-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QVlG4WPETC8lskXs8ELLB0XT6Hv+gZrWF5v3yoyEOeNh5TB2vkzDnpyR2ENSqOMW v+ysCbksAZ+YvRK4+JGySQ== 0000891554-99-000665.txt : 19990409 0000891554-99-000665.hdr.sgml : 19990409 ACCESSION NUMBER: 0000891554-99-000665 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 DATE AS OF CHANGE: 19990408 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORPORATE REALTY INCOME FUND I L P CENTRAL INDEX KEY: 0000785898 STANDARD INDUSTRIAL CLASSIFICATION: 6500 IRS NUMBER: 133311993 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-15796 FILM NUMBER: 99584085 BUSINESS ADDRESS: STREET 1: 1345 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10105 BUSINESS PHONE: 2126985914 MAIL ADDRESS: STREET 1: 406 EAST 85TH ST CITY: NEW YORK STATE: NY ZIP: 10028 10-K 1 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 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) +---+ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES | X | EXCHANGE ACT OF 1934 +---+ For the fiscal year ended December 31, 1998 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, NY, NY 10017 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212)696-0197 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 Interest (Title of Class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __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. [ ] 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, 1998 Table of Contents
Page ---- PART I Item 1. Business.................................................................................................1 Item 2. Properties...............................................................................................6 Item 3. Legal Proceedings.......................................................................................14 Item 4. Submission of Matters to a Vote of Security-Holders.....................................................14 PART II ..........................................................................................................15 Item 5. Market for Registrant's Securities and Related Security-Holder Matters..................................15 Item 6. Selected Financial Data.................................................................................17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...................17 Item 7.A Quantitative and Qualitative Disclosures About Market Risk.............................................................................................21 Item 8. Financial Statements and Supplementary Data.............................................................21 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................22 PART III .........................................................................................................23 Item 10. Directors and Executive Officers of the Registrant......................................................23 Item 11. Executive Compensation..................................................................................25 Item 12. Security Ownership of Certain Beneficial Owners and Management..........................................26 Item 13. Certain Relationships and Related Transactions..........................................................26 PART IV .....................................................................................................28 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................................28 PART I Item 1. Business. General Corporate Realty Income Fund I, L.P. ("Registrant") is a Delaware limited partnership organized on November 25, 1985 pursuant to the Delaware Revised Uniform Limited Partnership Act. The general partners of Registrant are 1345 Realty Corporation, a Delaware corporation (the "Corporate General Partner"), and Robert F. Gossett, Jr. (the "Individual General Partner") (collectively, the "General Partners"). The limited partners of Registrant are hereinafter collectively referred to as the "Limited Partners." Registrant's business consists of owning and leasing to others the properties described in Item 2 below. 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 $115,000,000 (including more than $47,000,000 of financing proceeds) in acquiring and improving its properties, which currently number seven. Rental revenue from the following tenants at Registrant's properties each accounted for more than 10% of Registrant's total rental revenue for each of the years ended December 31, 1996, 1997 and 1998: a. For 1996, GTE Directories Corporations ("GTE") as tenant in the Directory Building (25%); The Austin Company ("Austin") as a tenant in the Tumi Building (formerly, the Austin Place Building) (29%); and James River Corporation of Nevada, Inc. ("James River") as a tenant in the James River Warehouse (16%) (the James River Warehouse was sold in February 1997). b. For 1997, GTE as tenant in the Directory Building (16%); and Austin as a tenant in the Tumi Building (10%). c. For 1998, GTE as tenant in the Directory Building (14%). 1 Fleet Bank Loan Registrant's properties are subject to the lien of a first mortgage line-of-credit loan (the "Loan") from Fleet Bank, National Association (the "Bank"). On September 25, 1998, the terms of the Loan were amended to increase the maximum principal amount from $44,000,000 to $49,000,000, to revise the allocation of the Loan among Registrant's properties and to clarify the debt service coverage ratio and the permitted distributions to Registrant's partners. As of March 25, 1999, the outstanding principal balance of the Loan was $44,644,800. The Loan is evidenced by a Secured Promissory Note, a Loan Agreement, an Environmental Compliance and Indemnification Agreement, a First Amendment of Loan Agreement and Note, a Second Amendment of Loan Agreement, and a Third Amendment of Loan Agreement and Second Amendment of Note (collectively, the "Loan Agreements"). The Loan is secured by a first mortgage lien, an assignment of rents, a security agreement, and a fixture filing on and from each of Registrant's properties, including the improvements, equipment, furnishings, proceeds, books and records, and all payments related thereto, which consists of the following seven properties: the American Color Building (formerly the GE Medical Systems Office Building); the Directory Building; the Tumi Building (formerly the Austin Place Building); the Flatiron Building; the Marathon Oil Building; 475 Fifth Avenue; and the Alamo Towers. The Loan matures on September 24, 2000 and the Bank is not required to fund any advances after September 30, 1999. The Loan requires payment of a front-end fee in an amount equal to one and one-half percent (1.5%) of the amount of the total loan commitment, which amounts have aggregated approximately $711,000 to date, of which approximately $51,000 were paid in 1998. In addition, for each six month period ending September 30 and March 31, Registrant must pay an unused loan commitment fee equal to one-half percent (0.5%) of the difference between the average maximum loan commitment for the period and the average outstanding principal balance of the Loan for such period. In 1998, Registrant paid approximately $6,708 in such fees. 2 The Loan bears interest on each advance of funds from the date of such advance at the Bank's Peg Rate, plus one-half percent (0.5%) per annum or, if Registrant so chooses, at the LIBOR rate (offered rates for Eurodollar deposits) or other market rate offered to the Bank (any such rate, a "Fixed Rate"), plus two percent (2.0%) per annum. The Peg Rate is the rate announced from time to time by the Bank as a means of pricing some of its loans to customers (not necessarily the lowest rate actually charged to any customer class or category). Registrant may elect to pay interest based on a Fixed Rate on the whole or a portion of the outstanding principal amount, upon notice to the Bank, but only in amounts of at least $1,000,000 and in additional integral multiples of $100,000. As of March 25, 1999, the Peg Rate was 7.75% (interest using this rate would be at 8.25%) and the 180-day Fixed Rate was 4.96344% (interest using this rate would be at 6.96344%). The aggregate outstanding balance of the Loan as of March 25, 1999 bears interest at rates ranging from 8.25% (on $22,594,880) to 6.96344% (on $22,049,920). The Loan requires monthly payments of interest plus principal payments equal to 1/500th of the then outstanding principal balance. The Loan may be prepaid at any time, on notice, in whole or in part (a minimum of $1,000,000 and additional integral multiples of $100,000). Any such prepayment will be without premium or penalty with respect to funds bearing interest based on the Peg Rate or, if the prepayment is made on the last day of the applicable interest period, with respect to funds bearing interest based on a Fixed Rate; however, a prepayment at any other time of funds bearing interest based on a Fixed Rate will require payment of a breakage fee, which guarantees the Bank a fixed rate yield maintenance tied to United States Treasury obligations for the period from the date of prepayment to the end of the applicable interest period. Amounts repaid to the Bank may be reborrowed by Registrant provided, however, that amounts repaid in monthly amortization payments and amounts repaid on account of 475 Fifth Avenue may not be reborrowed. Any payments not received by the Bank within 10 days after the due date will incur a late charge equal to four percent (4%) of the amount of such payment. Overdue amounts, whether at maturity, by acceleration, or otherwise will bear interest at a rate equal to four percent (4%) above the otherwise applicable interest rate. The Loan Agreements contain continuing covenants regarding Registrant's financial condition and the conduct of its operations. Registrant's debt service coverage ratio (the ratio of the sum of cash from operations plus certain fees paid to the General Partners to a constant loan amortization payment) cannot be less than 1.40 to 1.0 and its loan to value ratio (the ratio of the outstanding principal balance of the Loan to the appraised value of its properties) cannot exceed fifty-five percent (55%). 3 In addition, Registrant must maintain a liquid net worth (cash, short-term investments, marketable securities, and any unused borrowing capacity under the Loan) of at least $2,000,000. The Loan Agreements also provide that Registrant may distribute to its partners up to 90% of the sum of its operating net income plus depreciation and amortization, plus or minus any step rent adjustments. Compliance with this distribution provision is tested as of the last day of each fiscal quarter for the preceding 12 consecutive calendar months. Registrant must also obtain the Bank's consent, not to be unreasonably withheld or delayed, to any lease of 10,000 or more rentable square feet (5,000 square feet for 475 Fifth Avenue and Alamo Towers). Registrant may not incur unsecured debt owing to the General Partners in amounts in excess of $3,000,000. The Bank's mortgage lien against any of Registrant's properties will be released only upon payment of an amount equal to 110% of the loan amount allocated to such property. In addition, such lien will be released only if Registrant's remaining properties satisfy the debt service coverage ratio and loan to value ratio. Upon the occurrence of an event of default under the Loan Agreements (which includes the failure to make any payment within 10 days of the due date thereof and a failure to comply with its financial covenants which continues for 60 days), the Bank may enforce one or more of its remedies, including the right to (i) declare all principal and interest on the Loan to be due and payable immediately, (ii) require any or all of Registrant's properties (including all equipment, fixtures, agreements, and other rights and interests relating thereto) to be sold at auction to the highest bidder, and (iii) collect any and all rents from the properties. Registrant has also agreed to indemnify and hold harmless the Bank and its officers, directors, employees, agents, representatives, contractors and subcontractors, and their respective successors and assigns from and against any and all claims, liability, costs, and expenses arising out of the presence and/or clean-up of hazardous materials on or affecting Registrant's properties. Financing Policies The General Partners expect to approximate Registrant's original intention of a loan to value ratio of 50%. Accordingly, it is expected that Registrant's total borrowings will approximate 50% of the sum of (i) the appraised values of its five remaining original properties plus (ii) the purchase price of additional properties acquired by Registrant. Registrant is not limited by its Partnership