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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------ --------------------
Commission file number 0-15796
Corporate Realty Income Fund I, L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3311993
(State of organization) (I.R.S. Employer
identification No.)
475 Fifth Avenue, New York, New York 10017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 696-0772
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
1
CORPORATE REALTY INCOME FUND I, L.P.
and SUBSIDIARIES
Index
Page No.
Part I Financial information 3
Item 1 Financial Statements 3
Consolidated Balance Sheets --
June 30, 2002 and December 31, 2001 4
Consolidated Statements of Operations --
For the three months ended June 30, 2002 and 2001 5
Consolidated Statements of Operations --
For the six months ended June 30, 2002 and 2001 6
Consolidated Statements of Cash Flows --
For the six months ended June 30, 2002 and 2001 7
Notes to Consolidated Financial Statements 8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3 Quantitative and Qualitative Disclosures about Market Risk 13
Part II Other information 14
Item 6 Exhibits and Reports on Form 8-K 14
Signatures 15
2
Part I. Financial Information
Item 1. Financial Statements
The summarized financial information contained herein is unaudited; however, in
the opinion of management, all adjustments necessary for a fair presentation of
such financial information have been included.
3
CORPORATE REALTY INCOME FUND I, L.P.
and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2002 and December 31, 2001
June 30, December 31,
2002 2001
------------- -------------
(Unaudited)
ASSETS
Real estate, at cost:
Land $ 18,795,477 $ 18,795,477
Buildings and improvements 99,988,262 99,031,250
Equipment and furniture 262,607 262,607
------------- -------------
119,046,346 118,089,334
Less accumulated depreciation (29,081,935) (27,462,963)
------------- -------------
89,964,411 90,626,371
Cash and cash equivalents 1,372,401 1,077,273
Accounts receivable, net of allowance for doubtful
accounts of $134,680 in 2002 and $252,228 in 2001 236,449 398,089
Notes receivable, net of unamortized discount of
$7,539 in 2002 and $11,195 in 2001 213,806 240,485
Step rent receivables 2,459,826 2,546,931
Deferred financing costs, net of accumulated amortization
of $591,710 in 2002 and $448,464 in 2001 851,569 994,815
Lease commissions, net of accumulated amortization
of $1,653,622 in 2002 and $1,426,842 in 2001 2,391,015 2,634,446
Escrow cash 591,065 1,196,814
Deposits and other assets 894,412 817,242
------------- -------------
Total assets $ 98,974,954 $ 100,532,466
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Mortgage loan payable $ 55,457,191 $ 55,879,036
Accounts payable and accrued expenses 2,843,474 2,430,003
Due to general partners 532,662 --
Other liabilities 1,328,614 1,302,330
------------- -------------
Total liabilities 60,161,941 59,611,369
------------- -------------
Partners' Capital:
General partners:
Capital contributions 1,000 1,000
Net income 356,240 368,280
Cash distributions (684,596) (675,555)
------------- -------------
(327,356) (306,275)
------------- -------------
Limited partners: ($25 per unit; 4,000,000 units
authorized, 2,983,531 issued and
outstanding in 2002 and 2001)
Capital contributions, net of offering costs 71,724,856 71,724,856
Net income 35,267,556 36,459,500
Cash distributions (67,852,043) (66,956,984)
------------- -------------
39,140,369 41,227,372
------------- -------------
Total partners' capital 38,813,013 40,921,097
------------- -------------
Total liabilities and partners' capital $ 98,974,954 $ 100,532,466
============= =============
See accompanying notes to financial statements.
4
CORPORATE REALTY INCOME FUND I, L.P.
and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended June 30, 2002 and 2001
(Unaudited)
2002 2001
----------- -----------
Income:
Rental $ 3,833,525 $ 4,060,093
Interest and other income 29,275 29,557
----------- -----------
3,862,800 4,089,650
----------- -----------
Expenses:
Interest 891,497 1,085,417
Depreciation 809,486 740,377
Amortization 224,732 205,872
Bad debt expense -- 10,968
Property operating 1,827,833 1,922,792
Management fees 257,469 289,646
General and administrative 159,115 207,812
----------- -----------
4,170,132 4,462,884
----------- -----------
Net loss $ (307,332) $ (373,234)
=========== ===========
Net loss allocated:
To the general partners $ (3,073) $ (3,732)
To the limited partners (304,259) (369,502)
----------- -----------
$ (307,332) $ (373,234)
=========== ===========
Net loss per unit of limited partnership interest $ (0.10) $ (0.12)
=========== ===========
Distribution per unit of limited partnership interest $ -- $ 0.30
=========== ===========
See accompanying notes to financial statements.
