quotation. During 2000, Registrant did not repurchase any Units.
Repurchases both divert funds otherwise available for capital improvements and
require a monthly reallocation of Unitholders' interests. For these reasons,
Registrant limits future repurchases, if any, to the final one or two months of
a calendar year. To provide an alternative outlet for Unit sales, the General
Partners and their affiliates have, during any periods of suspension in
Registrant's Unit Repurchase Plan, purchased Units on the same terms and
conditions as under the Unit Repurchase Plan.
Provisions found in Section 7704 of the Code have an adverse impact on
investors in a "publicly traded partnership" ("PTP"). A PTP is a partnership
whose interests are traded on an established securities market or readily
tradeable on a secondary market (or the substantial equivalent thereof). If
Registrant were classified as a PTP, (i) Registrant may be taxed as a
corporation or (ii) income derived from an investment in Registrant would be
treated as non-passive income.
The IRS has established alternative safe harbors that allow interests
in a partnership to be transferred or redeemed in certain circumstances without
causing the partnership to be characterized a PTP. Although the Units are not
listed or quoted for trading on an established securities market, it is possible
that transfers of Units could occur in a secondary market in sufficient amount
and frequency to cause Registrant to be treated as a PTP. To the extent that any
proposed transfer of Units in secondary market transactions would exceed a safe
harbor volume limitation, the proposed transfer will be restricted pursuant to a
policy adopted by Registrant. Such a restriction could impair the ability of an
investor to liquidate its investment quickly and thus, possibly prevent the
reclassification of Registrant as a corporation pursuant to Code Section 7704.
It is anticipated that Registrant's policy will remain in effect until such
time, if ever, as further clarification of Code Section 7704 permits Registrant
to lessen the scope of its policy.
The General Partners, if so authorized, will take such steps as are
necessary, if any, to prevent the reclassification of Registrant as a PTP.
As of March 27, 2001, there were 2,609 Unitholders of record.
14
The following represents per Unit cash distributions to investors for
the fiscal years ended December 31, 2000 and 1999.
Distribution
Quarter Ended Per Unit Payment Date
- ------------- ------------ ------------
December 31, 2000 $ 0.30 February 2001
September 30, 2000 $ 0.30 November 2000
June 30, 2000 $ 0.30 August 2000
March 31, 2000 $ 0.30 May 2000
December 31, 1999 $ 0.30 February 2000
September 30, 1999 $ 0.30 November 1999
June 30, 1999 $ 0.30 August 1999
March 31, 1999 $ 0.30 May 1999
There are no material legal restrictions upon Registrant's present or
future ability to make distributions in accordance with the provisions of
Registrant's Agreement of Limited Partnership, as amended through the date of
this report. However, the Fleet Loan Agreements limit distributions to 90% of
the sum of its cumulative net income from real estate operations, adjusted for
depreciation, amortization, and write-off of step rent receivables. 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,
2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------
Operating Revenues $15,554,869 $16,695,999 $19,752,206 $14,958,799 $9,142,369
Net Loss/Income $1,808,954 $(2,828,104) $1,930,984 $(420,892) $677,914
Net Loss/Income
Per Unit (1) $0.60 $(0.94) $0.64 $(0.14) $0.22
Total Assets $102,145,141 $107,255,707 $105,748,365 $100,946,968 $102,983,279
Long-Term Obligations $51,335,864 $55,539,288 $46,930,800 $41,578,800 $39,955,200
Distributions
Per Unit (1)(2) $1.20 $1.20 $1.20 $1.20 $1.20
15
- ----------
(1) Per Unit numbers are based on 2,983,531 Units for 2000 and 1999 and
a weighted average number of Units of 2,986,460, 3,022,492, and
3,087,170 for 1998, 1997, and 1996, 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, 2000, Registrant had cash and receivables of
approximately $2,853,000 as contrasted to accounts payable and accrued expenses
of approximately $2,965,000. Registrant measures its liquidity by its ability to
generate sufficient cash flow from operations to meet its current operating and
debt service requirements on a short-term and long-term basis. Registrant's
operations have provided this liquidity and are expected to continue to do so.
To the extent additional funds are required, Registrant may obtain advances
under the Fleet Loan and/or sell assets.
In June 2000, Registrant sold the Flatiron Building for $13,050,000,
exclusive of closing costs of approximately $473,000. From the sale proceeds,
the sum of $434,466 was placed into escrow pending resolution of the bankruptcy
of one of the tenants in the building. Registrant recognized a gain of
approximately $5,111,000, excluding the amount held in escrow, for financial
accounting purposes and a gain of approximately $6,257,000 for income tax
purposes. Registrant used $10,000,000 of the proceeds from the sale of the
Flatiron Building to partially pay down the Fleet Loan.
In October 2000, the Fleet Loan was amended to provide for maximum
gross borrowings of $25,000,000 and to extend the maturity date to September 30,
2003 (subject to two additional one year extension options). Registrant has
drawn down an aggregate of approximately $21,441,000 under the amended Fleet
Loan. Because the Fleet Loan requires monthly amortization of the outstanding
principal balance, which amounts permanently reduce the maximum gross borrowings
under the loan, Registrant currently can borrow approximately an additional
$3,442,000 under the Fleet Loan.
Registrant has been investing capital in improving its properties with
a view to increasing its revenues from real estate operations and ultimately
realizing appreciation in property values. Capital resources have been employed
since the beginning of 2000 to make the following capital and tenant
improvements: approximately $1,437,400 at 475 Fifth Avenue; approximately
$107,600 at the Tumi Building; approximately $51,300 at the Monterey Park
Building; approximately $462,800 at the Directory Building; and approximately
$2,890,100 at Alamo Towers. Registrant may also require capital to fund
additional tenant improvements as tenancies turn over at its properties as well
as further capital improvements at the Monterey Park Building (estimated at
$1,390,000), 475 Fifth Avenue (estimated at $3,431,000) and Alamo Towers
(estimated at $7,100,000). These additional capital improvements are expected to
be made over several years.
16
In March 1999, Gdynia America Line, Inc., which leased approximately
20% of the Tumi Building pursuant to a lease expiring in May 2007, filed for
protection under Chapter 11 of the U.S. Bankruptcy Code. Polish Ocean Lines, a
Polish corporation owned by the Polish Government, is jointly and severally
obligated under this lease. On or about April 30, 1999, the lease, which
required annual rental payments of approximately $446,000, was rejected in the
bankruptcy proceeding. In July 2000, Registrant obtained a judgment in the
approximate amount of $618,600 against Polish Ocean Lines for amounts then due
under the lease. Registrant has moved to increase the amount of such judgment to
approximately $4,080,000, plus interest. There can be no assurance that
Registrant will be successful in collecting any damages from Polish Ocean Lines.
To the extent all or a portion of this space is unproductive for any length of
time, Registrant may face an additional capital demand.
To date, Registrant has funded its capital requirements from the 475
Loan, the Fleet Loan and working capital. Registrant's quarterly distribution to
partners for each of the four quarters of 2000 was $0.30 per Unit. Registrant
intends to maintain this level of distributions through 2001 and, if possible,
thereafter. However, to the extent Registrant's sources of capital are
inadequate for its requirements, Registrant may need to reduce or suspend
distributions to partners, incur additional indebtedness, and/or dispose of one
or more of its properties.
The 475 Loan and the Fleet Loan have provided Registrant with available
capital to acquire properties, fund improvements and leasing commissions,
repurchase outstanding Units, and otherwise fund capital requirements. The cost
of such financing ultimately must be offset by increased property revenues or
Registrant's operations and capital will be compromised.
Registrant has used working capital reserves provided from the net
proceeds of the Offering, loan proceeds, and any undistributed cash from
operations as its primary source of liquidity. Registrant generally intends to
distribute its distributable cash from operations to Unitholders. However, such
distributions are subject to suspension or reduction to meet capital
requirements and are also limited by the Fleet Loan Agreements to 90% of the sum
of its cumulative net income from real estate operations, adjusted for
depreciation, amortization, and write-off of step rent receivables.