Agreement as to borrowing for any individual property; the aggregate borrowings on all properties may not exceed an amount equal to the sum of (x) 60% of the aggregate purchase price of all properties which are not 4 refinanced plus (y) 80% of the aggregate value of all refinanced properties. As of March 15, 1999, Registrant had a loan to value ratio of approximately 50%. The Loan has enabled Registrant to acquire additional properties, but has increased the risk of loss on its properties. Registrant may acquire additional properties, the purchase of which would be funded out of the proceeds of sale of one or more of Registrant's current properties. Registrant has no current agreements to sell any of its existing properties. To be profitable, Registrant's properties must generate cash flow in amounts sufficient to not only cover operating expenses but also to pay all financing costs. Registrant's objectives in making its investments continue to be to (i) preserve and protect Registrant's capital; (ii) provide long term capital appreciation, generating long term capital gains for federal income tax purposes upon sale of the properties; (iii) build up equity through the reduction of mortgage loans encumbering the properties; and (iv) provide cash distributions from operations which may be partially tax-sheltered. There is no assurance that these objectives will be achieved. Competition The Directory Building is fully leased to a single tenant on a net lease or substantially equivalent basis and does not face competition from other properties during the terms of such lease. However, upon termination of this lease, and for any of Registrant's other properties, Registrant does, and will continue to, compete with other properties for tenants. Depending upon market conditions and occupancy rates at the time and place of any vacancies in Registrant's properties, there is currently and there may be, in the future, intense competition in obtaining tenants to fill such vacancies. Furthermore, such competition has resulted and may result, because of reduced rental rates and required concessions to tenants, in decreases in the rental revenue received by Registrant and capital outlays necessary to fund tenant improvements. See Item 2 - "Properties" for a discussion of market conditions in the areas in which Registrant currently competes for tenants. Employees Registrant currently employs 16 persons (two of whom are part-time employees). The business of Registrant is managed by the General Partners. See Item 10 - "Directors and Executive Officers of the Registrant" and Item 13 - "Certain Relationships and Related Transactions." 5 Item 2. Properties. American Color Building (formerly GE Medical Systems Office Building) On July 10, 1986, Registrant acquired the American Color Building, located in Monterey Park, California, for approximately $4,182,000, inclusive of acquisition fees. Registrant owns fee title to the American Color Building and its 90,000 square feet of underlying land, subject to the lien of the Loan (See Item 1. - "Business-Fleet Bank Loan"). The property was built in 1985 and contains 20,250 net rentable square feet, of which approximately 60% has been office space and the remainder is warehouse space. The building contains an unusually high percentage of office space for a mixed use property, but Registrant prefers to avoid reconfiguring the space, both to avoid the construction cost and to obtain the higher rates for office space. Because of tenant improvements to be made in connection with the U.S. Census Bureau lease described below, the percentage of office space will increase to approximately 71%. Registrant leases 9,650 square feet (approximately 55% of which is office space) to American Color Graphics, Inc. for an initial five year term which expires on July 31, 2002, with a five year renewal option. Annual net rent is $86,850 ($9.00 per square foot) to February 29, 2000. The annual rent for the period from March 1, 2000 to July 31, 2002 is $86,850, increased by the cumulative increase in the Consumer Price Index from August 1, 1997 to March 1, 2000 (but not more than a three percent increase). The tenant also reimburses Registrant for its proportionate share of operating expenses. Registrant expended approximately $75,000 in 1998 in tenant improvements in connection with the American Color lease. In October 1998, General Electric Company ("GE") terminated its lease for 10,600 square feet in the building, upon payment of a lease cancellation fee of approximately $105,000. This fee represented GE's lease obligations for the then remaining lease term of one year. GE had paid a net rent of $9.00 per square foot, plus reimbursement of its proportionate share of operating expenses. In March 1999, Registrant executed a lease with the General Services Administration (for the U.S. Census Bureau) for the 10,600 square feet previously occupied by GE. The lease provides for a 17 month term commencing July 1, 1999 at a gross rent of $21.15 per square foot. Registrant is obligated to expend approximately $51,000 in tenant improvements in connection with this lease. Market conditions in the Monterey Park area have improved in recent years from those prevailing at the time GE executed its initial lease for the building. The vacancy rate for commercial properties in such area approximates 35% for office buildings and 6 23% for mixed (office and industrial) space. The American Color Building is situated next to a 200,000 square foot Public Storage facility which, like the American Color Building, consists of a front office with warehouse space in the rear. Such facility is currently approximately 96% occupied; net rents approximate $6.36 per square foot. Gross rents approximate $21.00 per square foot for office space and $13.00 per square foot for mixed office/warehouse space in this area. The Directory Building (formerly, the IBM Building) On October 27, 1986, Registrant acquired the Directory Building, located in Las Colinas, Texas, for a purchase price of approximately $24,580,000, inclusive of acquisition fees. Registrant owns fee title to the Directory Building and its 6.67 acres of underlying land, subject to the lien of the Loan. The Directory Building was built in 1982 and contains approximately 152,100 net rentable square feet (reduced from 154,300 square feet during IBM's tenancy). The building is 100% leased to GTE pursuant to a lease dated as of April 20, 1994, as subsequently amended by amendments dated as of July 29, 1994 and as of February 22, 1995. The initial term of the lease expires on September 30, 2000, subject to a five-year renewal option at a rate equal to 95% of the then market rate. The amended lease requires approximate monthly rent of $173,800 through September 30, 2000. GTE must also pay additional rent equal to excess electric charges and operating expenses over base levels. Registrant did not incur any significant capital expenditures at the building during 1998. In connection with the GTE lease, Registrant has expended approximately $2,628,000 for tenant improvements, none of which was in 1998. The Las Colinas office market includes approximately 15,479,500 leasable square feet, of which approximately 89.4% was leased as of December 31, 1998. Weighted average rental rates for new leases at such properties range from approximately $23.73 to $24.38 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 Loan. The property was built in 1986 and contains approximately 106,600 net rentable square feet for use as a multi-tenant facility (reduced from 108,000 square feet as a 7 single tenant facility). As of March 25, 1999, the property is approximately 76.0% leased, with 45,700 square feet leased to Tumi, Inc. (as discussed below) and the remainder at an average current rent of approximately $18.89 per square foot. One of such leases has been extended past expiration pending negotiation of an expansion (approximately 4,100 square feet) and such other leases expire in February 2004 (approximately 9,600 square feet) and May 31, 2007 (approximately 21,650 square feet). On March 9, 1999, Gdynia America Line, Inc., a tenant occupying approximately 21,650 square feet (20.3%) in the Tumi Building filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Polish Ocean Lines, a Polish corporation owned by the Polish Government, is jointly and severally obligated under this lease. The lease expires in May 2007 and requires rental rates of $20.60 per square foot until May 2002 and $19.75 per square foot thereafter. The tenant owes Registrant approximately $258,000 for pre-petition rent, as to which Registrant is an unsecured creditor. There is no assurance that the lease will be affirmed in the bankruptcy proceeding or that Registrant will be able to collect any amounts due from Polish Ocean Lines, the financial condition of which presently is not ascertainable. If the lease is rejected, the Tumi Building will have vacant space comprising approximately 43.7% of the total net rentable square feet. South Plainfield is included in the Route 287 submarket (approximately 6,850,000 square feet of which 14% is vacant), the Somerset County area (approximately 8,750,000 square feet, of which 6% is vacant), and the Central New Jersey Profit Center (approximately 44,850,000 square feet, of which 8% is vacant). Average rents for office space in such area approximate $20.55 to $23.58 per square foot. Registrant has expended approximately $2,205,000 for tenant improvements, all of which was incurred before 1998. Registrant anticipates expending approximately $148,000 in tenant improvements in 1999 for tenants other than Tumi. In October 1998, The Austin Company ("Austin") and Registrant executed a lease termination agreement pursuant to which Austin was released from its lease for 45,700 square feet in consideration of its execution and delivery of a senior note in the original amount of approximately $3,802,425 (representing its base rent obligation less the basic rent obligation under Tumi's lease for such space). On December 31, 1998, after monthly payments aggregating approximately $387,400, Registrant accepted, pursuant to the terms of the senior note, a discounted prepayment of the note in the amount of $2,950,000. 8 Tumi's lease is for 45,700 square feet and expires on January 19, 2009. It requires rent payments equal to $9.00 per square foot until January 2002, $15.00 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. Registrant has approved an approximate $1,100,000 budget for tenant improvements to be made by Tumi, of which Registrant is obligated to fund not more than $350,000 in connection with this lease. Flatiron Building (formerly, the Cadnetix Building) On January 5, 1988, Registrant acquired the Flatiron Building, located in Flatiron Industrial Park, Boulder, Colorado, for approximately $9,003,000, inclusive of acquisition fees. Registrant owns fee title to the Flatiron Building and its 5 acres of underlying land, subject to the lien of the Loan. The property contains approximately 96,070 net rentable square feet for use as a multi-tenant facility (reduced from 102,000 square feet as a single tenant facility). As of March 29, 1999, Registrant has rented approximately 97% of the space in the building to various tenants pursuant to leases providing for an average current net rent of approximately $10.71 per square foot (exclusive of expenses). Such leases expire in 1999 (approximately 31,822 square feet), in 2000 (approximately 4,801 square feet), in 2001 (approximately 17,181 square feet), in 2002 (approximately 16,237 square feet), and in 2003 (approximately 22,463 square feet). On March 9, 1998, Mobile Storage Technologies (formerly, Integral Peripherals Inc.), a tenant then with an aggregate of approximately 54,135 square feet of space (56.3%) in the Flatiron Building filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Such space was leased pursuant to three separate leases, at net rental rates ranging from $7.42 to $9.84 per square foot, all of which expired on October 31, 1998. This tenant emerged from its bankruptcy proceeding, having paid its rent obligations to Registrant in full, and renewed a lease for approximately 31,822 square feet at a net rental rate of $8.97 per square foot. The Flatiron Building is zoned IG (Industrial General), which permits office use by manufacturers and industrial users (including software developers), but does not permit general office use by service providers such as attorneys and accountants. Registrant does not believe that such classification will adversely affect its ability to fully lease this building at market rates, and such classification does not affect any existing tenants. Market conditions in the Boulder area remain favorable for 9 owners of commercial buildings. The market for the Boulder area contains approximately 7.0 million square feet of commercial space of which approximately 5.3% is vacant. Average rents for office space in such area approximate $15.00 per square foot, exclusive of expenses. Registrant has expended approximately $455,000, none of which was in 1998, for tenant improvements for the Flatiron Building. Registrant is obligated to fund approximately $206,100 in tenant improvements in 1999. 