5
CORPORATE REALTY INCOME FUND I, L.P.
and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the six months ended June 30, 2002 and 2001
(Unaudited)
2002 2001
----------- -----------
Income:
Rental $ 7,541,113 $ 7,943,598
Interest and other income 63,450 169,259
----------- -----------
7,604,563 8,112,857
----------- -----------
Expenses:
Interest 1,773,683 2,112,972
Depreciation 1,618,972 1,480,754
Amortization 449,464 411,744
Bad debt expense 302,286 10,968
Property operating 3,798,877 3,964,601
Management fees 524,220 576,100
General and administrative 341,045 341,058
----------- -----------
8,808,547 8,898,197
----------- -----------
Loss from real estate operations (1,203,984) (785,340)
Gain on sale of real estate -- 103,333
----------- -----------
Net loss $(1,203,984) $ (682,007)
=========== ===========
Net loss allocated:
To the general partners $ (12,040) $ (6,820)
To the limited partners (1,191,944) (675,187)
----------- -----------
$(1,203,984) $ (682,007)
=========== ===========
Net loss per unit of limited partnership interest $ (0.40) $ (0.23)
=========== ===========
Distribution per unit of limited partnership interest $ 0.30 $ 0.60
=========== ===========
See accompanying notes to financial statements.
6
CORPORATE REALTY INCOME FUND I, L.P.
and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six ended June 30, 2002 and 2001
(Unaudited)
2002 2001
----------- -----------
Cash flows from operating activities:
Net loss $(1,203,984) $ (682,007)
----------- -----------
Adjustments to reconcile loss
to net cash provided by operating activities:
Depreciation and amortization 2,068,436 1,892,498
Gain from sale of real estate -- (103,333)
Changes in operating assets and liabilities:
Decrease/(increase) in:
Accounts receivable 161,640 30,072
Due from general partners -- 14,182
Notes receivable 26,679 (39,238)
Step rent receivables, net of write-off 87,105 (80,875)
Lease commissions and legal fees (62,787) (208,866)
Escrow deposits 605,749 642,084
Other assets (77,170) 15,744
Increase/(decrease) in:
Accounts payable and accrued expenses 413,471 142,359
Other liabilities 26,284 (107,990)
----------- -----------
Total adjustments 3,249,407 2,196,637
----------- -----------
Net cash provided by operating activities 2,045,423 1,514,630
----------- -----------
Cash flows from investing activities:
Acquisition of real estate (957,012) (3,993,331)
----------- -----------
Cash used in investing activities (957,012) (3,993,331)
----------- -----------
Cash flows from financing activities:
Due to partners 532,662 --
Mortgage proceeds -- 4,300,000
Mortgage paid (421,845) (361,102)
Cash distributions to partners (904,100) (1,808,200)
----------- -----------
Net cash (used in)/ provided by financing activities (793,283) 2,130,698
----------- -----------
Net increase/(decrease) in cash and cash equivalents 295,128 (348,003)
Cash and cash equivalents at beginning of period 1,077,273 2,411,748
----------- -----------
Cash and cash equivalents at end of period $ 1,372,401 $ 2,063,745
=========== ===========
See accompanying notes to financial statements.
7
CORPORATE REALTY INCOME FUND I, L.P.
and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(Unaudited)
1. General
The accompanying unaudited condensed financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management of Corporate Realty Income Fund I, L.P. and subsidiaries (the
"Partnership" or the "Registrant"), all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and six months ended June 30,2002 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2002.
The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Registrant's annual report on Form 10-K
for the year ended December 31, 2001.
In August 1999, the Partnership established two wholly-owned subsidiaries
namely, 475 Fifth Avenue L.P. and 475 Fifth - GP, Inc. 475 Fifth Avenue L.P.,
the interest of which is 99% owned by Registrant and 1% owned by 475 Fifth - GP,
Inc. (The General Partner), acquired ownership of the New York building and
related operations.
The consolidated financial statements include the accounts of the
Partnership and its wholly-owned subsidiaries. All intercompany accounts and
transactions have been eliminated.
2. Recently Issued Accounting Pronouncement
In October 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." Statement No. 144 provides accounting guidance for financial accounting
and reporting for the impairment or disposal of long-lived assets. Statement No.
144 supersedes Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-lived Assets to be disposed of". It also supersedes the
accounting and reporting provisions of Accounting Principles Board Opinion No.
30, Reporting the Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions related to the disposal of a segment of a business.
Statement No. 144 is effective for fiscal years beginning after December 15,
2001. The Partnership adopted Statement No. 144 on January 1, 2002. The adoption
of this statement did not have a material effect on the results of operations or
the financial position of the Partnership.
