1
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
-------------------------------------------------
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 0-14551
CORPORATE PROPERTY ASSOCIATES 6
(Exact name of registrant as specified in its charter)
CALIFORNIA 13-3247122
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
(Address of principal executive offices) (Zip Code)
(212) 492-1100
(Registrant's telephone number, including area code)
(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
2
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
INDEX
Page No.
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PART I
Item 1. - Financial Information*
Consolidated Balance Sheets, December 31, 1995
and September 30, 1996 2
Consolidated Statements of Income for the three and
nine months ended September 30, 1995 and 1996 3
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1995 and 1996 4
Notes to Consolidated Financial Statements 5-7
Item 2. - Management's Discussion of Operations 8-9
PART II
Item 6. - Exhibits and Reports on Form 8-K 10
Signatures 11
*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 6
- a California limited partnership
PART I
Item 1. - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1995 1996
(Note) (Unaudited)
----------- -----------
ASSETS:
Land, buildings and personal property,
net of accumulated depreciation of
$14,930,388 at December 31, 1995 and
$16,113,053 at September 30, 1996 $44,235,351 $48,414,293
Net investment in direct financing leases 36,920,755 32,887,655
Cash and cash equivalents 3,476,915 2,911,996
Notes receivable from affiliate 1,151,000 1,151,000
Accrued interest and rents receivable 28,251 32,958
Other assets 2,609,407 2,696,939
----------- -----------
Total assets $88,421,679 $88,094,841
=========== ===========
LIABILITIES:
Mortgage notes payable $33,263,097 $32,341,572
Note payable 10,000,000 10,000,000
Accrued interest payable 482,195 435,225
Accounts payable and accrued expenses 353,851 305,401
Accounts payable to affiliates 75,323 81,360
Prepaid rental income and other liabilities 354,235 288,818
Deferred rental income 3,789,785 3,605,914
----------- -----------
Total liabilities 48,318,486 47,058,290
----------- -----------
PARTNERS' CAPITAL:
General Partners (156,867) (21,170)
Limited Partners (47,930 Limited
Partnership Units issued and outstanding) 40,260,060 41,057,721
----------- -----------
Total partners' capital 40,103,193 41,036,551
----------- -----------
Total liabilities and
partners' capital $88,421,679 $88,094,841
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
Note: The consolidated balance sheet at December 31, 1995 has been derived from
the audited financial statements at that date.
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CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
CONSOLIDATED 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 $1,248,207 $ 1,431,957 $ 3,949,542 $ 4,177,918
Interest from direct
financing leases 1,516,521 1,405,979 4,342,524 4,188,918
Other interest income 119,051 94,603 252,921 252,954
Revenue of hotel operations 1,269,516 1,344,830 3,514,183 3,654,370
Other income 28,680 72,868 802,556 72,868
---------- ----------- ----------- -----------
4,181,975 4,350,237 12,861,726 12,347,028
---------- ----------- ----------- -----------
Expenses:
Interest 1,133,768 978,224 3,388,500 3,036,477
Depreciation 381,244 396,165 1,143,339 1,182,665
General and administrative 169,646 161,411 479,721 405,480
Property expenses (37,821) 116,927 239,698 247,206
Amortization 57,348 70,158 152,306 203,592
Operating expenses of
hotel operations 899,124 959,621 2,672,106 2,757,917
---------- ----------- ----------- ----------
2,603,309 2,682,506 8,075,670 7,833,337
---------- ----------- ----------- ----------
Income before extraordinary
item and gain on sales of
real estate 1,578,666 1,667,731 4,786,056 4,513,691
Gain on sales of real estate 70,878
---------- ----------- ----------- -----------