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 Loan. The property contains 90,925 net rentable square feet on two floors, plus a 10,016 square foot basement. Marathon and its former affiliate, Koch Midstream Services Company ("Koch"), lease 62,625 square feet (including 4,344 in the basement) and 24,704 square feet (including 567 in the basement), respectively, in the building. Marathon's lease expires in 2001, subject to two five-year renewal options; Koch's lease also expires in 2001, but without any renewal option. Annual rent under such leases is approximately $750,600 ($8.75 per square foot, plus $6.00 per square foot for basement space). Marathon and Koch must also pay additional rent equal to their proportionate share of any increases in operating costs of the building after 1996. Registrant has funded tenant improvements of approximately $350,000 for Marathon and Delhi, none of which was expended in 1998. Registrant has leased approximately an additional 5,600 square feet in the building for a five-year term ending in December 2001 at a rent of $11.00 per square foot. Registrant has funded tenant improvements of approximately $74,000 in connection with this lease, none of which was expended in 1998. The remaining space (approximately 3.2% of the office space, plus approximately 51% of the basement) is vacant and Registrant is seeking a tenant for such space; however, the space is difficult to rent and would require significant tenant improvements. 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 4.8 million square feet of commercial space of which approximately 7.5% is vacant. Average rents for commercial space range from $8.00 to $19.50 per square foot, with a weighted average rate of $13.60 per square foot. 10 475 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 237,700 square feet and is located on the southeast corner of 41st Street and Fifth Avenue in New York City; Registrant owns fee title to 475 Fifth Avenue, subject to the lien of the Loan. 475 Fifth Avenue is a 23-story office building with approximately 20,000 square feet of retail space on the first floor and basement, 212,600 square feet of office space, and 5,100 square feet of basement storage space. As of March 15, 1999, approximately 93% of the rentable square footage in the building was leased (including approximately 93% of the office space, 100% of the retail space, and 80% of the basement space), at an average current rent (base rent plus electric charges and prior year adjustments) of approximately $31.42 per square foot (approximately $30.41 per square foot of office space and $65.08 per square foot of retail space). Following is a schedule of the expirations of such leases. 11 ================================================================================ Avg. Current Approximate Base Rent/ Expiration Year Square Feet % of Total Sq. Ft. - - -------------------------------------------------------------------------------- 1999 8,461 3.6% $ 30.97 - - -------------------------------------------------------------------------------- 2000 9,226 4.0% $ 27.04 - - -------------------------------------------------------------------------------- 2001 19,155 8.2% $ 36.15 - - -------------------------------------------------------------------------------- 2002 4,007 1.7% $ 31.69 - - -------------------------------------------------------------------------------- 2003 8,699 3.7% $ 31.02 - - -------------------------------------------------------------------------------- 2004 22,454 9.7% $ 40.64 - - -------------------------------------------------------------------------------- 2005 32,687 14.1% $ 37.66 - - -------------------------------------------------------------------------------- 2006 16,535 7.1% $ 29.42 - - -------------------------------------------------------------------------------- 2007 5,636 2.4% $ 29.45 - - -------------------------------------------------------------------------------- 2008 47,399 20.4% $ 26.64 - - -------------------------------------------------------------------------------- 2009 40,236 17.3% $ 31.74 - - -------------------------------------------------------------------------------- 2012 2,947 1.3% $125.19 ================================================================================ Registrant's leases generally provide for a base rent, inclusive of an electricity charge, plus additional rent in the form of operating expense and real estate tax escalation factors. In 1997, Registrant commenced a capital improvement program, designed to increase rental rates and the value of the building. Registrant has budgeted capital improvements to be made at 475 Fifth Avenue aggregating approximately $3,200,000 over the next 10 years, including the following: mechanical and electrical systems, including replacement of vacuum heating pumps, installation of a new hot water heating system, and upgrading electric closets and electric service (approximately $1,600,000); structural repairs, including roofing and facade repairs (approximately $500,000); elevator repairs and refurbishment, including replacement of controls (approximately $410,000); and improvements to comply with building codes and Americans with Disabilities Act requirements, including fire alarm and smoke detection (approximately $675,000). In 1998, Registrant funded capital improvements aggregating approximately $613,300. Certain of such improvements can only be made as tenancies expire. During 1998, Registrant expended approximately $2,747,300 in tenant improvements at 475 Fifth Avenue. Capital improvements and tenant improvements have been, and are expected in the future to be, funded from working capital and loan drawdowns and from anticipated increases in rental income. 475 Fifth Avenue is situated in the Grand Central district of the New York City midtown market. Such district includes 82 12 buildings with approximately 44,200,000 aggregate rentable square feet, of which approximately 10.4% is currently vacant. Asking rents in this district average approximately $43.11 per square foot. The entire midtown market includes 341 buildings with approximately 186,700,000 aggregate rentable square feet, an approximate 8.1% vacancy rate, and average asking rents of approximately $39.37 per square foot. Alamo Towers On March 17, 1997, Registrant purchased the land, building and other improvements commonly known as the Alamo Towers, and situated in San Antonio, Texas, for approximately $12,002,000, including capitalized closing and related costs. The Alamo Towers contains a multi-tenant office building comprised of approximately 196,000 square feet. Registrant owns fee title to the Alamo Towers, subject to the lien of the Loan. The Alamo Towers is an office building consisting of two stand-alone 8-story towers with approximately 186,000 square feet of office space and 8,000 square feet of basement space. As of March 1, 1999, approximately 83% of the rentable square footage of office space in the Alamo Towers was leased, at an average current base rent of approximately $11.93 per square foot. Following is a schedule of expiration of such leases. ================================================================================ Avg. Current Approximate Base Rent/ Expiration Year Square Feet % of Total Sq. Ft. - - -------------------------------------------------------------------------------- 1999 55,855 30.5% $12.76 - - -------------------------------------------------------------------------------- 2000 25,322 13.8% $14.14 - - -------------------------------------------------------------------------------- 2001 47,549 25.9% $13.73 - - -------------------------------------------------------------------------------- 2002 11,867 6.5% $14.33 - - -------------------------------------------------------------------------------- 2003 4,626 2.5% $14.75 - - -------------------------------------------------------------------------------- 2004 6,889 3.8% $13.50 ================================================================================ Registrant has begun to refurbish the two tower lobbies at an estimated cost of $400,000 of which approximately $50,000 has been paid to date. The building's lack of a covered parking garage is seen as a competitive disadvantage which Registrant intends to remedy. Construction of such a garage is expected to cost approximately $5,000,000, which Registrant may finance by drawdowns on the Loan, from proceeds from the sales of any properties, and/or from proceeds of mortgage loans which it may obtain on one or more of its properties. Depending upon the availability of financing, of which there can be no assurance, 13 construction would commence later this year and is expected to take six to eight months to complete. Registrant may also install sprinklers on all floors of the towers, at an estimated cost of $250,000, but any such installation is unlikely to occur in the near future. Registrant has expended approximately $196,000 in tenant improvements to the Alamo Towers, including approximately $81,000 in 1998. The San Antonio office market includes approximately 19,815,000 aggregate rentable square feet, of which approximately 10.7% is currently vacant. Asking rents in this market now average $15.90 per square foot. The north-central San Antonio market includes approximately 6,955,000 aggregate rentable square feet, of which approximately 8.2% is vacant and for which asking rents average approximately $17.76 per square foot. Class B buildings, including the Alamo Towers, feature an approximate 8.9% vacancy rate and an average asking rental rate of $16.50 per square foot. Item 3. Legal Proceedings. Registrant does not know of any material legal proceedings, other than ordinary immaterial routine litigation incidental to its business, pending against or involving Registrant or any of its properties. Item 4. Submission of Matters to a Vote of Security-Holders. There were no matters submitted to a vote of Limited Partners or holders of the Units ("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. 14 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 1998, Registrant repurchased 8,680 Units at a price of $10.75 per Unit. Registrant is limited by the terms of the Loan to an aggregate of $3,000,000 in Unit repurchases. In addition, repurchases both divert funds otherwise available for capital improvements and require a monthly reallocation of Unitholders' interests. For these reasons, Registrant limits future repurchases, if any, to the final one or two months of a calendar year. To provide an alternative outlet for Unit sales, the General Partners and their affiliates have, during any periods of suspension in Registrant's Unit Repurchase Plan, purchased Units on the same terms and conditions as under the Unit Repurchase Plan. Provisions found in Section 7704 of the Code have an adverse impact on investors in a "publicly traded partnership" ("PTP"). A PTP is a partnership whose interests are traded on an established securities market or readily tradeable on a secondary market (or the substantial equivalent thereof). If Registrant were classified as a PTP, (i) Registrant may be taxed as a corporation or (ii) income derived from an investment in Registrant would be treated as non-passive income. The IRS has established alternative safe harbors that allow interests in a partnership to be transferred or redeemed in certain circumstances without causing the partnership to be characterized a PTP. Although the Units are not listed or quoted for trading on an established securities market, it is possible that transfers of Units could occur in a secondary market in sufficient amount and frequency to cause Registrant to be treated as a PTP. To the extent that any proposed transfer of Units in secondary market transactions would exceed a safe harbor volume limitation, the proposed transfer will be restricted pursuant to a policy adopted by Registrant. Such a restriction could impair the ability of an investor to liquidate its investment quickly and thus, possibly prevent the reclassification of Registrant as a corporation pursuant to Code Section 7704. It is anticipated that Registrant's policy will remain in effect until such time, 15 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 December 31, 1998, there were 2,947 Unitholders of record. The following represents per Unit cash distributions to investors for the fiscal years ended December 31, 1998 and 1997. Distribution Quarter Ended Per Unit Payment Date - - ------------- -------- ------------ December 31, 1998 $ 0.30 February 1999 September 30, 1998 $ 0.30 November 1998 June 30, 1998 $ 0.30 August 1998 March 31, 1998 $ 0.30 May 1998 December 31, 1997 $ 0.30 February 1998 September 30, 1997 $ 0.30 November 1997 June 30, 1997 $ 0.30 August 1997 March 31, 1997 $ 0.30 May 1997