Results of Operations
2000 versus 1999
Rental revenues decreased by 1.8% from 1999 to 2000, primarily because
the absence of revenues from the Flatiron Building after its sale in June 2000
more than offset increased occupancy and rental rates at 475 Fifth Avenue and
increased rent payments under the renewed GTE lease for the Directory Building.
In addition, lease cancellation fees decreased by 69.0% from the significant
amounts received in 1999 with respect to the Monterey Park Building and 475
Fifth Avenue. Registrant's interest and other income decreased from 1999 to 2000
by 64.9% principally because of a loan break-up fee, reimbursement of real
estate taxes with respect to 475 Fifth Avenue and write-offs of payables to
former tenants of the Tumi Building, all of which occurred in 1999. As a result,
total revenues decreased by 6.8% from 1999 to 2000.
Interest expense in 2000 increased by 16.6% from 1999, both because of
larger loan balances (the 475 Loan was funded in mid-1999) and higher interest
rates. Depreciation increased by 1.0% in 2000 primarily because capital
improvements made from 1997 through 2000 (primarily at 475 Fifth Avenue and
Alamo Towers) more than offset the impact of selling the Flatiron Building in
June 2000. Amortization decreased by 45.4% primarily because of the write-off in
1999 of leasing commissions on leases that were terminated early and financing
costs under the Fleet Loan following partial prepayment of the loan. Property
operating expenses increased by 1.6% in 2000 primarily because of higher
occupancy and increased electric rates at 475 Fifth Avenue and Alamo Towers.
Management fees
17
decreased by 6.3% in 2000 from 1999 primarily due to property management fees
computed as a percentage of Registrant's decreased rental revenues. Professional
fees increased by 95.9% from 1999 to 2000 primarily because of legal fees
incurred in connection with litigation against Polish Ocean Lines for amounts
due under the Gdynia lease at the Tumi Building, the payment in 2000 of legal
fees attributable to prior years, and increased auditing fees. The 77.1%
decrease in bad debt expense reflects the relative absence of significant early
terminations as contrasted to 1999, including the write-off of unpaid rent and
deferred rent receivable from the Gdynia lease in the Tumi Building. The 5.5%
increase in general and administrative expenses in 2000 from 1999 is primarily
attributable to costs associated with changing Registrant's transfer agent,
increased expenses incurred in preparing unitholders' tax information, and
salary increases to Registrant's employees.
Registrant's loss from real estate operations increased by 16.8% in
2000 as compared to 1999. After adjusting for non-cash items (depreciation,
amortization, and bad debt expense), operations generated cash flows of
approximately $1,415,022 in 2000 and $3,574,475 in 1999 (a 60.4% decrease).
These cash flows are not computed in accordance with generally accepted
accounting principles ("GAAP") and contrast to net cash provided by operating
activities (computed in accordance with GAAP) of $461,698 in 2000 and $467,101
in 1999. Registrant realized a gain on sale of real estate of $5,111,393 in 2000
from the sale of the Flatiron Building. Accordingly, Registrant realized net
income of $1,808,954 in 2000 as contrasted to a net loss of $2,828,104 in 1999.
The recognition of a loss from real estate operations is largely due to
the interest expense associated with Registrant's capital improvement program at
475 Fifth Avenue and Alamo Towers, which has increased occupancy and rental
rates. Registrant intends to continue its program, with a view towards leasing
vacant space and releasing space covered by expiring leases. If successful this
will provide additional rental revenues with little additional operating
expenses (but necessitating significant capital expenditures).
1999 versus 1998
Rental revenues decreased by 0.8% from 1998 to 1999, primarily because
the rejection of the Gdynia lease in the Tumi Building more than offset
increased occupancy and rental rates at the Flatiron Building and, more
importantly, 475 Fifth Avenue. In addition, lease cancellation fees decreased by
$3,837,623 in 1999 from the significant amounts received in 1998 with respect to
the Monterey Park, Tumi, 475 Fifth Avenue, and Alamo Towers buildings. As a
result, total revenues decreased by 15.5% from 1998 to 1999.
Interest expense in 1999 increased by 12.5% in 1999 from 1998, both
because of larger loan balances (only a portion of the proceeds of the 475 Loan
was used to pay down the Fleet Loan) and higher interest rates. Depreciation
increased by 4.5% in 1999 primarily because of capital improvements made at 475
Fifth Avenue, the Tumi Building, and Alamo Towers during 1997, 1998 and 1999.
Amortization increased by 75.8% primarily because of the write-off of leasing
commissions on leases that were terminated early and financing costs under the
Fleet Loan following partial prepayment of the loan. Property operating expenses
increased by 3.9% in 1999 primarily because of increases in cleaning and
electricity attributable to increased occupancy at 475 Fifth Avenue, the Tumi
Building, and the Flatiron Building and because of higher real estate taxes at
475 Fifth Avenue, the Directory Building, and the Flatiron Building. Management
fees decreased by 19.0% in 1999 from 1998 because of property management fees
computed as a percentage of Registrant's decreased revenues from rental revenues
and lease cancellation fees. Professional fees increased by 12.3%, and general
and administrative expenses decreased by 16.9%, from 1998 to 1999 primarily
because of the reclassification of transfer agent fees and other expenses as
professional fees rather than general and administrative expenses. The 46.7%
increase in bad debt expense is primarily attributable to the write-off of
unpaid rent and deferred rent
18
receivable from the Gdynia lease in the Tumi Building and from tenants vacating
space prior to termination of their leases in 475 Fifth Avenue.
Registrant realized a net loss of $2,828,104 in 1999 as compared to
income of $1,930,984 in 1998. After adjusting for non-cash items (depreciation,
amortization and bad debt expense), operations generated cash flows of
approximately $3,574,475 in 1999 and $7,048,258 in 1998 (a 49.3% decrease).
These cash flows are not computed in accordance with GAAP and contrast to net
cash provided by operating activities (computed in accordance with GAAP) of
$467,101 in 1999 and $5,466,720 in 1998. The significant decrease in net cash
provided by operating activities is largely attributable to the increased
interest expense and the reduction in lease cancellation fees from the
extraordinary amounts of 1998.
Inflation
In the past, inflation has not had a material impact on Registrant's
operations or financial condition, as certain leases of Registrant's properties
provide for increases in rents based on changes in the consumer price index, and
other leases provide lease payments that escalate over time. Registrant's
properties with performing leases are protected by arrangements whereby the
tenants pay to Registrant an amount equal to all or a portion of the operating
costs of the properties, with Registrant's share of expenses, if any, subject to
a predetermined limit. These arrangements help to insulate Registrant from the
effects of any increases in operating costs. However, to the extent that there
is vacant space or nonperforming leases at any of the Registrant's properties,
Registrant lacks this protection against inflation, particularly with regards to
increased expenses that are not reimbursed.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rates
Registrant's primary market risk exposure is to changes in interest
rates on its mortgage loan borrowings.
Registrant has obtained the 475 Loan, a fixed rate debt instrument, to
manage its exposure to fluctuations in market interest rates. Registrant has
also obtained the Fleet Loan, a variable rate debt instrument, to enable it to
draw down funds as needed for capital improvements, tenant improvements, and
leasing commissions on its diverse portfolio of properties. Approximately 38%
and 42% of Registrant's outstanding debt was subject to variable rates at
December 31, 2000 and 1999, respectively. In addition, the average interest rate
on Registrant's debt increased from 8.22% at December 31, 1999 to 8.44% at
December 31, 2000. Registrant does not have any other material market-sensitive
financial instruments. It is not Registrant's policy to engage in hedging
activities for previously outstanding debt instruments or for speculative or
trading purposes.
The table below provides information about Registrant's debt
instruments that are sensitive to changes in interest rates. For debt
obligations, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates. Weighted average variable
rates are based on rates in effect at the reporting date.