Income before extraordinary
item 1,578,666 1,667,731 4,786,056 4,584,569
Extraordinary gain on
extinguishment of debt 2,088,268
---------- ----------- ----------- ----------
Net income $1,578,666 $ 1,667,731 $ 6,874,324 $4,584,569
========== =========== =========== ==========
Net income allocated
to General Partners $ 94,720 $ 100,063 $ 412,459 $ 341,699
========== =========== =========== ==========
Net income allocated
to Limited Partners $1,483,946 $ 1,567,668 $ 6,461,865 $4,242,870
========== =========== =========== ==========
Net income per Unit
(47,930 Limited
Partnership Units):
Income before
extraordinary gain $ 30.96 $ 32.71 $ 93.87 $ 88.52
Extraordinary gain 40.95
---------- ----------- ----------- -----------
$ 30.96 $ 32.71 $ 134.82 $ 88.52
========== =========== =========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
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CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30,
-----------------------
1995 1996
---- ----
Cash flows from operating activities:
Net income $ 6,874,324 $ 4,584,569
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,295,645 1,386,257
Amortization of deferred rental income (183,871)
Gain on sales of real estate (70,878)
Extraordinary gain on extinguishment of debt (2,088,268)
Other noncash items (26,652)
Net change in operating assets and liabilities (130,738) (53,137)
------------ -----------
Net cash provided by operating activities 5,950,963 5,636,288
------------ -----------
Cash flows from investing activities:
Amounts received on partial prepayment of note
receivable from affiliate 144,000
Additional capitalized costs (279,455) (1,860,915)
Proceeds from sales of real estate 603,286
------------ -----------
Net cash used in investing activities (135,455) (1,257,629)
------------ -----------
Cash flows from financing activities:
Distributions to partners (3,544,616) (3,651,211)
Repurchase of Limited Partner Units (20,000)
Proceeds from issuance of mortgage 9,500,000
Proceeds from issuance of note payable 10,000,000
Prepayment of mortgages payable (12,055,148) (9,550,413)
Payments on mortgage principal (1,009,590) (871,112)
Deferred financing costs (345,026) (370,842)
------------ -----------
Net cash used in financing activities (6,974,380) (4,943,578)
------------ -----------
Net decrease in cash
and cash equivalents (1,158,872) (564,919)
Cash and cash equivalents, beginning of period 4,412,869 3,476,915
------------ -----------
Cash and cash equivalents, end of period $ 3,253,997 $ 2,911,996
============ ===========
Supplemental disclosure of cash flows information:
Interest paid $ 3,043,958 $ 3,083,447
============ ===========
The accompanying notes are an integral part of the consolidated financial
statements.
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CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Presentation:
The accompanying unaudited consolidated 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 (consisting
of 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 Partner Unit
------------- ---------------- ---------------- ------------------------
December 31, 1995 $66,660 $1,138,338 $23.75
======= ========== ======
March 31, 1996 $69,862 $1,150,320 $24.00
======= ========== ======
June 30, 1996 $69,480 $1,156,551 $24.13
======= ========== ======
A distribution of $24.20 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 $(581) and $92,222, respectively, and
general and administrative expense reimbursements of $65,897 and $124,534,
respectively. For the three-month and nine-month periods ended September 30,
1996, the Partnership incurred management fees of $26,093 and $80,830,
respectively, and general and administrative expense reimbursements of $22,402
and $84,556, respectively.
The Partnership, in conjunction with certain affiliates, is a participant in an
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 $73,283 and $85,156, respectively.