There are no material legal restrictions upon Registrant's present or future ability to make distributions in accordance with the provisions of Registrant's Agreement of Limited Partnership, as amended through the date of this report. However, the Loan Agreements limit distributions to 90% of the sum of cash from operations, depreciation and amortization. See, however, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of economic conditions affecting Registrant's ability to make distributions in the future. 16 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, 1998 1997 1996 1995 1994 ------------- ------------- ------------- ------------- ------------- Operating Revenues $ 19,752,206 $ 14,958,799 $ 9,142,369 $ 9,827,431 $ 8,957,620 Net Income $ 1,930,984 $ (420,892) $ 677,914 $ 2,008,688 $ 2,450,563 Net Income per Unit (1) $ 0.64 $ (0.14) $ 0.22 $ 0.62 $ 0.76 Total Assets $ 105,748,365 $ 100,946,968 $ 102,983,279 $ 74,460,139 $ 76,388,992 Long-Term Obligations $ 46,930,800 $ 41,578,800 $ 39,955,200 $ 7,800,000 $ 7,800,000 Distributions per Unit(1)(2) $ 1.20 $ 1.20 $ 1.20 $ 1.20 $ 1.00
- - ---------- (1) Per Unit numbers are based on 3,200,000 Units for 1994 and a weighted average number of Units of 2,986,460, 3,022,492, 3,087,170, and 3,184,222, for 1998, 1997, 1996, and 1995, respectively. (2) Each year's distributions include funds distributed after the end of the year which are attributable to that year. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources At December 31, 1998, Registrant had cash and receivables of approximately $4,850,000 as contrasted to accounts payable and accrued expenses of approximately $2,980,000. 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, the Loan provides a source of additional capital. 17 Registrant has been investing capital in acquiring additional properties and improving its existing and additional properties with a view to increasing its revenues from real estate operations and ultimately realizing appreciation in property values. Capital resources have been employed since the beginning of 1998 to make the following capital improvements: approximately $613,300 in capital improvements and $2,747,300 in tenant improvements at 475 Fifth Avenue; and approximately $76,100 in capital improvements and $80,200 in tenant improvements at Alamo Towers. Registrant may also require capital to fund additional tenant improvements as tenancies turn over at its properties as well as further capital improvements at 475 Fifth Avenue (estimated at $3,250,000) and Alamo Towers (estimated at $5,400,000). These additional capital improvements are expected to be made over several years, as tenancies expire. Gdynia America Line, Inc., which leases approximately 20% of the Tumi Building, pursuant to a lease expiring in May 2007, has filed for protection under Chapter 11 of the U.S. Bankruptcy Code. To the extent all or a portion of such space is unproductive for any length of time, Registrant will face an additional capital demand. However, this tenant's rental payments constituted only approximately three percent of Registrant's aggregate 1998 property revenues, so any effect is expected to be limited. During 1998, Registrant received the following fees in connection with early termination of leases: approximately $105,000 from GE with respect to the American Color Building; approximately $3,734,000 from two tenants, including Austin, at the Tumi Building; approximately $197,000 from a tenant at 475 Fifth Avenue; and approximately $131,000 from several tenants at Alamo Towers. Registrant has already re-leased most of such space, so that the lease termination fees generally represent additional revenues to Registrant; however, the Austin termination fee represents the difference between rent under Austin's lease and rent under the Tumi lease. Accordingly, Registrant received a prepayment of the above-market portion of the Austin lease rent. To date, Registrant has funded its capital requirements from the Loan and, previously, out of working capital and through reductions in distributions to partners. Registrant's quarterly distribution to partners for each of the four quarters of 1998 was $0.30 per Unit. Registrant intends to maintain this level of distributions through 1999 and, if possible, thereafter. However, to the extent Registrant's sources of capital are inadequate for its requirements, Registrant may need to reduce or suspend distributions to partners, incur additional indebtedness, and/or dispose of one or more of its properties. The Loan has provided Registrant with available capital to acquire properties, fund improvements and leasing commissions, repurchase outstanding Units, and otherwise fund capital 18 requirements. The cost of such financing ultimately must be offset by increased property revenues or Registrant's operations and capital will be compromised. Upon maturity of the Loan in 2000, Registrant anticipates satisfying the Loan out of the proceeds of a refinancing or a sale of assets. Registrant has used working capital reserves provided from the net proceeds of the Offering, loan proceeds, and any undistributed cash from operations as its primary source of liquidity. Registrant generally intends to distribute its distributable cash from operations to Unitholders. However, such distributions are subject to suspension or reduction to meet capital requirements and are also limited by the Loan Agreements to 90% of cash from operations plus depreciation and amortization. Results of Operations 1998 versus 1997 Rental revenues increased by 4.2% from 1997 to 1998, primarily because of increased occupancy and rental rates at 475 Fifth Avenue. In addition, Registrant received $4,167,685 in lease cancellation fees in 1998 with respect to the American Color, Tumi, 475 Fifth Avenue, and Alamo Towers buildings. As a result, total revenues increased by 32.0% from 1997 to 1998. Interest expense in 1998 increased by 3.5% in 1998 from 1997, primarily as a result of additional drawdowns under the Loan aggregating $6,400,000. Depreciation increased by 7.1% in 1998 primarily because of capital improvements made at 475 Fifth Avenue and Alamo Towers during 1997 and 1998. Amortization increased by 17.7% primarily because of additional financing costs related to the Fleet Bank loan. Management fees increased by 34.7% in 1998 from 1997 primarily due to property management fees computed as a percentage of Registrant's increased rental revenues. Professional fees increased by 50.4% from 1997 to 1998 primarily because of legal fees incurred in connection with amending the Loan, negotiating lease buyouts, and increased leasing activity. The 93.3% increase in general and administrative expenses in 1998 from 1997 is primarily attributable to the write-off of deferred rent receivable upon early lease terminations of approximately $815,300 in 1998 and $158,900 in 1997. Registrant realized income from real estate operations of $1,930,984 in 1998 as compared to a net loss of $1,333,393 in 1997. After adjusting for non-cash items (principally depreciation and amortization), operations generated cash flows of approximately $5,467,000 in 1998 and $2,708,000 in 1997 (a 101.9% increase). The recognition of net income and significant increase in net cash provided by operating activities is largely due to 19 realization of Registrant's capital improvement program at 475 Fifth Avenue, which has increased occupancy and rental rates. Registrant intends to continue its capital improvement program at 475 Fifth Avenue, and implement its program at Alamo Towers, in 1999. Leasing its vacant space at Alamo Towers (approximately 17% of office space) and re-leasing space covered by expiring leases will provide additional rental revenues with little additional operating expenses. 1997 versus 1996 Rental revenues increased significantly (61.8%) from 1996 to 1997, reflecting a full year's operations at 475 Fifth Avenue and the acquisition of Alamo Towers, more than offsetting the sale of the James River Warehouse, plus the leasing in 1997 of previously vacant space in the American Color Building and the Marathon Oil Building. Interest expense in 1997 increased substantially (232.2%) from 1996, reflecting a full year's expense of the Fleet Bank loan ($42,600,000 in aggregate advances) as compared to the PNC Bank loan ($7,800,000 line of credit). Depreciation increased in 1997 by 19.6% because of the excess of property acquisitions (475 Fifth Avenue and Alamo Towers) over dispositions (James River Warehouse) and because of capital improvements made at 475 Fifth Avenue, Alamo Towers, and the Directory Building. Amortization increased by 53.6% from 1996 to 1997 primarily because of financing costs related to the Fleet Bank loan. The net effect of the acquisition of 475 Fifth Avenue and Alamo Towers as contrasted to the disposition of the James River Warehouse is primarily responsible for the 136.4% increase in property operation expenses in 1997. Management fees increased by 78.3% in 1997 primarily due to property management fees computed s a percentage of Registrant's increased rental revenues. General and administrative expenses decreased by 7.6% primarily because of the absence in 1997 of due diligence expenses incurred in 1996 in investigating property acquisitions which were not ultimately consummated. Registrant realized a net loss from real estate operations of $1,333,393 in 1997 as compared to net income of $677,914 in 1996. A $912,501 gain from the sale of the James River Warehouse in 1997 reduced the net loss to $420,892. After adjusting for non-cash items (principally depreciation and amortization), operations generated cash flows of approximately $2,710,000 in 1997 and $3,620,000 in 1996 (a 25.2% decrease). The $912,501 gain from the sale of the James River Warehouse increased cash flows in 1997 to approximately $3,620,000, the level achieved in 1996. The net loss from real estate operations in 1997 was primarily attributable to the inability of operations at 475 Fifth Avenue and Alamo Towers to offset the financing costs of the Loan. 20 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. Year 2000 Considerations Registrant has contacted its significant suppliers, large customers and financial institutions to ensure that those parties have appropriate plans to remediate Year 2000 issues where their systems interface with Registrant's systems or otherwise impact its operations. Registrant has also conducted a review of any impact on operation of its buildings and taken any steps it deems necessary to prepare for Year 2000. Registrant has replaced its own computer software system, other than accounting software which has been purchased and which is scheduled to be installed in early 1999. While Registrant believes its planning efforts are adequate to address its Year 2000 concerns, there can be no guarantee that the systems of other companies on which Registrant's systems and operations rely will be converted on a timely basis and will not have a material effect on Registrant. The cost of the Year 2000 initiatives is not expected to be material to Registrant's results of operation or financial position. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Registrant does not invest in any market risk sensitive instruments, for trading purposes or for other purposes. 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. 21 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. 22 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. 55 President, Treasurer and Director 1994 Pauline G. Gossett 55 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. 