19
Expected Maturity Date
-------------------------------------------------------------------------------------------
There- Fair
2001 2002 2003 2004 2005 After Total Value
---- ---- ---- ---- ---- ------- ----- -----
(in thousands)
Secured Variable $466 $455 $18,681 $ -- $ -- $ -- $19,602 $19,602
Average
Interest rate 7.1875% 7.1875% 7.1875% -- -- -- 7.1875%
Secured Fixed $240 $261 $285 $301 $325 $30,322 $31,734 $32,482
Average
interest rate 8.27% 8.27% 8.27% 8.27% 8.27% 8.27% 8.27%
Registrant believes that the interest rates given in the table for
fixed rate borrowings are above the rates Registrant could currently obtain for
instruments of similar terms and maturities. The fair values of such instruments
are estimated using discounted cash flow analyses, based on borrowing rates for
similar types of borrowing arrangements at December 31, 2000 (estimated at
7.875% per annum).
A change of 1% in the index rate to which Registrant's variable rate
debt is tied would change the annual interest incurred by Registrant by
approximately $196,000, based upon the balances outstanding on variable rate
instruments at December 31, 2000.
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.
20
Quarterly Results of Operations (Unaudited)
2000
-------------------------------------------------------------------
Three Months Ended
-------------------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
(Thousands of dollars, except per unit data)
Total revenues $4,023 $3,955 $3,599 $3,978
Total expenses 4,624 4,520 4,418 5,295
(Loss) from real estate
operations before gain on
sale of real estate (601) (565) (819) (1,317)
Gain on sale of
real estate --- 5,111 --- ---
Net (loss) income (601) 4,546 (819) (1,317)
Per Unit of limited
partnership interest:
Net (loss) income (0.20) 1.51 (0.27) (0.44)
1999
-------------------------------------------------------------------
Three Months Ended
-------------------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
(Thousands of dollars, except per unit data)
Total revenues $3,755 $4,215 $4,012 $4,714
Total expenses 4,062 4,087 4,407 6,968
Net (loss) income (307) 128 (395) (2,254)
Per Unit of limited
partnership interest:
Net (loss) income (0.10) 0.04 (0.13) (0.75)
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
21
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. 57 President, Treasurer
and Director 1994
Pauline G. Gossett 57 Secretary 1994
Information with respect to the Individual General Partner and with
respect to the above officers and directors is set forth below:
Robert F. Gossett, Jr., the Individual General Partner since 1985, is
Managing Director of Vance Capital Corporation (1981 to present), a real estate
management and finance company. Between 1978 and 1981, Mr. Gossett served as
Executive Vice President and Director of Loeb Capital Corporation. From 1974
until 1978, he was a Vice President of Oppenheimer Properties, Inc. and, between
1969 and 1974, was associated with the Investment Banking Division of Merrill,
Lynch, Pierce, Fenner & Smith, Inc. He received a B.A. degree from the
University of Texas, a J.D. degree from Georgetown University, and an M.B.A.
degree from the University of Pennsylvania. He is a member of the Texas Bar.
Pauline G. Gossett, the Secretary of the Corporate General Partner, is
a stockholder and Director of Vance Capital Corporation (1981 to present). Mrs.
Gossett received an Associate of Arts degree from Briarcliff College. Mrs.
Gossett is the wife of Robert F. Gossett, Jr.
Registrant employs the following employees who make significant
contributions to the business of Registrant:
Employee
Name Age Position Since
- ---- --- -------- --------
James N. Walsh 47 Property Manager 1997
Wallis J. Hoskins 47 Property Manager 1993
Veronica Rios 36 Property Manager 1999
Madeline Matlak 35 Fund Administrator 1994
22
James N. Walsh is the Property Manager for 475 Fifth Avenue. Mr. Walsh
has been designated a Real Property Administrator (RPA) by the Building Owners
and Managers Association. From 1989 to 1997, he was a building manager,
comptroller, and leasing manager for 584 Operating Corp., the owner of an office
building in New York, New York which is similarly sized to 475 Fifth Avenue.
Prior thereto, Mr. Walsh served for four years as an assistant comptroller and
construction accountant for the residential division of Cadillac Fairview. He
also acted for four years as a project accountant for residential properties
owned by Olympia & York. Mr. Walsh received a B.B.A. degree in accounting from
Iona College.
Wallis J. Hoskins is the Property Manager for the Austin Place
Building. For the 20 years prior thereto he was employed by The Prudential
Insurance Company of America, from 1981 to 1992 as a facilities manager for
company-owned buildings and from 1973 to 1980 as a claims approver.
Veronica Rios is the Property Manager for Alamo Towers. Ms. Rios has
been designated a Real Property Administrator (RPA) by the Building Owners and
Managers Association. From 1995 to 1999, she was a property manager for three
office buildings owned by Mission City Properties in San Antonio. Ms. Rios was a
property manager from 1993 to 1995 for several office, office/warehouse, and
rental properties owned by the Bonner Group in San Antonio. Prior thereto, from
1989 to 1993, she was employed in various office, accounting, and property
management capacities by Commercial Real Estate Associates in San Antonio.
Madeline Matlak is the Fund Administrator of the Registrant. Mrs.
Matlak was formerly employed as a Fund Administrator in the Direct Investment
Department of Smith Barney, Inc. (1989 through 1994).
Based solely upon its review of copies of Forms 3, 4, and 5 received by
it during 2000, and written representations from reporting persons that no other
Forms 5 were required for such persons for 2000, 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 2000 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.
23
Summary Compensation Table
Share of
Adjusted Cash Management Leasing Expense
Year From Operations Fees Commissions Reimbursement
---- --------------- ---------- ----------- -------------
Corporate General
Partner 2000 $28,931 $824,040 $ -0- $56,000
Individual General
Partner 2000 $7,233 $206,010 $ -0- $14,000
Corporate General
Partner 1999 $28,822 $879,765 $ -0- $44,000
Individual General
Partner 1999 $7,205 $219,941 $ -0- $11,000
Corporate General
Partner 1998 $29,005 $1,086,137 $ -0- $44,000
Individual General
Partner 1998 $7,251 $271,534 $ -0- $11,000
See Item 13 - "Certain Relationships and Related Transactions" for a discussion
of the above compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information as of February 28, 2001 as
to persons known by Registrant to be the beneficial owner of more than five
percent (5%) of the outstanding Units of Registrant.
Name and Address Amount and Percent
Of Nature of Of
Beneficial Owner Beneficial Ownership Class
---------------- -------------------- -------
Vance, Teel & Company, Ltd.(1)
406 E. 85th Street 336,306 11.3%
New York, New York 10028
- ----------
(1) Each of Robert F. Gossett, Jr., the Individual General Partner and the
President of the Corporate General Partner, and Pauline G. Gossett, the
Secretary of the Corporate General Partner, own a 25% proportionate interest in
Vance, Teel & Company, Ltd.
24
The following table sets forth information as of February 28, 2001 with
respect to the beneficial ownership of Units of Registrant by (i) each of the
General Partners, (ii) each of the directors and executive officers of the
Corporate General Partner, and (iii) all General Partners and executive officers
and directors of the Corporate General Partner, as a group.
Amount and
Name of Nature of
Beneficial Beneficial Percent
Owner Ownership of Class
- ---------- ---------- --------
1345 Realty Corporation(1) -0- 0%
Robert F. Gossett, Jr.(2) 84,076.5 2.8%
Pauline G. Gossett(3) 84,076.5 2.8%
All General Partners and
Directors and Executive
Officers as a group
(3 persons) 168,153 5.6%
Robert F. Gossett, Jr., the Individual General Partner and an officer
and director of the Corporate General Partner, and Pauline G. Gossett, an
officer of the Corporate General Partner, own all of the outstanding capital
stock of the Corporate General Partner.
Item 13. Certain Relationships and Related Transactions
Registrant has and will continue to have certain relationships with the
General Partners and their affiliates as discussed below.