In April 2002, the FASB issued Statement No. 145, which rescinded
Statement No.4, "Reporting Gains and Losses from Extinguishment of Debt".
Statement No. 145 is effective for fiscal years beginning after May 15, 2002.
The Partnership will adopt Statement No. 145 on January 1, 2003.
8
CORPORATE REALTY INCOME FUND I, L.P.
and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(Unaudited)
3. Rental Income
In accordance with FASB No. 13, "Accounting for Leases," the Partnership
recognizes rental income on a straight-line basis over the fixed term of the
lease period. Step rent receivables represent unbilled future rentals. The
following reconciles rental income billed to rental income recognized.
Three Months Ended Six Months Ended
June 30 June 30
2002 2001 2002 2001
---------- ---------- ---------- ----------
Rental income billed $3,795,315 $4,000,500 $7,466,443 $7,862,723
Step rent receivables 38,210 59,593 74,670 80,875
---------- ---------- ---------- ----------
Rental income recognized $3,833,525 $4,060,093 $7,541,113 $7,943,598
========== ========== ========== ==========
4. Leases
Minimum future rentals under noncancellable operating leases as of June
30, 2002 are approximately as follows:
Year ending December 31
-----------------------
2002 $13,435,000
2003 12,312,000
2004 9,304,000
2005 8,451,000
2006 6,083,000
2007 6,964,000
Thereafter 8,299,000
-----------
Total $64,848,000
===========
In addition to the minimum lease amounts, the leases provide for
escalation charges to the tenants for operating expenses and real estate taxes.
Escalation charges have been included in rental income. For the three and six
months ended June 30, 2002 and 2001, escalation charges amounted to $376,876 and
$704,103 in 2002 and $418,676 and $696,966 in 2001, respectively.
5. Transactions with General Partners and Affiliates
Fees incurred and reimbursable expenses for the three and six months ended
June 30, 2002 are:
Three Six
Months Months
------ ------
Partnership management fees $ 51,836 $115,123
Property management fees 205,633 409,097
6. Supplemental Disclosure of Cash Flow Information
Cash paid for interest during the six months ended June 30, 2002 and 2001
amounted to $1,789,062 and $2,112,972, respectively.
9
CORPORATE REALTY INCOME FUND I, L.P.
and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(Unaudited)
7. Deferred Gain on Sale of Colorado Building
On June 30, 2000, Registrant sold its real property in Boulder, Colorado
for $13,050,000 realizing a gain of approximately $5,111,000. Proceeds from the
sale were used to partially pay-off the Fleet Loan by $10,000,000.
An escrow account for $434,466 was established from the proceeds of the
sale which will be released to the Partnership if and when it finds a
replacement for a tenant who applied for bankruptcy protection. Recognition of
gain on sale, to the extent held in such escrow, has been deferred. Through June
30, 2002, $103,333 has been recognized (all recorded in 2001). An agreement
between the Partnership and the purchaser also calls for the Partnership to
indemnify the purchaser for the nonpayment of rent by the tenant applying for
bankruptcy protection. Through June 30, 2002, disbursements aggregating
approximately $75,000 were made from the escrow account in relation to such
obligation.
8. Contingencies
In March 1999, Gdynia American 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 was pursuing amounts from Polish Ocean Lines, a
Polish corporation owned by the Polish government and/or certain Polish
institutions and organizations, who is jointly and severally obligated under
this lease. On May 4, 2001, the Partnership obtained a judgement in the
approximate amount of $4,389,400 against Polish Ocean Lines for amounts due
under the lease. Such amount has not been recognized in income as there can be
no assurance as to the Partnership's ability to collect any of this judgement.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
At June 30, 2002, Registrant had cash and receivables of approximately
$1,609,000 as contrasted to accounts payable and accrued expenses of
approximately $2,843,000. 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 likely will need to sell
assets as its borrowing capacity under its line-of-credit loan (the "Fleet
Loan") is exhausted.
In June 2000, Registrant sold its real property in Boulder, Colorado 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. In 2001, Registrant recognized
approximately $103,000 of the amount held in escrow. An agreement between the
Partnership and the purchaser also calls for the Partnership to indemnify the
purchaser for the nonpayment of rent by the tenant applying for bankruptcy
protection. Through June 30, 2002, disbursements aggregating approximately
$75,000 were made from the escrow account in relation to such obligation.
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 $24,941,000 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 has availed itself of the maximum amount allowed
under the Fleet Loan. Registrant may draw funds from its replacement reserve
(currently approximately $200,000) under the 475 Fifth Loan to fund certain
improvements at 475 Fifth Avenue.