23 Registrant employs the following employees who make significant contributions to the business of Registrant: Officer/ Employee Name Age Position Since ---- --- -------- -------- James N. Walsh 45 Property Manager 1997 John R. Anthis, Jr. 58 Property Manager 1997 Wallis J. Hoskins 45 Property Manager 1993 Madeline Matlak 33 Fund Administrator 1994 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. John R. Anthis, Jr. is the Property Manager for Alamo Towers. Mr. Anthis has been designated a Real Property Administrator (RPA, 1983) by the Building Owners and Managers Association (San Antonio BOMA Manager of the Year, 1986-1987) and a Certified Property Manager (CPM, 1988) and is a licensed real estate broker in Texas. Mr. Anthis was a member of the Board of Directors of the Texas State Building Owners and Managers Association (1978 to 1980 and 1982 to 1990; President 1988 to 1989), the San Antonio Building Owners and Managers Association (1979 to 1982 and 1984 to 1986; President 1978 to 1979), and San Antonio Institute of Real Estate Management (1992 to present; President in 1995). From 1995 to 1997, he was a sales representative and a branch manager for Associated Building Services, a commercial real estate cleaning company in San Antonio. Mr. Anthis was General Manager of Homart Development Co. from 1987 to 1994, managing a 200,000 square foot office building and parking garage. From 1975 to 1986, he was a Vice President for Bank Alamo (and its pre-merger predecessor, San Antonio Bank & Trust Co.), managing office buildings and parking garages. Mr. Anthis also served as a Manager for Koger Properties, Inc. from 1973 to 1975, leasing a 14 building office park. Mr. Anthis served in the U.S. Army from 1963 to 1969, earning the Bronze Star Medal-Meritorious Service. He received a B.S. degree in Civil Engineering from Texas A&M University and an M.B.A. degree in Management from Georgia State University. 24 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. 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 1998, and written representations from reporting persons that no other Forms 5 were required for such persons for 1998, 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 1998 and prior years were complied with on a timely basis except as previously reported and except as follows: each of Robert F. Gossett, Jr. and Pauline G. Gossett filed one statement on Form 5 to make a late report of Form 4 transactions. Each such Form 5 reported five purchases of Units made in October 1998. Item 11. Executive Compensation. Registrant is not required to and did not pay remuneration to the officers and directors of the Corporate General Partner. However, the General Partners and/or their affiliates receive compensation for services performed for Registrant. Summary Compensation Table
Share of Adjusted Cash Management Leasing Expense Name Year from Operations Fees Commissions Reimbursement - - ---- ---- --------------- ---------- ----------- ------------- Corporate General Partner 1998 $29,005 $1,086,137 $ -0- $ 44,000 Individual General Partner 1998 $ 7,251 $ 271,534 $ -0- $ 11,000 Corporate General Partner 1997 $29,419 $ 806,602 $ -0- $ 48,298 Individual General Partner 1997 $ 7,355 $ 201,650 $ -0- $ 12,074 Corporate General Partner 1996 $30,071 $ 452,415 $ 88,467 $132,829 Individual General Partner 1996 $ 7,518 $ 113,104 $ 22,117 $ 33,207
See Item 13 - "Certain Relationships and Related Transactions" for a discussion of the above compensation. 25 Item 12. Security Ownership of Certain Beneficial Owners and Management. As of March 22, 1999 no person was known by Registrant to be the beneficial owner of more than five percent (5%) of the outstanding Units of Registrant. The following table sets forth information as of March 22, 1999 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) 29,458 1.0% Pauline G. Gossett(3) 29,458 1.0% All General Partners and Directors and Executive Officers as a group (3 persons) 58,916 2.0% 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. - - ---------- (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. 26 The General Partners received $36,256 ($29,005 to the Corporate General Partner and $7,251 to the Individual General Partner) as their allocable share (1%) of adjusted cash from operations with respect to the year ended December 31, 1998. For the year ended December 31, 1998, $19,310 (1%) of Registrant's net income was allocated to the General Partners ($15,448 to the Corporate General Partner and $3,862 to the Individual General Partner). The General Partners or their affiliates are also entitled to receive: a partnership management fee for managing the affairs of Registrant, equal to 7% of adjusted cash from operations less the asset management fee; an asset management fee for managing Registrant's funds which are not invested in properties, equal to 0.5% per annum of the average amount of outstanding funds during each calendar month which are not otherwise invested in properties; and a property management fee for property management services for Registrant's properties, equal to the normal and competitive fees customarily charged by unaffiliated parties rendering similar services in the same geographic area, not to exceed 1% of the annual gross revenues for leases with terms of ten years or more or 6% of the annual gross revenues for replacement leases. During the year ended December 31, 1998, the General Partners earned and were paid an aggregate of $1,357,671 of such management fees ($1,086,137 to the Corporate General Partner and $271,534 to the Individual General Partner). At December 31, 1998, all of such fees had been paid. The General Partners are also entitled to receive leasing commissions in connection with leasing, releasing or leasing related services performed on behalf of the Registrant in connection with the negotiation of tenant leases. Such fees are 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, 1998, no such fees were paid to the General Partners. During the year ended December 31, 1998, the General Partners were also entitled to reimbursement for expenses incurred in connection with Registrant's operations aggregating $55,000 ($44,000 to the Corporate General Partner and $11,000 to the Individual General Partner). During the year ended December 31, 1998, the Individual General Partner made loans to Registrant totaling $2,395,678 to fund capital improvements and tenant improvements. Such loans were repaid in full, without interest or other consideration, in September 1998 from the proceeds of drawdowns under the terms of the amended Loan. 27 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a)(1), (2) See page F-2 Sequential Page Number ---------- (a)(3) Exhibits: 3. Certificate of Limited Partnership, incorporated by reference to Exhibit 4 to Registration Statement No. 33-2258 (the "Registration Statement"). 4. (a) Amended and Restated Agreement of Limited Partnership dated as of July 24, 1995, incorporated by reference to Exhibit 4 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. 10.(a) Property Management Agreement, incorporated by reference to Exhibit 10B to the Registration Statement. (b) Management Agreement dated January 5, 1988 by and between Registrant and Colorado Management Group, incorporated by reference to Exhibit 10(e) to Registrant's Current Report on Form 8-K Dated January 5, 1988. (c) Lease dated as of April 20, 1994 between Registrant and GTE.(1) (d) 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(i), (j), (k), (l), (m), (n), (o), (p), (q), (r), (s), (t), (u), (v), (w) and (cc) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. 28 Sequential Page Number ---------- (e) Amendment No. 2 to Lease dated as of February 22, 1995 between Registrant and GTE.(1) (f) Secured Promissory Note dated September 26, 1996, made by Registrant.(2) (g) Loan Agreement dated as of September 26, 1996 between Registrant and Fleet Bank, N.A.(2) (h) Environmental Compliance and Indemnification Agreement dated __________, 1996, made by Registrant.(2) (i) First Amendment of Loan Agreement and Note dated December __, 1996 between Registrant and Fleet Bank, N.A.(2) (j) Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated September 26, 1996, made by Registrant with respect to the American Color Building.(2) (k) First Amendment to Deed of Trust dated December __, 1996, made by Registrant with respect to the American Color Building.(2) (l) Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated September 26, 1996, made by Registrant with respect to the Flatiron Building.(2) 29 Sequential Page Number ---------- (m) First Amendment to Deed of Trust dated December __, 1996, made by Registrant with respect to the Flatiron Building.(2) (n) Mortgage, Assignment of Leases and Rents and Security Agreement dated September 26, 1996, made by Registrant with respect to the Tumi Building.(2) (o) First Amendment to Mortgage dated December __, 1996, made by Registrant with respect to the Tumi Building.(2) (p) Mortgage, Assignment of Leases and Rents and Security Agreement dated December __, 1996, made by Registrant with respect to 475 Fifth Avenue.(2) (q) 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) (r) First Amendment to Mortgage dated December __, 1996, made by Registrant with respect to the Marathon Oil Building.(2) (s) 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) (t) First Amendment to Deed of Trust dated December __, 1996, made by Registrant with respect to the Directory Building.(2) 30 Sequential Page Number ---------- (u) Second Amendment of Loan Agreement dated March 17, 1997 among Fleet Bank, First American Bank Texas SSB, and Registrant.(2) (v) Third Amendment of Loan Agreement and Second Amendment of Note among Fleet Bank, First American Bank Texas SSB, and Registrant. 27. Financial Data Schedule. (b) Reports on Form 8-K: No reports on Form 8-K were filed during the last quarter of the period covered by this report. 31 Corporate Realty Income Fund I, L.P. List of Financial Statements and Financial Statement Schedules The following financial statements of Corporate Realty Income Fund I, L.P. are included in Item 8: Report of Independent Auditors - Ernst & Young LLP .................... F-3 Report of Independent Auditors - KPMG LLP ............................. F-4 Financial Statements Balance Sheets as of December 31, 1998 and 1997 ....................... F-5 Statements of Operations for the years ended December 31, 1998, 1997 and 1996 .................................... F-6 Statements of Changes in Partners' Capital for the years ended December 31, 1998, 1997 and 1996 .................................... F-7 Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 .................................... F-8 Notes to Financial Statements ......................................... F-9 Schedule III - Real Estate and Accumulated Depreciation ............... F-20 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted since (1) the information required is disclosed in the financial statements and notes thereto; (2) the schedules are not required under the related instructions; or (3) the schedules are inapplicable. Report of Independent Auditors To the Partners of Corporate Realty Income Fund I, L.P. We have audited the accompanying balance sheets of Corporate Realty Income Fund I, L.P. (a Delaware limited partnership) as of December 31, 1998 and 1997 and the related statements of operations, changes in partners' capital and cash flows for the years then ended. We also have audited the financial statement schedule listed on the Index at Item 14 (a). These financial statements and the financial statement schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Corporate Realty Income Fund I, L.P. as of December 31, 1998 and 1997 and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ Ernst & Young LLP New York, New York January 25, 1999 F-3 Independent Auditors' Report The Partners Corporate Realty Income Fund I, L.P.: We have audited the accompanying statements of operations, changes in partners' capital, and cash flows of Corporate Realty Income Fund I, L.P. (a Delaware limited partnership) for the year ended December 31, 1996. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Corporate Realty Income Fund I, L.P. for the year ended December 31, 1996, in conformity with generally accepted accounting principles. /s/KPMG LLP New York, New York February 5, 1997 F-4 Corporate Realty Income Fund I, L.P. (A Delaware Limited Partnership) Balance Sheets
December 31, 1998 1997 ------------------------------ Assets Real estate, at cost: Land $ 19,875,846 $ 19,875,846 Buildings and improvements 95,541,299 92,162,859 Equipment and furniture 78,029 78,029 ------------------------------ 115,495,174 112,116,734 Less accumulated depreciation 21,669,758 18,592,878 ------------------------------ 93,825,416 93,523,856 Cash and cash equivalents at cost, which approximates market value 4,115,435 855,840 Accounts receivable 737,617 478,380 Due from general partners 95,016 158,248 Note receivable, net of unamortized discount of $50,024 in 1998 524,379 2,628 Deferred rent receivable 2,638,615 2,955,384 Deferred financing costs, net of accumulated amortization of $927,224 in 1998 and $507,542 in 1997 829,552 1,015,084 Lease commissions, net of accumulated amortization of $1,637,425 in 1998 and $1,866,901 in 1997 2,726,566 1,844,392 Deposits and other assets 255,769 113,156 ------------------------------ Total assets $ 105,748,365 $ 100,946,968 ============================== Liabilities and partners' capital Accounts payable and accrued expenses $ 2,983,261 $ 1,986,273 Mortgage loan payable 46,930,800 41,578,800 Other liabilities 1,382,043 1,141,712 ------------------------------ Total liabilities 51,296,104 44,706,785 Commitments and contingencies Partners' capital: General partners: Capital contributions 1,000 1,000 Net income 395,236 375,926 Cash distributions (567,200) (530,944) ------------------------------ (170,964) (154,018) ------------------------------ Limited partners: ($25 per unit; 4,000,000 units authorized, 2,983,531 and 2,992,211 issued and outstanding in 1998 and 1997, respectively): Capital contributions, net of offering costs 71,724,856 71,818,166 Net income 39,128,241 37,216,567 Cash distributions (56,229,872) (52,640,532) ------------------------------ 54,623,225 56,394,201 ------------------------------ Total partners' capital 54,452,261 56,240,183 ------------------------------ Total liabilities and partners' capital $ 105,748,365 $ 100,946,968 ==============================