The General Partners received $36,164 ($28,931 to the Corporate General
Partner and $7,233 to the Individual General Partner) as their allocable share
(1%) of adjusted cash from operations with respect to the year ended December
31, 2000. For the year ended December 31, 2000, $18,090 (1%) of Registrant's net
income was allocated to the General Partners ($14,472 to the Corporate General
Partner and $3,618 to the Individual General Partner).
The General Partners or their affiliates are also entitled to receive:
a partnership management fee for managing the affairs of Registrant, equal to 7%
of adjusted cash from operations less the asset management fee; an asset
management fee for managing Registrant's funds which are not invested in
properties, equal to 0.5% per annum of the average amount of outstanding funds
during each calendar month which are not otherwise invested in properties; and a
property management fee for property
- ----------
(1) 1345 Realty Corporation is the Corporate General Partner.
(2) Mr. Gossett is the Individual General Partner and the President of the
Corporate General Partner. Consists of Mr. Gossett's 25% proportionate interest
in Vance, Teel & Company, Ltd. He disclaims beneficial ownership of the
remaining 75% proportionate interest owned by his wife, Pauline Gossett, and his
two adult children.
(3) Ms. Gossett is the Secretary of the Corporate General Partner. Consists of
Ms. Gossett's 25% proportionate interest in Vance, Teel & Company, Ltd. She
disclaims beneficial ownership of the remaining 75% proportionate interest owned
by her husband, Robert F. Gossett, Jr., and her two adult children.
25
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, 2000, the
General Partners earned and were paid an aggregate of $1,030,050 of such
management fees ($824,040 to the Corporate General Partner and $206,010 to the
Individual General Partner).
The General Partners are also entitled to receive leasing commissions
in connection with leasing, releasing or leasing related services performed on
behalf of the Registrant in connection with the negotiation of tenant leases.
Such fees are computed at a rate equal to 3% of the gross revenue for the first
five years of each lease signed where the General Partners performed such
leasing services. During the year ended December 31, 2000, no such fees were
paid to the General Partners.
During the year ended December 31, 2000, the General Partners were also
entitled to reimbursement for expenses incurred in connection with Registrant's
operations aggregating $70,000 ($56,000 to the Corporate General Partner and
$14,000 to the Individual General Partner).
26
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 dated as of April 20, 1994
between Registrant and GTE with
respect to the Directory Building.(1)
(c) 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.
(2) Incorporated by reference to Exhibits 10 (k), (m), (n), (q), (r), (t), (u),
(v), and (w) to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996.
27
(d) Amendment No. 2 to Lease dated as
of February 22, 1995 between
Registrant and GTE.(1)
(e) Extension Agreement and Supplement
dated as of March 31, 2000 between
Registrant and GTE.
(f) Environmental Compliance and
Indemnification Agreement dated
__________, 1996, made by
Registrant.(2)
(g) Deed of Trust, Assignment of Rents,
Security Agreement and Fixture Filing
dated September 26, 1996, made by
Registrant with respect to the Monterey
Park Building.(2)
(h) First Amendment to Deed of Trust
dated December __, 1996, made by
Registrant with respect to the
Monterey Park Building.(2)
(i) Mortgage, Assignment of Leases and
Rents and Security Agreement dated
September 26, 1996, made by
Registrant with respect to the Tumi
Building.(2)
(j) First Amendment to Mortgage dated
December __, 1996, made by
Registrant with respect to the Tumi
Building.(2)
(k) Mortgage, Assignment of Leases
and Rents, Security Agreement
and Fixture Filing dated September
26, 1996, made by Registrant with
respect to the Marathon Oil
Building.(2)
(l) First Amendment to Mortgage dated
December __, 1996, made by
Registrant with respect to the
Marathon Oil Building.(2)
28
(m) Deed of Trust, Assignment of Rents,
Security Agreement and Fixture
Filing dated September 26, 1996,
made by Registrant with respect to
the Directory Building.(2)
(n) First Amendment to Deed of Trust
dated December __, 1996, made by
Registrant with respect to the
Directory Building.(2)
(o) Amended and Restated Loan Agreement
dated as of October 12, 2000
between Registrant and Fleet
National Bank.
(p) Amended and Restated Secured
Promissory Note dated October 12,
2000, made by Registrant.
(q) Second Amendment to Deed of Trust,
Assignment of Rents, Security
Agreement and Fixture Filing dated
as of October 12, 2000 made by
Registrant with respect to the
Directory Building.
(r) Second Amendment to Deed of Trust,
Assignment of Rents, Security Agreement
and Fixture Filing dated as of October
12, 2000 made by Registrant with respect
to Alamo Towers.
(s) Third Amendment to Deed of Trust,
Assignment of Rents, Security Agreement
and Fixture Filing dated as of October
12, 2000 made by Registrant with respect
to the Monterey Park Building.
(t) Third Amendment to Mortgage, Assignment
of Leases and Rents and Security
Agreement dated as of October 12, 2000
made by Registrant with respect to the
Tumi Building.
29
(u) Third Amendment to Mortgage, Assignment
of Leases and Rents, Security Agreement
and Fixture Filing dated as of October
12, 2000 made by Registrant with respect
to the Marathon Oil Building.
(v) Splitter Agreement dated as of
August 9, 1999 between Fleet Bank
and Registrant.(3)
(w) Demand Note dated August 9, 1999
made by Registrant.(3)
(x) Assignment of Mortgages and Note
dated as of August 9, 1999 made by
Registrant with respect to 475
Fifth Avenue.(3)
(y) Consolidated and Restated
Promissory Note dated August 9,
1999 made by 475 Fifth Avenue
Limited Partnership.(3)
(z) Mortgage Consolidation, Assignment
of Rents, Security Agreement and
Fixture Filing made as of August
9, 1999 by 475 Fifth Avenue Limited
Partnership to and for the benefit
of Heller Financial, Inc.(3)
(aa) Letter Agreement dated August 9,
1999 made by Robert F. Gossett, Jr.
to and for the benefit of Heller.(3)
(bb) Manager's Agreement, Subordination and
Consent to Assignment dated as of August
9, 1999 made by Registrant to and for
the benefit of Heller.(3)
- ----------
(3) Incorporated by reference to Exhibits 10 (v), (w), (x), (y), (z), (aa),
(bb), and (cc) to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1999.
30
(cc) Hazardous Substance Indemnification
Agreement dated as of August 9, 1999
made by 475 Fifth Avenue Limited
Partnership and Robert F. Gossett, Jr.
to and for the benefit of Heller.(3)
(dd) Lease dated as of November 17, 2000
between Registrant and LightCross, Inc.
with respect to the Monterey Park Building.
(ee) Purchase and Sale Agreement dated
as of May 22, 2000 between
Registrant and Invesco Realty
Advisors with respect to the
Flatiron Building, incorporated
by reference to Exhibit 2 to
Registrant's Current Report on
Form 8-K dated May 25, 2000.
(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.
31
Corporate Realty Income Fund I, L.P.
and Subsidiaries
List of Consolidated Financial Statements and
Consolidated Financial Statement Schedules
The following consolidated financial statements of Corporate Realty Income Fund
I, L.P. and Subsidiaries are included in Item 8:
Report of Independent Auditors - Ernst & Young LLP..........................F-3
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2000 and 1999................F-4
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998.........................................F-5
Consolidated Statements of Changes in Partners' Capital
for the years ended December 31, 2000, 1999 and 1998.....................F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998.........................................F-7
Notes to Consolidated Financial Statements..................................F-8
Schedule III - Real Estate and Accumulated Depreciation.....................F-21
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted since
(1) the information required is disclosed in the consolidated financial
statements and notes thereto; (2) the schedules are not required under the
related instructions; or (3) the schedules are inapplicable.
Report of Independent Auditors
To the Partners of
Corporate Realty Income Fund I, L.P.