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 partially 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 judgement in the
approximate amount of $618,600 against Polish Ocean Lines for amounts then due
under the lease. On May 4, 2001, the amount of such judgment was increased to
approximately $4,389,400. There can be no assurance as to the Registrant's
ability to collect any of its judgment against Polish Ocean Lines. This space in
the Tumi Building remains vacant.
During the early part of 2002, two retail tenants paying aggregate annual
rents of approximately $1,000,000 vacated 475 Fifth Avenue. One of such tenants
had its lease rejected in bankruptcy proceeding and the other retail tenant's
lease was terminated upon forfeiture of a security deposit in the approximate
amount of $91,000. One replacement retail tenant has entered into an approximate
five year lease at an initial annual base rent of approximately $298,000. The
rent abatement period under such lease ended in July 2002. In addition, office
tenants paying aggregate annual rents of approximately $1,200,000 vacated 475
Fifth Avenue during 2001.
During the six months ended June 30, 2002, Registrant funded approximately
$957,000 of building and tenant improvements in New York and San Antonio.
Registrant continues to invest capital in improving its properties with the goal
of increasing revenues from real estate operations and realizing appreciation in
property values; however, Registrant recently has delayed such expenditures when
possible because of decreases in revenues from real estate operations
experienced during the past 12 months. Registrant may require capital to fund
additional tenant improvements as tenancies turn over at its properties as well
as further capital improvements at 475 Fifth Avenue (estimated at $1,700,000)
and Alamo Towers (estimated at $3,250,000). These additional capital
improvements are expected to be made over several years.
To date, Registrant has funded its capital requirements from the 475 Loan,
the Fleet Loan and working capital. As discussed above, Registrant has exhausted
its borrowing capacity under the Fleet Loan and has limited funds available
under the 475 Fifth Loan. Registrant made no distribution attributable to the
quarter ended March 31, 2002 and will not make any distribution attributable to
the quarter ended June 30, 2002. Registrant expects to resume distributions when
it is able to re-lease the retail vacant spaces at 475 Fifth Avenue, although
the level of distributions may be less than the $0.30 per Unit amount previously
paid to Unitholders.
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 available 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 rent and step rent receivables. As
of June 30, 2002, cumulative distributions to Unitholders since January 1, 2001
exceeded adjusted net income from real estate operations by approximately
$407,000.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Critical Accounting Policies
Management has selected the following accounting policies which it
believes are significant in order to understand the Partnership's activities,
financial position and operating results.
Real Estate and Depreciation and Amortization. Costs directly related to
the acquisition, development and improvement of real estate are capitalized.
Ordinary repairs and maintenance are expensed as incurred.
The Partnership reviews its real estate assets 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.
Tenant improvements and leasing commissions related to commercial
properties are capitalized and amortized over the terms of the related leases.
Depreciation is computed under the straight-line method over the estimated
economic useful life of the assets, which range from five to forty years.
Financing costs are amortized over the term of the loan agreements.
Income recognition. Commercial properties are leased under operating
leases. Rental income is recognized on a straight-line basis over the terms of
the respective leases including rent-free periods. Rental income is recognized
monthly as it is earned.
Estimates. The preparation of financial statements in conformity accepted
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Results of Operations
Six Months Ended June 30, 2002 versus 2001
Rental income in 2002 decreased by 5.1% from 2001, primarily as a result
of lease cancellations and terminations in the New York property. Other income
in 2002 decreased by 62.5% from 2001 because Registrant recovered a bad debt in
2001 from a delinquent New York tenant.
Interest expense decreased by 16.1% in 2002 primarily because of the
lowering of variable interest rates. Depreciation increased by 9.3% in 2002 from
2001 as a result of the depreciation of building and tenant improvements
completed at the New York and San Antonio properties. Amortization increased by
9.2% because of the amortization of commissions paid pertaining to new and
renewed leases in the New York, San Antonio, South Plainfield and Monterey Park
properties. Bad debt expense in 2002 increased significantly from that of 2001
as a result of the write-off of rent and step rent receivables from former New
York and San Antonio tenants. Property operating costs decreased by 4.2 % in
2002 as a result of vacancies in the New York property and the reduction in
utilities cost in the New York, San Antonio, South Plainfield and Oklahoma City
properties. Management fees decreased by 9.0% from 2002 to 2001 due to the
decrease in rental income. Despite increases in salaries, fringe benefits,
transfer agent and tax preparation costs in 2002, total general and
administrative expenses were comparable to those of 2001 because such expenses
in 2001 included a Colorado tax on gain from sale of the Boulder, Colorado
property.
