UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
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or
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from ______________________ to _______________________
Commission file number 0-9174
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CORPORATE PROPERTY ASSOCIATES
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(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2572215
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
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(Address of principal executive offices) (Zip Code)
(212) 492-1100
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
INDEX
Page No.
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PART I
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Item 1. - Financial Information*
Balance Sheets, December 31, 1995 and
September 30, 1996 2
Statements of Income for the three and nine
months ended September 30, 1995 and 1996 3
Statements of Cash Flows for the nine
months ended September 30, 1995 and 1996 4
Notes to Financial Statements 5-6
Item 2. - Management's Discussion of Operations 7
PART II
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Item 6. - Exhibits and Reports on Form 8-K 8
Signatures 9
*The summarized financial information contained herein is unaudited; however in
the opinion of management, all adjustments necessary for a fair presentation of
such financial information have been included.
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CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
PART I
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Item 1. - FINANCIAL INFORMATION
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BALANCE SHEETS
December 31, September 30,
1995 1996
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(Note) (Unaudited)
ASSETS:
Land and buildings, net of
accumulated depreciation of
$17,950,541 at December 31, 1995 and
$18,026,092 at September 30, 1996 $16,382,450 $15,078,261
Net investment in direct financing leases 4,895,886 4,656,376
Cash and cash equivalents 872,864 680,506
Real estate held for sale 799,339
Accrued interest and rents receivable 377,471 371,979
Other assets 1,001,434 1,061,703
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Total assets $23,530,105 $22,648,164
=========== ===========
LIABILITIES:
Mortgage notes payable $14,888,807 $14,049,294
Accrued interest payable 190,843 115,049
Accounts payable and accrued expenses 81,726 65,712
Prepaid rental income and security deposits 263,548 198,611
Accounts payable to affiliates 46,304 44,982
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Total liabilities 15,471,228 14,473,648
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PARTNERS' CAPITAL:
General Partners (98,679) (97,523)
Limited Partners (40,000 Limited
Partnership Units issued and
outstanding) 8,157,556 8,272,039
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Total partners' capital 8,058,877 8,174,516
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Total liabilities and
partners' capital $23,530,105 $22,648,164
=========== ===========
The accompanying notes are an integral part of the financial statements.
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date.
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CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
STATEMENTS OF INCOME (UNAUDITED)
Three Months ended Nine Months Ended
September 30, 1995 September 30, 1996 September 30, 1995 September 30, 1996
------------------ ------------------ ------------------- ------------------
Revenues:
Rental income from
operating leases $ 997,568 $1,008,974 $2,996,254 $3,024,080
Interest from direct
financing leases 140,050 128,963 397,132 386,890
Other interest income 15,405 13,206 51,052 32,868
Other income 161,038
---------- ---------- ---------- ----------
1,153,023 1,151,143 3,605,476 3,443,838
---------- ---------- ---------- ----------
Expenses:
Interest on mortgages 373,014 303,479 1,156,127 990,377
Depreciation 270,387 233,016 820,284 743,116
General and
administrative 44,258 54,994 182,844 158,464
Property expense 19,706 35,227 70,053 103,532
Amortization 6,766 19,945 20,300 42,265
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714,131 646,661 2,249,608 2,037,754
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Income before extra-
ordinary item 438,892 504,482 1,355,868 1,406,084
Extraordinary charge on
extinguishment of debt 255,438
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Net income $ 438,892 $ 504,482 $1,355,868 $1,150,646
========== ========== ========== ==========
Net income allocated
to General Partners $ 4,389 $ 5,044 $ 13,559 $ 11,506
========== ========== ========== ==========
Net income allocated
to Limited Partners $ 434,503 $ 499,438 $1,342,309 $1,139,140
========== ========== ========== ==========
Net income per Unit
(40,000 Limited
Partnership Units)
Income before extra-
ordinary charge $10.87 $12.49 $33.56 $34.80
Extraordinary charge (6.32)
------ ------ ------ ------
$10.87 $12.49 $33.56 $28.48
====== ====== ====== ======
The accompanying notes are an integral part of the financial statements.