We have audited the accompanying consolidated balance sheets of Corporate Realty
Income Fund I, L.P. (a Delaware limited partnership) and subsidiaries (the
"Partnership") as of December 31, 2000 and 1999 and the related statements of
operations, changes in partners' capital and cash flows for each of the three
years in the period ended December 31, 2000. Our audits also included the
financial statement schedule listed in the Index at Item 14 (a). These financial
statements and schedule are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Corporate Realty
Income Fund I, L.P. and subsidiaries at December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ Ernst & Young LLP
New York, New York
January 29, 2001
F-3
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Consolidated Balance Sheets
December 31,
2000 1999
----------------------------------
Assets
Real estate, at cost:
Land $ 18,795,477 $ 19,875,846
Buildings and improvements 94,703,273 98,067,344
Equipment and furniture 242,302 242,302
----------------------------------
113,741,052 118,185,492
Less accumulated depreciation 25,197,692 24,361,971
----------------------------------
88,543,360 93,823,521
Cash and cash equivalents at cost, which approximates market value 2,411,748 3,322,319
Accounts receivable, net of allowance for doubtful accounts of
$134,679 in 2000 and 1999 440,796 578,480
Due from general partners 273,252 -
Note receivable, net of unamortized discount of $20,463 in 2000 and
$32,464 in 1999, and allowance of $175,768 in 2000 and 1999 184,723 244,643
Deferred rent receivable 2,523,954 2,479,583
Deferred financing costs, net of accumulated amortization of
$1,918,751 in 2000 and $1,625,303 in 1999 1,281,303 965,492
Lease commissions, net of accumulated amortization of $1,973,860 in
2000 and $1,583,597 in 1999 2,864,780 2,168,412
Escrow deposits 2,823,307 2,866,682
Deposits and other assets 797,918 806,575
----------------------------------
Total assets $ 102,145,141 $ 107,255,707
==================================
Liabilities and partners' capital
Accounts payable and accrued expenses $ 2,965,347 $ 2,599,574
Mortgage loans payable 51,335,864 55,539,288
Due to general partners - 63,534
Other liabilities 1,629,885 1,031,820
----------------------------------
Total liabilities 55,931,096 59,234,216
Commitments and contingencies
Partners' capital:
General partners:
Capital contributions 1,000 1,000
Net income 385,045 366,955
Cash distributions (639,391) (603,227)
-----------------------------------
(253,346) (235,272)
-----------------------------------
Limited partners: ($25 per unit; 4,000,000 units authorized,
2,983,531 issued and outstanding in 2000 and 1999)
Capital contributions, net of offering costs 71,724,856 71,724,856
Net income 38,119,282 36,328,418
Cash distributions (63,376,747) (59,796,511)
-----------------------------------
46,467,391 48,256,763
-----------------------------------
Total partners' capital 46,214,045 48,021,491
-----------------------------------
Total liabilities and partners' capital $ 102,145,141 $ 107,255,707
===================================
See accompanying notes.
F-4
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Consolidated Statements of Operations
For the years ended December 31,
2000 1999 1998
----------------------------------------------------
Revenue:
Rental $ 15,109,228 $ 15,387,502 $ 15,513,474
Lease cancellation 102,469 330,062 4,167,685
Interest and other income 343,172 978,435 71,047
----------------------------------------------------
15,554,869 16,695,999 19,752,206
----------------------------------------------------
Expenses:
Interest 4,356,650 3,736,687 3,320,457
Depreciation 3,486,070 3,452,891 3,304,509
Amortization 958,010 1,753,623 997,515
Property operations 7,742,251 7,622,547 7,336,498
Management fees - affiliate 1,030,050 1,099,706 1,357,671
Professional fees 675,940 345,000 307,208
Bad debt expense 273,381 1,196,065 815,250
General and administrative 334,956 317,584 382,114
----------------------------------------------------
18,857,308 19,524,103 17,821,222
----------------------------------------------------
(Loss) income from real estate operations (3,302,439) (2,828,104) 1,930,984
Gain on sale of real estate 5,111,393 - -
----------------------------------------------------
Net income (loss) $ 1,808,954 $ (2,828,104) $ 1,930,984
====================================================
Net income (loss) allocated:
General partners $ 18,090 $ (28,281) $ 19,310
Limited partners 1,790,864 (2,799,823) 1,911,674
----------------------------------------------------
$ 1,808,954 $ (2,828,104) $ 1,930,984
====================================================
Net income (loss) per unit of limited partnership
interest $ 0.60 $ (0.94) $ 0.64
====================================================
See accompanying notes.
F-5
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Consolidated Statements of Changes in Partners' Capital
General Limited
Total Partners Partners
--------------------------------------------------
Partners' capital (deficit) at
December 31, 1997 $ 56,240,183 $ (154,018) $ 56,394,201
Redemption of units (93,310) - (93,310)
Cash distributions to partners (3,625,596) (36,256) (3,589,340)
Net income 1,930,984 19,310 1,911,674
--------------------------------------------------
Partners' capital (deficit) at
December 31, 1998 54,452,261 (170,964) 54,623,225
Cash distributions to partners (3,602,666) (36,027) (3,566,639)
Net loss (2,828,104) (28,281) (2,799,823)
--------------------------------------------------
Partners' capital (deficit) at
December 31, 1999 48,021,491 (235,272) 48,256,763
Cash distributions to partners (3,616,400) (36,164) (3,580,236)
Net income 1,808,954 18,090 1,790,864
--------------------------------------------------
Partners' capital (deficit) at
December 31, 2000 $ 46,214,045 $ (253,346) $ 46,467,391
==================================================
See accompanying notes.
F-6
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31,
2000 1999 1998
---------------------------------------------------
Operating activities
Net income (loss) $ 1,808,954 $ (2,828,104) $ 1,930,984
---------------------------------------------------
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 4,444,080 5,206,514 4,302,024
Gain on sale of real estate (5,111,393) - -
(Increase) decrease in deferred rent receivable (142,531) 159,032 316,769
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 137,684 159,137 (259,237)
Change in due to/from general partners (336,786) 158,550 63,232
Decrease (increase) in note receivable 59,920 279,736 (521,751)
Decrease (increase) in escrow deposits -
operating 523,848 (885,658) -
Increase in lease commissions (1,505,194) (497,390) (1,460,007)
Decrease (increase) in deposits and other assets 8,657 (550,806) (142,613)
(Increase) decrease in accounts payable and
accrued expenses 410,859 (383,687) 996,988
(Increase) decrease in other liabilities 163,600 (350,223) 240,331
---------------------------------------------------
Total adjustments (1,347,256) 3,295,205 3,535,736
---------------------------------------------------
Net cash provided by operating activities 461,698 467,101 5,466,720
---------------------------------------------------
Investing activities
Increase in escrow deposits - investing (46,008) (1,981,024) -
Proceeds from sale of real estate 12,142,626 - -
Acquisition of real estate (5,039,804) (3,450,996) (3,606,069)
---------------------------------------------------
Net cash provided by (used in) investing activities 7,056,814 (5,432,020) (3,606,069)
---------------------------------------------------
Financing activities
Deferred financing costs (609,259) (834,019) (234,150)
Proceeds from mortgage loan payable 19,641,440 35,000,000 6,400,000
Repayments of mortgage loan payable (23,844,864) (26,391,512) (1,048,000)
Redemption of units - - (93,310)
Cash distributions to partners (3,616,400) (3,602,666) (3,625,596)
---------------------------------------------------
Net cash (used in) provided by financing activities (8,429,083) 4,171,803 1,398,944
---------------------------------------------------
Net (decrease) increase in cash and cash equivalents (910,571) (793,116) 3,259,595
Cash and cash equivalents at beginning of year 3,322,319 4,115,435 855,840
---------------------------------------------------
Cash and cash equivalents at end of year $ 2,411,748 $ 3,322,319 $ 4,115,435
===================================================
See accompanying notes.
F-7
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000
1. Organization
Corporate Realty Income Fund I, L.P. ("CRIF") was formed as a limited
partnership on November 25, 1985 under the laws of the State of Delaware. CRIF
was formed for the purpose of acquiring and owning income-producing commercial
and industrial real estate properties for lease to others. CRIF will terminate
on December 31, 2010 or sooner, in accordance with the Partnership Agreement.