See accompanying notes F-5 Corporate Realty Income Fund I, L.P. (A Delaware Limited Partnership) Statements of Operations
For the year ended December 31, 1998 1997 1996 ------------------------------------------------------------ Revenue: Rental $ 15,513,474 $ 14,885,474 $ 9,101,611 Lease cancellation 4,167,685 -- -- Interest and other income 71,047 73,325 40,758 ------------------------------------------------------------ 19,752,206 14,958,799 9,142,369 ------------------------------------------------------------ Expenses: Interest 3,320,457 3,207,254 965,540 Depreciation 3,304,509 3,084,463 2,578,638 Amortization 997,515 847,297 551,760 Property operations 7,336,498 7,321,229 3,097,440 Management fees 1,357,671 1,008,252 565,519 Professional fees 307,208 204,301 207,379 General and administrative 1,197,364 619,396 498,179 ------------------------------------------------------------ 17,821,222 16,292,192 8,464,455 ------------------------------------------------------------ Income (loss) from real estate operations 1,930,984 (1,333,393) 677,914 Gain on sale of real estate -- 912,501 -- ------------------------------------------------------------ Net income (loss) $ 1,930,984 $ (420,892) $ 677,914 ============================================================ Net (income) loss allocated: General partners $ 19,310 $ (4,209) $ 6,779 Limited partners 1,911,674 (416,683) 671,135 ------------------------------------------------------------ $ 1,930,984 $ (420,892) $ 677,914 ============================================================ Net income (loss) per unit of limited partnership interest $ 0.64 $ (0.14) $ 0.22 ============================================================
See accompanying notes. F-6 Corporate Realty Income Fund I, L.P. (A Delaware Limited Partnership) Statements of Changes in Partners' Capital
General Limited Total Partners Partners -------------------------------------------------- Partners' capital (deficit) at December 31, 1995 $ 64,877,949 $ (82,225) $ 64,960,174 Redemption of units (911,364) -- (911,364) Cash distributions to partners (3,758,923) (37,589) (3,721,334) Net income 677,914 6,779 671,135 -------------------------------------------------- Partners' capital (deficit) at December 31, 1996 60,885,576 (113,035) 60,998,611 Redemption of units (547,120) -- (547,120) Cash distributions to partners (3,677,381) (36,774) (3,640,607) Net loss (420,892) (4,209) (416,683) -------------------------------------------------- Partners' capital (deficit) at December 31, 1997 56,240,183 (154,018) 56,394,201 Redemption of units (93,310) -- (93,310) Cash distributions to partners (3,625,596) (36,256) (3,589,340) Net income 1,930,984 19,310 1,911,674 -------------------------------------------------- Partners' capital (deficit) at December 31, 1998 $ 54,452,261 $ (170,964) $ 54,623,225 ==================================================
See accompanying notes. F-7 Corporate Realty Income Fund I, L.P. (A Delaware Limited Partnership) Statements of Cash Flows
For the year ended December 31, 1998 1997 1996 ------------------------------------------------------ Operating activities Net income (loss) $ 1,930,984 $ (420,892) $ 677,914 ------------------------------------------------------ Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 4,302,024 3,931,760 3,130,398 Gain on sale of real estate -- (912,501) -- Decrease (increase) in deferred rent receivable 316,769 (10,221) (160,361) Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (259,237) (46,491) 5,302 Decrease (increase) in due from general partners 63,232 (58,451) (55,009) (Increase) decrease in note receivable (521,751) 7,684 7,382 Increase in deposits (142,000) -- (38,600) Increase in lease commissions (1,460,007) (765,788) (310,302) (Increase) decrease in other assets (613) (2,425) 2,635 Increase (decrease) in accounts payable and accrued expenses 996,988 787,736 (258,492) Increase in other liabilities 240,331 197,746 618,805 ------------------------------------------------------ Total adjustments 3,535,736 3,129,049 2,941,758 ------------------------------------------------------ Net cash provided by operating activities 5,466,720 2,708,157 3,619,672 ------------------------------------------------------ Investing activities Proceeds from sale of real estate -- 12,475,923 -- Acquisition of real estate (3,606,069) (13,753,264) (27,928,966) ------------------------------------------------------ Net cash (used in) investing activities (3,606,069) (1,277,341) (27,928,966) ------------------------------------------------------ Financing activities Deferred financing costs (234,150) -- (1,547,126) Proceeds from mortgage loan payable 6,400,000 2,600,000 42,000,000 Repayments of mortgage loan payable (1,048,000) (976,400) (9,844,800) Redemption of units (93,310) (547,120) (911,364) Cash distributions to partners (3,625,596) (3,677,381) (3,758,923) ------------------------------------------------------ Net cash provided by (used in) financing activities 1,398,944 (2,600,901) 25,937,787 ------------------------------------------------------ Net increase (decrease) in cash and cash equivalents 3,259,595 (1,170,085) 1,628,493 Cash and cash equivalents at beginning of year 855,840 2,025,925 397,432 ------------------------------------------------------ Cash and cash equivalents at end of year $ 4,115,435 $ 855,840 $ 2,025,925 ======================================================
See accompanying notes. F-8 Corporate Realty Income Fund I, L.P. (A Delaware Limited Partnership) Notes to Financial Statements December 31, 1998 1. Organization Corporate Realty Income Fund I, L.P. (the "Partnership") was formed as a limited partnership on November 25, 1985 under the laws of the State of Delaware. The Partnership was formed for the purpose of acquiring and owning income-producing commercial and industrial real estate properties for lease to others. The Partnership will terminate on December 31, 2010 or sooner, in accordance with the Partnership Agreement. The general partners of the Partnership are 1345 Realty Corporation, the corporate general partner, and Robert F. Gossett, Jr., the individual general partner. On November 30, 1994, all of the outstanding capital stock of the corporate general partner was acquired by the individual general partner in a transaction which was effective as of July 1, 1994. As a result of this acquisition, the entire interest of the general partners is controlled by the individual general partner. The initial capital was $1,025 representing capital contributions of $1,000 by the general partners and $25 by the original limited partner. The Partnership commenced operations on June 2, 1986 with the acceptance of subscriptions for 1,082,640 Depositary Units of limited partnership 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 and 1997, 8,680 and 50,895 units, respectively, were redeemed from unitholders and canceled. F-9 Corporate Realty Income Fund I, L.P. (A Delaware Limited Partnership) Notes to Financial Statements (continued) 2. Significant Accounting Policies 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 for financial reporting purposes is computed under the straight-line method over an estimated economic useful life of 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 using the straight-line method over the term of the loan agreement. 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, 1998, 1997 and 1996, includes approximately $498,500, $169,200 and $160,400, respectively, of the excess of income on the straight-line basis over the actual amount billed. 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 F-10 Corporate Realty Income Fund I, L.P. (A Delaware Limited Partnership) Notes to Financial Statements (continued) 2. Significant Accounting Policies (continued) Deferred Rent (continued) Austin Place Building and 475 Fifth Avenue, respectively, prior to the expiration of their lease terms. During 1997, upon the sale of the James River Building, deferred rent receivable of approximately $158,900 was written-off. Such write-offs are included in general and administrative 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 in a current transaction between willing parties. The Partnership's accounts receivable and note receivable, deposits, accounts payable and accrued expenses, interest payable and mortgage loan payable are carried at cost, which approximates fair value. Adoption of Recently Issued Accounting Standards SFAS No. 131 "Disclosure about Segments of an Enterprise and Related Information", ("Statement 131") is effective for financial statements issued for periods beginning after December 15, 1997. 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. F-11 Corporate Realty Income Fund I, L.P. (A Delaware Limited Partnership) Notes to Financial Statements (continued) 2. Significant Accounting Policies (continued) Adoption of Recently Issued Accounting Standards (continued) 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. 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 financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Reclassifications Certain 1997 amounts have been reclassified to conform with the current year presentation. 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 Corporate Realty Income Fund I, L.P. (A Delaware Limited Partnership) Notes to Financial Statements (continued) 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 American Color Building On July 10, 1986, the Partnership purchased the American Color Building (formerly the GE Medical Systems Office Building), an office building located in Monterey Park, California, and the 90,000 square feet of underlying land. The property contains approximately 20,250 square feet of net rentable area. The terms of the agreement with the seller provided for a purchase price, including acquisition fees, of 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 is leased to American Color Graphics, Inc. for a term which expires in July 2002. The Directory Building On October 27, 1986, the Partnership purchased the Directory Building (formerly the IBM building), an office building located in Las Colinas, Texas, and the 6.67 acres of underlying land. The property contains approximately 152,100 square feet of net rentable area. The terms of the agreement with the seller provided for a purchase price, including acquisition fees, of approximately $24,580,000. F-13 Corporate Realty Income Fund I, L.P. (A Delaware Limited Partnership) Notes to Financial Statements (continued) 4. Investments in Real Estate (continued) The Directory Building (continued) As of December 31, 1998, the building was 100% leased to GTE Directories Corporation for a term which expires on September 30, 2000. Rent from the tenant represented 14%, 16%, and 25% of the Partnership's total rental revenue in 1998, 1997, and 1996, 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 acquisition fees, of approximately $16,473,000. As of December 31, 1998, the building was approximately 73% leased to various tenants under leases with terms ranging from four to fifteen years. During 1998 two tenants, The Austin Company and PNC Mortgage, paid lease cancellation fees of approximately $3,337,000 and $397,000, respectively, to terminate their leases prior to the end of their lease terms. Rent from The Austin Company represented 10% and 29% of the Partnership's total rental revenue in 1997 and 1996, respectively. James River Building On October 16, 1987, the Partnership purchased the James River Building (formerly the Crown Zellerbach building) located in Woodland, California (a suburb of Sacramento), and the 21 acres of underlying land. The building contains approximately 570,000 square feet of net rentable area. F-14 Corporate Realty Income Fund I, L.P. (A Delaware Limited Partnership) Notes