-3-
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30,
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1995 1996
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Cash flows from operating activities:
Net income $ 1,355,868 $ 1,150,646
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 840,584 785,381
Scheduled rents on direct financing leases
greater (less) than amortization of unearned income 27,348 (12,586)
Scheduled rents on operating leases less than
straight-line adjustments (50,625) (50,625)
Securities received in connection with settlement (44,561)
Extraordinary charge on extinguishment of debt 255,438
Net change in operating assets and liabilities (191,767) (5,290)
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Net cash provided by operating activities 1,936,847 2,122,964
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Cash flows from financing activities:
Distributions to partners (972,525) (1,062,222)
Prepayment of mortgage payable (6,194,941)
Proceeds from mortgage note payable 6,400,000
Payments on mortgage principal (1,075,835) (1,044,572)
Deferred financing costs (158,149)
Prepayment charges paid on extinguishment of debt (255,438)
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Net cash used in financing activities (2,048,360) (2,315,322)
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Net decrease in cash and cash equivalents (111,513) (192,358)
Cash and cash equivalents, beginning of period 937,631 872,864
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Cash and cash equivalents, end of period $ 826,118 $ 680,506
=========== ===========
Supplemental disclosure of cash flows information:
Interest paid $ 1,165,535 $ 1,066,171
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The accompanying notes are an integral part of the financial statements.
-4-
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Presentation:
---------------------
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (including normal recurring
accruals) considered necessary for a fair presentation have been included. For
further information, refer to the financial statements and footnotes thereto
included in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1995.
Note 2. Distributions to Partners:
-------------------------
Distributions declared and paid to partners during the nine months ended
September 30, 1996 are summarized as follows:
Quarter Ended General Partners Limited Partners Per Limited Partnership Unit
- ---------------- ---------------- ---------------- ----------------------------
December 31, 1995 $3,535 $350,000 $8.75
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March 31, 1996 $3,540 $350,400 $8.76
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June 30, 1996 $3,547 $351,200 $8.78
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A distribution of $8.79 per Limited Partner Unit for the quarter ended September
30, 1996 was declared and paid in October 1996.
Note 3. Transactions with Related Parties:
For the three-month and nine-month periods ended September 30, 1995, the
Partnership incurred management fees of $17,958 and $46,109, respectively and
general and administrative expense reimbursements of $11,136 and $34,052,
respectively, payable to an affiliate. For the three-month and nine-month
periods ended September 30, 1996, the Partnership incurred management fees of
$20,298 and $44,673, respectively and general and administrative expense
reimbursements of $11,415 and $33,021, respectively, payable to an affiliate.
The Partnership, in conjunction with certain affiliates, is a participant in a
cost sharing agreement for the purpose of renting and occupying office space.
Under the agreement, the Partnership pays its proportionate share of rent and
other costs of occupancy. Net expenses incurred for the nine months ended
September 30, 1995 and 1996 were $46,242 and $24,806, respectively.
-5-
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 4. Industry Segment Information:
-----------------------------
The Partnership's operations consist of the investment in and the leasing of
industrial and commercial real estate. For the nine-month periods ended
September 30, 1995 and 1996, the Partnership earned its total operating revenues
(rental income plus interest income from financing leases) from the following
lease obligors:
1995 % 1996 %
---- --- ---- ---
Pre Finish Metals Incorporated $1,056,425 31% $1,079,753 31%
The Gap, Inc. 919,495 27 919,495 27
IMO Industries, Inc. 635,057 19 635,057 19
Unisource Worldwide, Inc. 257,352 7 247,110 7
Kobacker Stores, Inc. 227,655 7 227,655 7
Broomfield Tech Center Corporation 220,602 7 225,100 7
Winn-Dixie Stores, Inc. 76,800 2 76,800 2
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$3,393,386 100% $3,410,970 100%
========== ==== ========== ====
Note 5. Real Estate Held for Sale:
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On September 17, 1996, the Partnership entered into a purchase and sale
agreement for the sale of the Partnership's property in Louisville, Kentucky,
leased to Winn-Dixie Stores, Inc. ("Winn-Dixie") for $1,100,000. less selling
costs, which includes a 5% brokerage commission. Completion of the transaction
is subject to completion of certain due diligence procedures and the ability of
the buyer to obtain financing within 120 days. Accordingly, there can be no
assurance that the sale of the property will be completed. The Winn-Dixie lease
provides annual rentals of $102,000 and is scheduled to expire in December 1999.