During 1999, in connection with refinancing a portion of its debt, CRIF formed a
wholly-owned subsidiary to which it transferred ownership of its New York City
property.
The general partners of CRIF are 1345 Realty Corporation, the corporate general
partner, and Robert F. Gossett, Jr., the individual general partner.
On November 30, 1994, all of the outstanding capital stock of the corporate
general partner of CRIF was acquired by the individual general partner in a
transaction which was effective as of July 1, 1994. As a result of this
acquisition, the entire interest of the general partners is controlled by the
individual general partner.
The initial capital was $1,025 representing capital contributions of $1,000 by
the general partners and $25 by the original limited partner. The Partnership
commenced operations on June 2, 1986 with the acceptance of subscriptions for
1,082,640 Depositary Units of limited partnership interest (the "Units"). The
Partnership has authorized the issuance of up to 4,000,000 Units. The
Partnership sold 3,200,000 Units, representing $80,000,000, which completed the
offering. Upon the first admittance of the additional limited partners and
unitholders, the original limited partner withdrew from the Partnership.
Offering costs incurred in connection with the initial offering are
nonamortizable and have been deducted from limited partners' capital.
During 1998, 8,680 units were redeemed from unitholders and canceled. There were
no unit redemptions during 2000 and 1999.
F-8
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of CRIF and its
wholly-owned subsidiaries (collectively, the "Partnership"). All significant
intercompany accounts and transactions have been eliminated.
Real Estate and Depreciation
Costs directly related to the acquisition and improvement of real estate are
capitalized. Ordinary repairs and maintenance are expensed as incurred.
Depreciation of buildings, improvements, and equipment and furniture for
financial reporting purposes is computed under the straight-line method over the
estimated economic useful life of the assets which range from five to forty
years.
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
the Partnership's assets, which are held for use, are measured by a comparison
of the carrying amount of an asset to future net cash flow expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by which the carrying amount of the
assets exceeds the fair value. Assets to be disposed of are reported at the
lower of carrying amount or fair value less costs to sell. No impairment losses
were required on any of the properties owned by the Partnership.
Deferred Financing Costs
Deferred financing costs are being amortized over the term of the loan
agreements.
Lease Commissions
Leasing commissions are capitalized and amortized over the term of the related
leases.
F-9
2. Significant Accounting Policies (continued)
Deferred Rent
Rental income is recognized on the straight-line basis over the entire term of
the lease including rent-free periods. Accordingly, rental income for the years
ended December 31, 2000, 1999 and 1998, includes approximately $221,900,
$615,300 and $498,500, respectively, of the excess of income on the
straight-line basis over the actual amount billed.
During 2000, the Partnership wrote off deferred rent receivable of approximately
$79,400, of which approximately $76,700 and $2,700 related to tenants vacating
475 Fifth Avenue and Alamo Towers respectively, prior to the expiration of their
lease terms. During 1999, the Partnership wrote off deferred rent receivable of
approximately $774,400, of which approximately $407,200, $338,200, and $29,000
related to tenants vacating the Tumi Building, 475 Fifth Avenue, and the
Monterey Park Building, respectively, prior to the expiration of their lease
terms. During 1998, the Partnership wrote-off deferred rent receivable of
approximately $815,300, of which approximately $750,300 and $65,000 related to
tenants vacating the Tumi Building and 475 Fifth Avenue, respectively, prior to
the expiration of their lease terms. Such write-offs are included in bad debt
expense in the accompanying statements of operations.
Income Taxes
No provision for income taxes has been made since all items of income or losses
and tax benefits are passed through to the individual partners.
Cash Equivalents
The Partnership considers all highly liquid financial instruments with a
maturity of three months or less when purchased to be cash equivalents. Cash
equivalents, which consist principally of money market funds, are carried at
cost which approximates market value.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," defines
fair value of a financial instrument as the amount at which the instrument could
be exchanged
F-10
2. Significant Accounting Policies (continued)
Fair Value of Financial Instruments (continued)
in a current transaction between willing parties. The Partnership's accounts
receivable and note receivable, deposits, accounts payable and accrued expenses,
interest payable and variable rate mortgage loan payable are carried at cost,
which approximates fair value.
The fair value of the Partnership's fixed rate long term borrowings are
estimated using discounted cash flow analyses, based on current borrowing rates
for similar types of borrowing arrangements. The carrying amount and fair value
of the Partnership's fixed rate long term debt at December 31, 2000 is
approximately $31,734,000 and $32,482,000, respectively.
Segments
SFAS No. 131 "Disclosure about Segments of an Enterprise and Related
Information", ("Statement 131") requires disclosures about segments of an
enterprise and related information regarding the different types of business
activities in which an enterprise engages and the different economic
environments in which it operates.
The Partnership is engaged in owning and managing office properties and has one
reportable segment, office real estate. The primary sources of revenue are
tenant rents and escalations and reimbursement revenue. Real estate property
operating expenses primarily consist of security, maintenance and utility costs.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin 101 ("SAB 101"), Revenue Recognition, which discusses the
SEC's views on the recognition of revenues from certain transactions. SAB 101
was required to be adopted by the end of the 2000 fiscal year. The Partnership
did not experience a material impact on its financial position and results of
operations as a result of adopting SAB 101.
F-11
2. Significant Accounting Policies (continued)
Recent Accounting Pronouncements (continued)
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended, which is required to be adopted
effective January 1, 2001 for entities with fiscal years ending December 31,
2000. SFAS No. 133, as amended, requires the recognition of all derivatives on
the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. Derivatives that are hedges, depending on
the nature of the hedge, will either be adjusted to fair value by offsetting the
change in the hedged assets, liabilities, or firm commitments through earnings,
or recognized in other comprehensive income until the hedged item is recognized
in earnings. The ineffective portion of a derivative's change in fair value will
be immediately recognized in earnings. Because the Partnership does not use
derivatives, management does not anticipate that the adoption of SFAS No. 133,
as amended, will have an effect on the earnings or the financial position of the
Partnership.
Use of Estimates
The general partners have made a number of estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent assets
and liabilities to prepare these consolidated financial statements in conformity
with accounting principles generally accepted in the United States. 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.
F-12
3. Partnership Agreement (continued)
The Partnership Agreement further provides that net income shall be allocated to
each calendar month of the year, and shall be apportioned on a monthly basis to
the holders of interests, in the ratio in which the number of interests owned by
each limited partner or unitholder on the first day of the month bears to the
total number of interests owned by the limited partners and unitholders as of
that date.
4. Investments in Real Estate
Monterey Park Building
On July 10, 1986, the Partnership purchased the Monterey Park Building (formerly
the American Color Building), an office building located at 2630 Corporate
Place, Monterey Park, California, and the 90,000 square feet of underlying land.
The property contains approximately 20,250 square feet of net rentable area.
The terms of the agreement with the seller provided for a purchase price,
including capitalized closing and related costs, of approximately $4,182,000.
The building was fully leased to GE through October 21, 1995. In October 1995,
GE renewed its lease with respect to 52% of the rentable area of the building
for a term which was due to expire in October 2000. During 1998, the Partnership
earned a lease cancellation fee of approximately $105,000 as GE terminated its
lease prior to the end of its lease term. The remaining 48% of the building was
leased to American Color Graphics, Inc. for a term which was due to expire in
July 2002. During 1999, American Color Graphics vacated the property and paid a
lease cancellation fee of approximately $140,000. During 2000, the building was
approximately 45% leased to one tenant under a lease which expired in November
2000. In November 2000, the Partnership entered into a 10 year net lease with a
tenant for the entire building. The tenant is expected to occupy the building in
early 2001, after certain improvements to the building are completed.
F-13
4. Investments in Real Estate (continued)
The Directory Building
On October 27, 1986, the Partnership purchased the Directory Building (formerly
the IBM building), an office building located in Las Colinas, Texas, and the
6.67 acres of underlying land. The property contains approximately 152,100
square feet of net rentable area.
The terms of the agreement with the seller provided for a purchase price,
including capitalized closing and related costs, of approximately $24,580,000.