to Financial Statements (continued) 4. Investments in Real Estate (continued) James River Building (continued) The terms of the agreement with the seller provided for a purchase price, including acquisition fees, of $14,551,456. The building was net leased to James River Corporation of Nevada, Inc. for a term which expires in January, 2002. On February 28, 1997, the land and building were sold to an unrelated party for $12,875,000. Rent from the tenant, James River Corporation of Nevada, Inc., represented 16% of the Partnership's total rental revenue in 1996. Flatiron Building On January 5, 1988, the Partnership purchased the Flatiron Building (formerly the Cadnetix Building) located in Boulder, Colorado, and the five acres of underlying land. The building contains approximately 96,000 square feet of net rentable area. The terms of the agreement with the seller provided for a purchase price, including acquisition fees, of approximately $9,003,000. As of December 31, 1998, the building was approximately 94% leased to various tenants under leases with terms ranging from one to eight years. Marathon Oil Building On March 21, 1988, the Partnership purchased the Marathon Oil Building (formerly the Tenneco Oil Building) located in Oklahoma City, Oklahoma, and the 6.1 acres of underlying land. The building contains approximately 90,925 net rentable square feet plus a 10,016 square foot basement. The terms of the agreement with the seller provided for a purchase price, including acquisition fees, of approximately $10,736,000. F-15 Corporate Realty Income Fund I, L.P. (A Delaware Limited Partnership) Notes to Financial Statements (continued) 4. Investments in Real Estate (continued) Marathon Oil Building (continued) As of December 31, 1998, the building was approximately 93% leased to various tenants under leases with terms of five years. The Marathon Oil Company leases 62,600 square feet of space pursuant to a five-year lease which expires in February, 2001, and a lease with a former affiliate of Marathon with respect to 24,700 square feet of space which expires in February, 2001. Approximately 5,600 square feet of the remaining space is leased to another tenant for a term of five years. 475 Fifth Avenue On December 6, 1996 the Partnership purchased an office building and the underlying land located at 475 Fifth Avenue, New York, New York. The 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, 1998, the building was approximately 92% leased to various tenants under operating leases with remaining terms ranging from one to fifteen years. During 1998, the Partnership earned a lease cancellation fee of approximately $197,000 from a tenant who terminated its lease prior to the end of its lease term. 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. F-16 Corporate Realty Income Fund I, L.P. (A Delaware Limited Partnership) Notes to Financial Statements (continued) 4. Investments in Real Estate (continued) Alamo Towers (continued) As of December 31, 1998, the building was approximately 83% leased to various tenants under operating leases with remaining terms ranging from one to seven years. During 1998, the Partnership earned lease cancellation fees aggregating approximately $131,000 from several tenants who terminated leases prior to the end of their respective lease terms. 5. Leases Minimum future rentals from tenants under noncancellable operating leases as of December 31, 1998 are approximately as follows: Year ending December 31: 1999 $11,861,000 2000 10,634,000 2001 7,961,000 2002 7,101,000 2003 6,757,000 Thereafter 25,069,000 ----------- Total $69,383,000 =========== 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, 1998, 1997, and 1996, escalation charges amounting to approximately $2,152,000, $2,735,000 and $1,765,000, respectively, have been included in rental income. F-17 Corporate Realty Income Fund I, L.P. (A Delaware Limited Partnership) Notes to Financial Statements (continued) 6. Transactions With General Partners and Affiliates The general partners or their affiliates receive a property management fee equal to either 1% for a long-term net lease or 6% for other types of leases on the gross revenue from the property, and a partnership management fee equal to 7% of adjusted cash from operations, as defined, and reimbursement of administrative expenses. The general partners also receive leasing commissions in connection with leasing, re-leasing or leasing related services performed on behalf of the Partnership in connection with the negotiation of tenant leases. Such commissions are computed at a rate equal to 3% of the gross revenues for the first five years of each lease signed where the general partners have performed such leasing services. Following is a summary of the fees earned and reimbursable expenses for the years ended December 31, 1998, 1997 and 1996: 1998 1997 1996 -------------------------------------- Partnership management fees $ 254,544 $257,664 $263,577 Property management fees 1,103,127 750,588 301,942 Administrative expenses 55,000 60,372 166,036 During 1996, leasing commissions of $110,584 were billed to the Partnership by the general partners and recorded by the Partnership as deferred leasing commissions. There were no leasing commissions billed by the general partner in 1998 and 1997. 7. Loan Payable On September 26, 1996, the Partnership entered into a $24,000,000 senior secured revolving credit facility with Fleet Bank, N.A. (the "Mortgage"). The purpose of the Mortgage was to refinance the existing $7,800,000 secured revolving line of credit with PNC Bank, N.A., to provide working capital for tenant improvements and leasing commissions with respect to the properties owned by the Partnership, and to provide funds for the acquisition of additional properties. On December 6, 1996, the Partnership amended the Mortgage, increasing the principal amount to $44,000,000. On September 25, 1998, the Partnership further amended the Mortgage to increase its existing line of credit by $5,000,000. F-18 Corporate Realty Income Fund I, L.P. (A Delaware Limited Partnership) Notes to Financial Statements (continued) 7. Loan Payable (continued) The terms of the Mortgage, as amended, provide for a term of four years and maximum gross borrowings of $49,000,000. Borrowings under the Mortgage, which are secured by the properties owned by the Partnership, bear interest monthly at a rate, selected at the option of the Partnership at the time of the associated borrowing, based on (i) the lender's Peg Rate (as defined in the loan agreement) plus .50% or (ii) the applicable LIBOR rate or other market rate offered to the bank plus 2%. The Mortgage requires monthly amortization of principal in an amount equal to 1/500th of the outstanding principal amount of the Mortgage on the first day of the applicable month with a final payment of the then outstanding balance at maturity. The Mortgage may be prepaid at any time. Borrowings under the Mortgage are secured by all of the properties of the Partnership. Upon the sale of any property, the Partnership is required to repay principal on the total indebtedness under the Mortgage in an amount equal to 110% of that portion of outstanding balance of the loan attributable to the sold property, as defined in the Mortgage agreement. The Mortgage requires the Partnership to comply with certain covenants, including but not limited to, maintenance of certain financial ratios. In addition, the Mortgage provides that the Partnership may distribute to its partners up to 90% of the sum of its operating net income plus depreciation and amortization. At December 31, 1998, $46,930,800 was outstanding under the Mortgage at varying interest rates, ($44,832,800 at 7.63% and $2,098,000 at 8.25% at December 31, 1998). In connection with the Mortgage, the Partnership incurred fees and expenses of $1,756,776, which have been capitalized and are being amortized over the term of the loan agreement. 8. Supplemental Disclosure of Cash Flow Information 1998 1997 1996 ------------------------------------ Cash paid during the year for interest $ 3,289,728 $3,154,925 $789,306 ==================================== F-19 Corporate Realty Income Fund I, L.P. (A Delaware Limited Partnership) Notes to Financial Statements (continued) 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, 1998 and 1997, the Partnership had not made any contributions to the Plan. 10. Earnings per Limited Partnership Unit Basic earnings per limited partnership unit amounts were computed based on 2,986,460, 3,022,492 and 3,087,170 weighted average limited partnership units outstanding in 1998, 1997 and 1996, respectively. For the three years ended December 31, 1998, 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, 1998, were computed based on the weighted average limited partnership units outstanding. 11. Commitments During 1998, the Partnership committed to expend approximately $1,026,000 for future tenant allowances which had not yet been incurred at December 31, 1998. F-20
Corporate Realty Income Fund I, L.P. (a Delaware Limited Partnership) Schedule III - Real Estate and Accumulated Depreciation December 31, 1998 Costs Capitalized Subsequent to Gross Amount at Which Initial Cost (B) Acquisition Carried at Close of Period -------------------------------------------------------------------------------- Encumbrances Building and Building and Building and Description (A) Land Improvements Improvements Land Improvements - - ----------------------------------------------------------------------------------------------------------------------------- Office Building Monterey Park, CA $ 811,903 $ 1,762,126 $ 2,459,141 $ 89,239 $ 1,762,126 $ 2,548,380 Office Building Las Colinas, TX 7,607,483 4,925,745 19,702,979 2,755,710 4,925,745 22,458,689 Office Building So. Plainfield, NJ 6,086,925 3,147,912 13,378,294 2,103,178 3,147,912 15,481,472 Office Building San Antonio, TX 6,298,113 2,408,000 9,636,883 360,650 2,408,000 9,997,533 Office Building Boulder, CO 4,669,615 1,080,369 7,922,716 455,415 1,080,369 8,378,131 Office Building Oklahoma City, OK 1,783,370 1,063,694 9,713,348 427,350 1,063,694 10,140,698 Office Building New York, NY 19,673,391 5,488,000 21,951,998 4,662,427 5,488,000 26,614,425 ---------------------------------------------------------------------------------------------------- $ 46,930,800 $ 19,875,846 $ 84,765,359 $ 10,853,969 $ 19,875,846 $ 95,619,328 ==================================================================================================== Accumulated Life on Which Total Depreciation Date of Depreciation is Description (C) (D) Construction Date Acquired Computed - - ------------------------------------------------------------------------------------------------------ Office Building Monterey Park, CA $ 4,310,506 $ 776,077 1985 July, 1986 5 to 40 years Office Building Las Colinas, TX 27,384,434 7,871,609 1982 October, 5 to 40 years 1986 Office Building December, So. Plainfield, NJ 18,629,384 5,504,771 1986 1986 5 to 40 years Office Building San Antonio, TX 12,405,533 485,998 1975/1980 March, 1997 5 to 40 years Office Building Boulder, CO 9,458,500 2,635,010 1987 January, 5 to 40 years 1988 Office Building Oklahoma City, OK 11,204,392 2,857,744 1986 March, 1988 5 to 40 years Office Building December, New York, NY 32,102,425 1,538,549 1925 1996 5 to 40 years ---------------------------- $115,495,174 $ 21,669,758 ============================
F-21 Corporate Realty Income Fund I, L.P. (a Delaware Limited Partnership) Schedule III - Real Estate and Accumulated Depreciation (continued) December 31, 1998 Notes: (A) Encumbrances represent a loan secured by a deed of trust given with respect to all of the properties of the Partnership. (B) The initial cost to the Partnership represents the original purchase price of the properties net of purchase price adjustments, including amounts incurred subsequent to acquisition which were contemplated. The initial cost includes the purchase price paid by the Partnership and acquisition fees and expenses. There is no difference between costs for financial reporting purposes and costs for federal income tax purposes. (C) Reconciliation Summary of Transactions - Real Estate Owned
Year Ended December 31, 1998 1997 1996 ----------------------------------------------- Balance at beginning of year $ 112,116,734 $ 112,971,546 $ 85,042,580 Net additions during the year 3,606,069 13,753,264 27,928,966 Cost of real estate sold -- (11,563,422) -- Write off fully depreciated assets (227,629) (3,044,654) -- ----------------------------------------------- Balance at close of year $ 115,495,174 $ 112,116,734 $ 112,971,546 ===============================================
The aggregate cost of land, buildings and improvements for federal income tax purposes at December 31, 1998 was approximately $104,583,000. (D) Reconciliation Summary of Transactions - Accumulated Depreciation