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CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 4. Industry Segment Information:
The Partnership's operations consist primarily of the investment in and the
leasing of industrial and commercial real estate and the operation of three
hotel properties. For the nine-month periods ended September 30, 1995 and 1996,
the Partnership earned its total real estate lease revenues (rental income plus
interest income from financing leases) as follows:
1995 % 1996 %
---- ---- ---- ---
Stoody Deloro Stellite, Inc. $1,588,498 19% $1,675,643 20%
AP Parts Manufacturing, Inc. 1,144,790 14 1,292,786 15
Peerless Chain Company 952,090 11 1,184,454 14
AutoZone, Inc. 1,122,015 13 1,006,503 12
Anthony's Manufacturing Company, Inc. 853,710 10 657,000 8
Wal-Mart Stores, Inc. 620,449 8 625,771 7
Kinney Shoe Corporation 504,570 6 504,570 6
Motorola, Inc. 375,000 5 405,000 5
Harcourt General Corporation 350,624 4 350,624 4
Yale Security, Inc. 240,898 3
Lockheed Martin Corporation 219,750 3 226,833 3
Winn-Dixie Stores, Inc. 127,800 2 127,800 2
Folger Adam Company 432,770 5 68,954 1
---------- ---- ---------- ---
$8,292,066 100% $8,366,836 100%
========== === ========== ===
Operating results of the three hotels for the nine-month periods ended September
30, 1995 and 1996 are summarized as follows:
1995 1996
---- ----
Revenue $ 3,514,183 $ 3,654,370
Fees paid to hotel management company (79,390) (88,724)
Other operating expenses (2,592,716) (2,669,193)
----------- -----------
Hotel operating income $ 842,077 $ 896,453
=========== ===========
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CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 6. Debt Refinancing:
On August 2, 1996, the Partnership refinanced at a lower rate of interest an
existing mortgage loan collateralized by the Partnership's property leased to
Wal-Mart Stores, Inc. ("Wal-Mart"). The new loan of $3,500,000 provides for
monthly installments of principal and interest of $32,888 at an annual interest
rate of 8.25% based on a 16-year amortization schedule commencing September
1996. The loan may be prepaid at any time subject to a prepayment charge. The
loan matures in August 2003 at which time a balloon payment for the entire
outstanding principal balance of approximately $2,517,000 will be due.
The original loan provided for monthly payments of principal and interest of
$30,600 at an annual interest rate of 9.625% based on a 30-year amortization
schedule. It was due to mature in May of 1997 at which time a balloon payment
was scheduled to be paid. Solely as a result of refinancing the debt on the
Wal-Mart property, annual debt service will increase by approximately $27,000.
The effect of increased debt service will be offset by an annual rent increase
of $63,865 on the Wal-Mart lease, effective September 1, 1996.
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CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATION
Results of Operations:
Net income for the three-month and nine-month periods ended September 30,
1996 increased by $89,000 and decreased by $2,290,000, respectively, as compared
with the same periods ended September 30, 1995. The increase in net income for
the current three-month period was due to a nonrecurring other income item, as
described below. The decrease in net income for the comparable nine-month period
was primarily due to nonrecurring other income in both periods and an
extraordinary gain of $2,088,000 in 1995. Income, excluding these nonrecurring
items and the gains on the sales of real estate in 1996, would have reflected
increases of $45,000 and $457,000 for the three-month and nine-month periods
ended September 30, 1996. These increases were primarily due to increases in
lease revenues and a decrease in interest expense. For the comparable
three-month periods, these benefits were partially offset by an increase in
property expenses. Lease revenues increased due to rent increases on the
Partnership's leases with Peerless Chain Company ("Peerless"), Lockheed Martin
Corporation, Motorola Inc. and Wal-Mart Stores, Inc., ("Wal-Mart") since
December 31, 1995 and the January 1996 modification of the AP Parts
Manufacturing, Inc. ("AP Parts") lease in connection with funding improvements
at one of the AP Parts properties. These increases were offset by the decrease
in annual rents resulting from the termination of the Folger Adam Company
("Folger Adam") lease and entering into a new lease with Yale Security, Inc.
("Yale) after Yale purchased Folger Adam's operations pursuant to an order of
the Bankruptcy Court. The decrease in interest expense was due to the
satisfaction of the mortgage loans on the Stoody Deloro Stellite, Inc.,
Anthony's Manufacturing, Inc. ("Anthony's") and Peerless properties in 1995. The
Stoody and Anthony's loans were paid off , in part, by obtaining $10,000,000 of
recourse financing; however, overall interest expense on this obligation is
lower than the interest incurred on the retired mortgage loans. Property
expenses increased due to costs incurred on the Folger Adam property during the
second quarter of 1996. In addition, property expenses reflected a decrease in
the prior year's three-month period as a result of adjusting certain accruals
after the resolution of the dispute with Anthony's. As a result of the
aforementioned increases in rent, net of changes in mortgage debt service on the
AP Parts and Wal-Mart properties, annual cash flow will increase by $446,000 and
will offset the decrease in annual cash flow of $266,000 from the Folger Adam
property. In spite of the decrease in cash flow from such property, the
Partnership has benefitted from replacing a financially weak lessee with a
creditworthy one subject to a long-term lease. The Partnership also avoided the
significant costs of remarketing a vacant property. Cash flow will also benefit
from a rent increase, effective October 1, 1996, of $292,000 per year on the
Partnership's lease with Kinney Shoe Corporation.