On October 17, 1996, Kobacker Stores, Inc. ("Kobacker") exercised options under
the terms of its leases for properties in Eastlake and Cleveland, Ohio to
purchase such properties for stated purchase prices of $165,000 and $200,000,
respectively. After using a portion of the proceeds to make a partial prepayment
on the mortgage loan collateralized by the Kobacker properties, the Partnership
received net proceeds of $215,706. As a result of the sale and the related
mortgage prepayment, Kobacker's annual rent and debt service on the mortgage
loan will decrease by $36,225 and approximately $29,000, respectively.
-6-
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
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Results of Operations:
- ---------------------
Although net income for the nine-month period ended September 30, 1996
reflected a decrease as compared to with the same period ended September 30,
1995, such decrease was due to an extraordinary charge of $255,000 incurred in
connection with paying off a mortgage loan in the second quarter of 1996 and
$161,000 of nonrecurring other income which was earned during the first and
second quarters of 1995. Excluding the effects of these items, income for the
comparable periods would have reflected an increase of $231,000. Net income for
the comparable three-month period ended September 30, 1996 increased by $66,000.
The increases in income excluding the effect of nonrecurring items, are
primarily attributable to decreases in interest and depreciation expenses. The
decrease in interest expense is due to the continuing amortization of principal
of the Partnership's mortgage loans and the benefit realized from refinancing,
at a lower rate of interest, the limited recourse loan collateralized by the
Partnership's property leased to The Gap, Inc. (the "Gap") in April 1996.
Depreciation decreased due to the full depreciation of certain components as the
Partnership uses component life depreciation methods. Lease revenues for the
comparable periods were stable.
The extraordinary charge in 1996 was due to prepayment charges incurred in
connection with paying off an existing mortgage on the Gap property. As a result
of refinancing the mortgage loan, annual debt service on the property will
decrease by $143,000. Nonrecurring other income in 1995 consisted of a
concession of $42,000 allowed by a vendor in the first quarter and $119,000
received as a bankruptcy settlement in the second quarter from a claim against
Storage Technology Corporation relating to its lease with the Partnership which
was terminated in 1987 pursuant to an order of the bankruptcy court.
Financial Condition:
- -------------------
There has been no material change in the Partnership's financial condition
since December 31, 1995. The decrease in the Partnership's cash balances is
directly attributable to the cost of paying off the mortgage loan on the Gap
property. Cash flow from operations was sufficient to fund payments of scheduled
installments of mortgage debt and distributions to partners.
In the event that the sale of the Partnership's property leased to Winn-
Dixie Stores, Inc. ("Winn-Dixie") is completed, annual cash flow would decrease
by $102,400; however, the anticipated proceeds from such proposed sale, net of
costs, is approximately $1,000,000. Completion of the sale is subject to certain
contingencies, including the ability of the purchaser to obtain financing. As a
result of the sale of two properties leased to Kobacker Stores, Inc.
("Kobacker") in October 1996, the Partnership received approximately $216,000
after a partial prepayment on the loan collateralized by the Kobacker
properties. Annual rent from the Kobacker leases will decrease by $36,000, and
the Partnership's annual debt service obligation will decrease by $29,000.
One of the Partnership's leases with IMO Industries, Inc. ("IMO") had
originally been scheduled to terminate in March 1996. The lease was extended
through July 1996 to enable IMO to meet its lease obligation to return the
property to the Partnership in suitable condition. Until IMO makes the necessary
repairs or makes some other arrangement acceptable to the Partnership, the
Partnership will require IMO to continue paying rent. All rents from IMO are
current. Annual rentals from this IMO lease are $91,000.
The General Partners are currently investigating ways to provide liquidity
for limited partners on a tax-effective basis.
-7-
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
PART II
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Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits:
None
(b) Reports on Form 8-K:
During the quarter ended September 30, 1996, the Partnership was not
required to file any reports on Form 8-K.
-8-
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
By: W.P. Carey & Co., Inc.
11/8/96 By: /s/ Claude Fernandez
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Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
11/8/96 By: /s/ Michael D. Roberts
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Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
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