As of December 31, 2000, the building was 100% leased to GTE Directories
Corporation for a term which expires on September 30, 2003, subject to two five
year renewal options. Rent from the tenant represented 18%, 16%, and 14% of the
Partnership's total rental revenue in 2000, 1999 and 1998, respectively.
Tumi Building
On December 30, 1986, the Partnership purchased the Tumi Building (formerly the
Austin Place Building), an office building located in South Plainfield, New
Jersey, and the five acres of underlying land. The property contains
approximately 106,600 square feet of net rentable area.
The terms of the agreement with the seller provided for a purchase price,
including capitalized closing and related costs, of approximately $16,473,000.
As of December 31, 2000, the building was approximately 70% leased to various
tenants under leases with remaining terms ranging from one to eight years.
In March 1999, Gdynia America Line, Inc. ("Gdynia"), a tenant who had occupied
approximately 20% of the Tumi Building, filed for protection under Chapter 11 of
the U.S. Bankruptcy Code. The lease was rejected in bankruptcy proceedings and
the Partnership is currently pursuing amounts from Polish Ocean Lines, a Polish
corporation owned by the Polish government, who is jointly and severally
obligated under Gdynia's lease.
F-14
4. Investments in Real Estate (continued)
Tumi Building (continued)
During 1998, two tenants, The Austin Company and PNC Mortgage, paid lease
cancellation fees of approximately $3,337,000 and $397,000, respectively, to
terminate their leases prior to the end of their lease terms.
Flatiron Building
On January 5, 1988, the Partnership purchased the Flatiron Building (formerly
the Cadnetix Building) located in Boulder, Colorado, and the five acres of
underlying land. The building contains approximately 96,000 square feet of net
rentable area.
The terms of the agreement with the seller provided for a purchase price,
including capitalized closing and related costs, of approximately $9,003,000.
On June 30, 2000, the Partnership sold the Flatiron Building for $13,050,000 and
recognized a gain of approximately $5,111,000, net of closing costs of
approximately $473,000. Proceeds from the sale of $10,000,000 were used to
partially pay down the Mortgage (Note 7).
An escrow account of $434,466 was established from the proceeds of the sale
which will be released to the Partnership upon finding a replacement for a
tenant who applied for bankruptcy protection. The recognition of gain on sale,
to the extent held in such escrow, has been deferred.
Marathon Oil Building
On March 21, 1988, the Partnership purchased the Marathon Oil Building (formerly
the Tenneco Oil Building) located in Oklahoma City, Oklahoma, and the 6.1 acres
of underlying land. The building contains approximately 90,925 net rentable
square feet plus a 10,016 square foot basement.
The terms of the agreement with the seller provided for a purchase price,
including capitalized closing and related costs, of approximately $10,736,000.
F-15
4. Investments in Real Estate (continued)
Marathon Oil Building (continued)
As of December 31, 2000, the building was approximately 93% leased to various
tenants under leases with remaining terms ranging from two months to five years.
The Marathon Oil Company leases approximately 65,000 square feet of space
pursuant to a lease which expires in February, 2006. A former affiliate of
Marathon leases approximately 22,300 square feet of space pursuant to a lease
which expires in February, 2001. Approximately 5,900 square feet of the
remaining space is leased to another tenant for a remaining term of one year.
475 Fifth Avenue
On December 6, 1996 the Partnership purchased an office building and the
underlying land located at 475 Fifth Avenue, New York, New York (the "New York
Building"). The building contains approximately 240,000 net rentable square
feet.
The terms of the agreement with the seller provided for a purchase price,
including capitalized closing and related costs, of approximately $27,440,000.
As of December 31, 2000, the building was approximately 95% leased to various
tenants under operating leases with remaining terms ranging from one to nine
years.
During 2000 and 1999, the Partnership earned lease cancellation fees of
approximately $70,000 and $190,000, respectively, from tenants who terminated
their leases prior to the end of their lease terms.
Alamo Towers
On March 17, 1997, the Partnership purchased an office building and the
underlying land located in San Antonio, Texas, for a purchase price, including
capitalized closing and related costs, of approximately $12,002,000. The
building contains approximately 196,000 net rentable square feet.
As of December 31, 2000, the building was approximately 84% leased to various
tenants under operating leases with remaining terms ranging from one to seven
years.
F-16
4. Investments in Real Estate (continued)
Alamo Towers (continued)
During 2000 and 1998, the Partnership earned lease cancellation fees aggregating
approximately $32,000 and $131,000, respectively, from several tenants who
terminated leases prior to the end of their respective lease terms.
5. Leases
Minimum future rentals from tenants under noncancellable operating leases as of
December 31, 2000 are approximately as follows:
2001 $ 13,443,000
2002 12,676,000
2003 11,532,000
2004 8,592,000
2005 7,394,000
Thereafter 15,187,000
--------------------
Total $ 68,824,000
====================
In addition to the minimum lease amounts, the leases provide for escalation
charges to the tenants for operating expenses, electric and real estate taxes.
For the years ended December 31, 2000, 1999 and 1998, escalation charges
amounting to approximately $1,846,000, $2,034,000 and $2,152,000, respectively,
have been included in rental income.
6. Transactions With General Partners and Affiliates
The general partners or their affiliates receive a property management fee equal
to either 1% for a long-term net lease or 6% for other types of leases on the
gross revenue from the property, and a partnership management fee equal to 7% of
adjusted cash from operations, as defined, and reimbursement of administrative
expenses. The general partners also receive leasing commissions in connection
with leasing, re-leasing or leasing related services performed on behalf of the
Partnership in connection with the negotiation of tenant leases. Such
commissions are computed at a rate equal to 3% of the
F-17
6. Transactions With General Partners and Affiliates (continued)
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, 2000, 1999 and 1998:
2000 1999 1998
----------------------------------------------
Partnership management fees $ 106,508 $ 250,908 $ 254,544
Property management fees 923,542 848,798 1,103,127
Administrative expenses 70,000 55,000 55,000
There were no leasing commissions billed by the general partner in 2000, 1999
and 1998.
7. Loans Payable
On September 26, 1996, the Partnership entered into a $24,000,000 senior secured
revolving credit facility (the "Mortgage"). The purpose of the Mortgage was to
refinance the existing $7,800,000 secured revolving line of credit, to provide
working capital for tenant improvements and leasing commissions with respect to
the properties owned by the Partnership, and to provide funds for the
acquisition of additional properties. On December 6, 1996, the Partnership
amended the Mortgage, increasing the principal amount to $44,000,000. On
September 25, 1998, the Partnership further amended the Mortgage. The terms of
the Mortgage, as amended, provided for a term of four years and provided for
maximum gross borrowings of $49,000,000. On August 9, 1999, the Partnership
divided the Mortgage into two notes. One note, in the amount of $22,594,880, was
secured by the New York Building, and the second note in the amount of
$26,405,120 was secured by the six other properties owned by the Partnership.
The loan secured by the New York Building was repaid in 1999. As a result of the
Mortgage borrowing capacity reduction, approximately $251,000 of unamortized
loan fees were written off during 1999.
On October 12, 2000, the Partnership entered into an Amended and Restated Loan
Agreement in connection with the Mortgage (the "New Mortgage"). The terms of the
New Mortgage provide for maximum gross borrowings of $25,000,000, of which
F-18
7. Loans Payable (continued)
$19,641,440 was advanced on October 12, 2000. The loan commitment will be
permanently reduced by required monthly principal payments and any prepayments.
The New Mortgage provides for an initial maturity date of September 30, 2003,
however, the Partnership has the option to extend the maturity date for two
additional one year periods provided that certain conditions are met. The New
Mortgage is secured by the properties owned by the Partnership, other than the
New York Building.