Registrant had a loss of $1,203,984 from real estate operations during the
six months ended June 30, 2002 as compared to a loss of $785,340 from real
estate operations for the same period of 2001 (53.3% increase). After adjusting
for non-cash items (depreciation, amortization and bad debt expense), operations
generated cash flows of $1,166,738 in the first half of 2002 and $1,118,126 in
2001 (a 4.3% increase). These cash flows are not computed in accordance with
accounting principles generally accepted in the United States ("GAAP") and
contrast to net cash provided by operating activities (computed in accordance
with GAAP) of $2,045,423 in 2002 and $1,514,630 in 2001. Registrant realized an
additional gain on sale of real estate in 2001 of $103,333 from the sale in 2000
of the Colorado building. As a result of the increased loss from real estate
operations and the additional gain on sale of real estate in 2001, Registrant's
net loss increased by 76.5% from 2001 to 2002.
The increase in Registrant's loss from real estate operations and increase
in cash flows (on a non-GAAP basis) are primarily attributable to the loss of
retail and office tenants at 475 Fifth Avenue and the related write-off of rent
and step rent receivables.
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Three Months Ended June 30, 2002 versus 2001
Rental income in 2002 decreased by 5.6% from 2001, primarily as a result
of lease cancellations and terminations in the New York property. There was no
significant difference between other income of the second quarters of 2002 and
2001.
Interest expense decreased by 17.9% in 2002 primarily because of the
lowering of variable interest rates. Depreciation increased by 9.3% in 2002 from
2001 as a result of the depreciation of building and tenant improvements
completed at the New York and San Antonio properties. Amortization increased by
9.2% because of the amortization of commissions paid pertaining to new and
renewed leases in the New York, San Antonio, South Plainfield and Monterey Park
properties. No tenant receivables were considered uncollectible and, therefore,
written off during the second quarter of 2002. Property operating costs
decreased by 4.9% from 2001 to 2002 as a result of vacancies in the New York
property and the reduction in utilities cost in the New York, San Antonio, South
Plainfield and Oklahoma City properties. Management fees decreased by 11.1% from
2001 to 2002 due to the decrease in rental income. General and administrative
expenses for 2002 decreased by 23.4% when compared to those of 2001 primarily
because of the payment in 2001 of a Colorado tax on gain from sale of the
Boulder, Colorado property.
Registrant had net loss of $307,332 during the three months ended June 30,
2002 as compared to a net loss of $373,234 for the same period of 2001 (a 17.7%
decrease). After adjusting for non-cash items (depreciation, amortization and
bad debt expense), operations generated cash flows of $726,886 in 2002 and
$583,983 in 2001 (a 24.5% increase). These cash flows are not computed in
accordance with GAAP.
The decrease in Registrant's net loss from real estate operations and
increase in cash flows (on a non-GAAP basis) are primarily attributable to the
lowering of variable interest rates, reduction in utilities costs and the
payment in 2001 of the Colorado tax on gain from sale of property.
Item 3: Quantitative and Qualitative Disclosures About Market Risk.
Interest Rates
Registrant's primary market risk exposure is to changes in interest rates
on its mortgage loan borrowings.
Registrant obtained the 475 Loan, a fixed rate debt instrument, to manage
its exposure to fluctuations in market interest rates. Registrant previously
obtained the Fleet Loan, a variable rate debt instrument, to enable it to draw
down funds as needed for capital improvements, tenant improvements, and leasing
commissions on its diverse portfolio of properties. As of June 30, 2002,
Registrant had approximately $24,093,000 of outstanding debt subject to variable
rates (approximately 43% of outstanding debt) and approximately $31,364,000 of
fixed rate indebtedness (approximately 57% of outstanding debt). The average
interest rate on Registrant's debt decreased from 6.44% at December 31, 2001 to
6.35% at June 30, 2002. Registrant does not have any other material
market-sensitive financial instruments. It is not Registrant's policy to engage
in hedging activities for previously outstanding debt instruments or for
speculative or trading purposes.
A change of 1% in the index rate to which Registrant's variable rate debt
is tied would change the annual interest incurred by Registrant by approximately
$241,000, based upon the balances outstanding on variable rate instruments at
June 30, 2002.
13
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed with this report:
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) No reports on form 8-K were filed during the quarter for which this report
is filed
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CORPORATE REALTY INCOME FUND I, L.P.
(Registrant)
By: 1345 REALTY CORPORATION
AS CORPORATE GENERAL PARTNER
Date: August 13, 2002 By: Robert F. Gossett, Jr.
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President
Date: August 13, 2002 By: Pauline G. Gossett
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Secretary
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