Earnings from the hotel operations increased by 6%. Earnings from the
Alpena hotel were stable. The occupancy rate at the Alpena hotel increased by
3%. A 10% increase in occupancy at the Petoskey hotel and a 6% increase in food
and beverage revenue increased earnings at this hotel even though the average
room rate declined 9%. Earnings from the Livonia hotel increased due to an 11%
increase in the average room rate which more than offset a decline in the
occupancy rate from 79% to 76%. As the business at the Alpena and Petoskey
hotels is seasonal, the hotel operation is not expected to contribute
significantly to the Partnership's earnings for the remainder of the year.
Income in 1995 benefited from the settlement of its dispute with Anthony's
and the related extraordinary gain on paying off the mortgage loan
collateralized by the Anthony's properties. The Partnership received a
settlement from Anthony's which, net of costs, resulted in $688,000 of other
income. The Partnership also recognized an extraordinary gain of $2,088,000 when
it paid off the mortgage loan on the Anthony's properties and accrued interest
thereon at a substantial discount. Under the settlement, Anthony's annual rent
was reduced by $472,000 but the Partnership's cash flow from the property
increased as annual debt service on the loan had been $731,000. The settlement
also eliminated the prospect of Anthony's vacating the leased properties and,
instead, the initial lease term was extended an additional five years until
2007.
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CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATION, Continued
Other income in 1996 included $75,700 received from the bankruptcy trustee
administering the bankruptcy of the former lessee of the hotel property in
Livonia, Michigan. While there may be additional distributions made on the
Partnership's claim against the former lessee, the Partnership recognizes income
from any settlement as distributions are received. There can be no assurance
that the Partnership will receive additional amounts under its claim against the
former lessee.
Financial Condition:
There has been no material change in the Partnership's financial condition
since December 31, 1995. Cash flow from operations of $5,636,000 was more than
sufficient to fund distributions to partners of $3,651,000 and payments of
scheduled mortgage principal payment installments of $871,000. The Partnership
benefitted from the sale of two AutoZone, Inc. ("AutoZone") properties for
$603,000. The sales proceeds were used to make mandatory partial prepayments on
the AutoZone mortgage loan. Although AutoZone rentals will decrease, the
reamortization of the loan and related reduction in debt service have resulted
in no significant change in cash flow (rentals less debt service on the
mortgage) from the AutoZone properties. The Partnership funded improvements at
the AP Parts property in Toledo, Ohio in January 1996 with such improvements
funded solely by a refinancing of the AP Parts mortgage loan. In addition, a
limited recourse mortgage on the Wal-Mart property was refinanced in September
1996 at a lower rate of interest. The retired loan had been scheduled to mature
in May 1997, at which time a balloon payment was scheduled to be paid. The
Partnership is in the process of completing improvements for the Alpena and
Petoskey properties in order to comply with the Holiday Inn core modernization
plan. Such improvements have been funded from the Partnership's cash reserves.
The Partnership paid a balloon payment of $1,500,000 on a limited recourse
loan encumbered by the Winn-Dixie Stores, Inc. property. Management is currently
in the process of negotiating with its lender to extend a $2,220,000 mortgage
loan on the Motorola, Inc. property which had been scheduled to mature on
September 1, 1996. The Partnership's $1,889,000 mortgage loan on the Yale
property is scheduled to mature on November 1, 1996. Management believes, based
on the creditworthiness of these lessees, that the lenders will agree to
extensions. If necessary, the Partnership could use a portion of its cash
reserves to pay off a portion of the amounts coming due; however, the
Partnership believes that in the event that maturities are not extended, the
loans can be refinanced.
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CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
PART II
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
(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.
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CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
By: CAREY CORPORATE PROPERTY, INC.
11/11/96 By: /s/ Claude Fernandez
-------- ------------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
11/11/96 By: /s/ Michael D. Roberts
-------- ------------------------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
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