Borrowings under the New Mortgage bear interest monthly at a rate, selected at
the option of the Partnership at the time of the associated borrowing, based on
(i) the prime rate plus .50% or (ii) the applicable LIBOR rate plus 2%. The New
Mortgage requires monthly amortization of principal in an amount equal to
1/500th of the outstanding principal on the first day of the applicable month
with a final payment of the then outstanding balance due at maturity. Borrowings
bearing interest based upon the prime rate can be prepaid any time without
penalty. The LIBOR based advances can be prepaid at the end of the interest
periods without penalty, and during the interest period subject to a penalty.
Upon the sale of any property, the Partnership is required to repay principal on
the total indebtedness under the New Mortgage 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 New Mortgage agreement, or 100% of the sales price,
if greater, for Alamo Towers and The Directory Building. The New Mortgage
requires the Partnership to comply with certain covenants, including but not
limited to, maintenance of certain financial ratios.
In addition, the New Mortgage provides that the Partnership may distribute to
its partners up to 90% of the sum of its cumulative net income from real estate
operations, adjusted for depreciation, amortization, and write-offs of deferred
rent receivables.
At December 31, 2000, $19,602,158 was outstanding under the New Mortgage at an
interest rate of approximately 8.71% based on (ii) above.
In connection with obtaining the New Mortgage, the Partnership incurred fees and
expenses of $609,259 which have been capitalized and are being amortized over
the term of the loan agreement.
F-19
7. Loans Payable (continued)
On August 9, 1999, the Partnership obtained a $32,000,000 fixed rate mortgage
(the "New York Loan"). The loan is secured by the New York Building, matures on
September 1, 2009, and bears interest on the outstanding balance, payable
monthly, at a fixed rate of 8.27%. The terms of the note require monthly
principal and interest payments of $240,855. During 1999, approximately
$23,381,000 of the loan proceeds was used to repay the note secured by the New
York Building. In connection with the New York Loan, the Partnership incurred
fees aggregating approximately $834,000. These fees have been deferred and are
being amortized over the term of the New York Loan. As of December 31, 2000, the
outstanding balance of the loan was $31,733,706. The New York Loan may not be
prepaid prior to September 2, 2002. Thereafter, the New York Loan can be prepaid
in full and not in part, subject to a prepayment penalty. Pursuant to the New
York Loan agreement, the Partnership had approximately $2,369,000 on deposit at
December 31, 2000 in restricted funds for capital improvements, repairs and
replacements, and real estate taxes.
Minimum future principal payments pursuant to the Partnership's loan agreements
as of December 31, 1999 are as follows:
2001 $ 705,625
2002 715,522
2003 18,966,605
2004 301,159
2005 324,967
Thereafter 30,321,986
--------------------
Total $ 51,335,864
====================
8. Supplemental Disclosure of Cash Flow Information
2000 1999 1998
------------------------------------------------------
Cash paid during the year for interest $ 4,388,197 $ 3,653,401 $ 3,289,728
======================================================
F-20
9. Employee Savings Plan
During 1997, the Partnership established an employee savings plan (the "Plan")
in accordance with Section 401(K) of the Internal Revenue Code. The Plan permits
eligible employees to make contributions through salary reductions. For the
periods ended December 31, 2000, 1999 and 1998, the Partnership had not made any
contributions to the Plan.
10. Earnings and Distributions per Limited Partnership Unit
Basic earnings per limited partnership unit amounts were computed based on
2,983,531 (2000 and 1999) and 2,986,460 (1998) weighted average limited
partnership units outstanding.
For the three years ended December 31, 2000, there were no partnership unit
equivalents and, in accordance with the provisions of SFAS No. 128, dilutive
earnings per limited partnership unit for the three years ended December 31,
2000, were computed based on the weighted average limited partnership units
outstanding.
Distributions per limited partnership unit were $1.20 for the years ended
December 31, 2000 and 1999.
F-21
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2000
Costs
Capitalized
Subsequent to Gross Amount at Which
Initial Cost (B) Acquisition Carried at Close of Period
-------------------------------------------------------------------
Building Building Accumulated
Encumbrances and Building and and Total Depreciation
Description (A) Land Improvements Improvements Land Improvements (C) (D)
- ---------------------------------------------------------------------------------------------------------------------------------
Office Building
Monterey Park, CA $ 960,506 $ 1,762,126 $ 2,459,141 $ 140,692 $ 1,762,126 $ 2,599,833 $ 4,361,959 $ 972,780
Office Building
Las Colinas, TX 7,056,777 4,925,745 19,702,979 3,281,901 4,925,745 22,984,880 27,910,625 9,639,098
Office Building
So. Plainfield, NJ 4,645,711 3,147,912 13,378,294 3,109,093 3,147,912 16,487,387 19,635,299 6,217,081
Office Building
San Antonio, TX 5,174,970 2,408,000 9,636,883 3,781,427 2,408,000 13,418,310 15,826,310 1,192,456
Office Building
Oklahoma City, OK 1,764,194 1,063,694 9,713,348 440,750 1,063,694 10,154,098 11,217,792 3,465,812
Office Building
New York, NY 31,733,706 5,488,000 21,951,998 7,349,069 5,488,000 29,301,067 34,789,067 3,710,465
-----------------------------------------------------------------------------------------------------------
$51,335,864 $18,795,477 $76,842,643 $18,102,932 $18,795,477 $94,945,575 $113,741,052 $25,197,692
===========================================================================================================
Life on Which
Date of Date Depreciation
Construction Acquired Is Computed
-------------------------------------------------
Office Building
Monterey Park, CA 1985 July, 1986 5 to 40 years
Office Building
Las Colinas, TX 1982 October, 1986 5 to 40 years
Office Building
So. Plainfield, NJ 1986 December, 1986 5 to 40 years
Office Building
San Antonio, TX 1975/1980 March, 1997 5 to 40 years
Office Building
Oklahoma City, OK 1986 March, 1988 5 to 40 years
Office Building
New York, NY 1925 December, 1996 5 to 40 years
F-22
Corporate Realty Income Fund I, L.P.
and Subsidiaries
Schedule III - Real Estate and Accumulated Depreciation (continued)
December 31, 2000
Notes:
(A) Encumbrances represent a loan secured by a deed of trust given with respect
to all of the properties of the Partnership.
(B) The initial cost to the Partnership represents the original purchase price
of the properties net of purchase price adjustments, including amounts
incurred subsequent to acquisition which were contemplated. The initial
cost includes the purchase price paid by the Partnership and acquisition
fees and expenses. There is no difference between costs for financial
reporting purposes and costs for federal income tax purposes.
(C) Reconciliation Summary of Transactions - Real Estate Owned
Years Ended December 31,
2000 1999 1998
----------------------------------------------------
Balance at beginning of year $ 118,185,492 $ 115,495,174 $ 112,116,734
Net additions during the year 5,039,804 3,450,996 3,606,069
Cost of real estate sold (9,395,006) - -
Write off fully depreciated assets (89,238) (760,678) (227,629)
----------------------------------------------------
Balance at close of year $ 113,741,052 $ 118,185,492 $ 115,495,174
====================================================
The aggregate cost of land, buildings and improvements for federal income
tax purposes at December 31, 2000 was approximately $114,363,200.
(D) Reconciliation Summary of Transactions - Accumulated Depreciation
Years Ended December 31,
2000 1999 1998
-------------------------------------------------
Balance at beginning of year $ 24,361,971 $ 21,669,758 $ 18,592,878
Depreciation charged to expense 3,486,070 3,452,891 3,304,509
Accumulated depreciation of real estate
sold (2,561,111) - -
Write-off of fully depreciated assets (89,238) (760,678) (227,629)
-------------------------------------------------
Balance at close of year $ 25,197,692 $ 24,361,971 $ 21,669,758
=================================================
F-23
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 29, 2001 By: /s/ Robert F. Gossett, Jr.
--------------------------------------
ROBERT F. GOSSETT, JR.,
President
Dated: March 29, 2001 By: /s/ Robert F. Gossett, Jr.
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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 29, 2001 By: /s/ Robert F. Gossett, Jr.
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Robert F. Gossett, Jr.
President, Director
Dated: March 29, 2001 By: /s/ Pauline G. Gossett
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Pauline G. Gossett
Secretary