Year Ended December 31, 1998 1997 1996 ----------------------------------------------- Balance at beginning of year $ 18,592,878 $ 18,553,069 $ 15,974,431 Depreciation charged to expense 3,304,509 3,084,463 2,578,438 Write-off of fully depreciated assets (227,629) (3,044,654) -- ----------------------------------------------- Balance at close of year $ 21,669,758 $ 18,592,878 $ 18,553,069 ===============================================
F-22 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 30, 1999 By: /s/ Robert F. Gossett, Jr. ---------------------------------- ROBERT F. GOSSETT, JR., President Dated: March 30, 1999 By: /s/ Robert F. Gossett, Jr. ---------------------------------- ROBERT F. GOSSETT, JR. Individual General Partner Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities (with respect to the Corporate General Partner) and on the dates indicated. 1345 REALTY CORPORATION Dated: March 30, 1999 By: /s/ Robert F. Gossett, Jr. ---------------------------------- Robert F. Gossett, Jr. President, Director Dated: March 30, 1999 By: /s/ Pauline G. Gossett ---------------------------------- Pauline G. Gossett Secretary
EX-10.(V) 2 THIRD AMENDMENT OF LOAN AGREEMENT THIRD AMENDMENT OF LOAN AGREEMENT AND SECOND AMENDMENT OF NOTE THIRD AMENDMENT OF LOAN AGREEMENT AND SECOND AMENDMENT OF NOTE (as the same may be amended or otherwise modified from time to time, the "Amendment"), dated as of the 25th day of September, 1998, among FLEET BANK, NATIONAL ASSOCIATION, a national banking association, having an office at 1133 Avenue of the Americas, 40th Floor, New York, New York 10036 ("Fleet"), FIRST AMERICAN BANK TEXAS, SSB, a Texas State Savings Bank, having an office at 14651 Dallas Parkway, Suite 400, Dallas, Texas 75240 ("FAB"; Fleet and FAB are, collectively, the "Lender"); CORPORATE REALTY INCOME FUND I, L.P., a Delaware limited partnership, having an office at 475 Fifth Avenue, 21st Floor, New York, New York 10017 ("Borrower"); and FLEET, as Agent for the Lender. W I T N E S S E T H: WHEREAS, pursuant to that certain Loan Agreement dated as of September 26, 1996 between Fleet and Borrower (as heretofore amended and as the same may further be amended or otherwise modified from time to time, the "Loan Agreement"), Fleet made a loan to Borrower in the original principal amount of up to Forty-Four Million and 00/100 ($44,000,000.00) Dollars (the "Loan"); WHEREAS, the Loan is evidenced by that certain promissory note of even date with the Loan Agreement (as heretofore amended and as the same may further be amended or otherwise modified from time to time, the "Note") made by Borrower payable to the order of Fleet; WHEREAS, pursuant to that certain Intercreditor Agreement dated as of February 28, 1997 (as heretofore amended and as the same may further be amended or otherwise modified from time to time, the "Intercreditor Agreement") among Fleet, FAB and The Travelers Insurance Company ("Travelers") and consented to by Borrower, FAB and Travelers have become parties to the Loan Agreement and Fleet was appointed to act as Agent; and WHEREAS, Lender and Borrower desire to modify and amend the terms and provisions of the Loan Agreement as hereinafter provided. NOW, THEREFORE, in consideration of the covenants set forth herein and for other good and valuable consideration, the receipt and legal sufficiency of which is hereby acknowledged, Lender, Borrower and Agent hereby agree as follows: 1. Definitions. All capitalized terms used herein without definition and which are defined in the Loan Agreement are used herein with the meanings assigned to such terms in the Loan Agreement. 2. Amendments to Loan Agreement. The Loan Agreement is hereby modified as follows: a. EXHIBIT C (which is referred to in SECTION 6.10(c) of the Loan Agreement) is hereby amended to provide for new Loan allocations for the Projects. Such revised Loan allocations are as follows: REVISED LOAN ALLOCATIONS FOR PROJECTS (i) Alamo Towers in San Antonio, Texas -- $6,575,800. (ii) 2.06 acre site in the Los Angeles Corporate Center, located in Monterey Park, California -- $847,700. (iii) 6.1 acre site at 7301 Northwest Highway, Oklahoma City, Oklahoma -- $1,862,000. (iv) 4.96 acre site in the Flatiron Industrial Park in the City of Boulder, Colorado -- $4,875,500. (v) 6.75 acre site in the Las Colinas Office Center, Irving, Texas -- $7,942,900. (vi) 5 acre site at 1001 Durham Avenue, South Plainfield, New Jersey -- $6,355,300. (vii) 475 Fifth Avenue, New York, New York -- $20,540,800. b. SECTION 1.01 is hereby modified to delete the reference to a principal sum of "FORTY-FOUR MILLION AND NO/100THS DOLLARS ($44,000,000)" and, to substitute in lieu thereof, a reference to "FORTY-NINE MILLION AND NO/100THS DOLLARS ($49,000,000)". c. To add the following as a new SECTION 2.11: "Borrower represents, warrants and covenants that Borrower has taken or shall timely take all reasonably necessary and appropriate steps to ascertain the extent of and, on a timely basis, adequately address the risk that computer applications used by Borrower and/or by Borrower's suppliers, vendors and customers may be unable to recognize or perform, without error, date-sensitive functions involving certain dates prior to and after December 31, 1999." d. SECTION 6.02 is hereby amended to delete the word "or" in the next to last line of the SECTION and add the following at the end of the SECTION after the word "Owner": ", or (viii) reimbursing the general partner of Borrower for amounts such general partner has advanced to Borrower to enable Borrower to pay for tenant buildout expenses and leasing costs". 2 e. SECTION 6.04 is hereby amended to: (i) delete the second sentence of the SECTION and, to substitute the following in lieu thereof: "Advances shall be limited to one Advance per month and shall be in minimum amounts of $100,000 and integral multiples of $10,000." and (ii) delete the reference to a principal amount of "Forty-Four Million Dollars ($44,000,000)" and, to substitute in lieu thereof, a reference to a principal amount of "Forty-Nine Million Dollars ($49,000,000)". f. SECTION 6.12 is hereby amended to add the following at the end of the SECTION: "Any unsecured debt of Borrower owing to the general partner of Borrower on account of such expenses and costs is hereby permitted; provided, however, that in no event may any such unsecured debt owing to the general partner exceed $3,000,000. If requested by Lender, Borrower will cause the general partner to execute and deliver a subordination agreement reasonably satisfactory to Lender and Borrower." g. SECTION 6.17 is hereby deleted and the following is substituted in lieu thereof: "SECTION 6.17 Borrower's Distributions. (a) Provided no Default shall exist and no event or circumstance shall have occurred or arisen which would constitute a Default but for any unsatisfied requirement for the giving of notice or passage of time or both, Borrower may distribute to its partners up to ninety percent (90%) of the sum of net income from real estate operations plus depreciation plus amortization plus or minus step rent adjustments (as shown on Borrower's financial statements and calculated in a manner consistent with its statement for the period ending December 31, 1997; such sum hereinafter referred to as "Cash From Operations"). Compliance with this covenant will be tested as of the last day of each fiscal quarter for the preceding twelve (12) consecutive calendar months. The foregoing covenant shall only apply to properties for such periods as such properties are Projects. (b) Provided that Lender has agreed to release its liens and security interests from one or more of the Projects pursuant to SECTION 6.10, and has so released the same, Borrower, in addition to distributions permitted under SECTION 6.17(a), may distribute to its partners the net proceeds from the sale or refinance of such Project(s). 3 (c) The application of the compliance covenant set forth in SECTION 6.17(a) above shall be determined for each calendar quarter by taking the gross distributions made to partners of the Borrower during such calendar quarter and reducing same by the amount of any net proceeds from the sale or refinancing of any Project distributed to the partners of the Borrower during such calendar quarter; provided, however, that, in the event a distribution of such proceeds from the sale or refinancing of a Project is made all or substantially all in any one calendar quarter, such proceeds shall, for purposes of the application of the compliance covenant of SECTION 6.17(a), be deemed to have been distributed to the partners of the Borrower equally over the four calendar quarters of the year in which such net proceeds of sale or refinancing were realized. h. The definition of "Debt Service Coverage Ratio" is hereby deleted and the following is substituted in lieu thereof: "'Debt Service Coverage Ratio' shall mean Cash From Operations from the Projects (encumbered by the Mortgages at the time compliance with the covenant is being tested) plus fees paid to the general partners over and above commercially reasonable property management and fees (such sum the "Adjusted Cash From Operations") for the preceding twelve (12) consecutive calendar months divided by a constant amortization (principal and interest) payment assuming (i) the then outstanding principal balance of the Loan, (ii) a 300 month term and (iii) an annual interest rate equal to the sum of (a) the prevailing yield on the then most recently issued United States Treasury obligations having a maturity of five years and (b) 1.50%. 3. Amendments to Note. The Note is hereby modified as follows: The reference on the first page of the Note to a "Principal Amount" of $44,000,000 is hereby amended to be a reference to a "Principal Amount" of $49,000,000. 4. Outstanding Loans. Borrower represents and warrants to Lender that, without giving effect to any Loan advances made concurrently with the execution and delivery of this Amendment, the outstanding principal amount of the Loan is $42,212,000, that there are no offsets, defenses or counterclaims to its obligations under the Loan Documents and to the extent that any such offsets, defenses or counterclaims exist without its knowledge, the same are hereby waived to the fullest extent permitted by law. Except as modified by this Amendment and by amendments to the other Loan Documents being executed and delivered 4 concurrently herewith, the terms and provisions of the Loan Documents are hereby ratified and confirmed in all respects and continue in full force and effect. 5. Modifications. No provision of this Amendment may be waived, amended or supplemented except by a written instrument executed by Borrower, Lender and Agent. 6. Successors and Assigns. This Amendment, which sets forth the entire understanding of the parties hereto with respect to the subject matter hereof, inures to the benefit of, and shall be binding upon, the parties hereto and their respective successors and assigns. 7. Severability. In the event that any one or more of the provisions contained in this Amendment shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Amendment, but this Amendment shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 8. Captions; Counterparts. Captions used in this Amendment are for convenience of reference only and shall not be deemed a part of this Amendment nor used in the construction of its meaning. This Amendment may be signed in counterparts. 5 IN WITNESS WHEREOF, Borrower, Lender and Agent have duly executed this Amendment, as of the date and year first above CORPORATE REALTY INCOME FUND I, L.P. By: /s/ Robert F. Gossett, Jr. --------------------------------- Robert F. Gossett, Jr., General Partner By: 1345 REALTY CORPORATION, General Partner By: /s/ Robert F. Gossett, Jr. --------------------------------- Robert F. Gossett, Jr., President FLEET BANK, NATIONAL ASSOCIATION, as a Lender and as Agent By: /s/ James E. Mirman --------------------------------- Title: Senior Vice President FIRST AMERICAN BANK TEXAS, SSB By: /s/ Jeffrey C. Schultz --------------------------------- Title: Vice President 6 EX-27 3 FDS
5 This schedule contains summary financial information extracted from registrant's audited financial statements as of and for the year ended December 31, 1998 and is qualified in its entirety by reference to such financial statements. 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 4,115,435 0 1,261,996 0 0 5,728,216 115,495,174 21,669,758 105,748,365 4,365,304 46,930,800 0 0 0 54,452,261 105,748,365 15,513,474 19,752,206 0 12,996,193 1,504,572 0 3,320,457 1,930,984 0 1,930,984 0 0 0 1,930,984 0.64 0.64
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