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, 1997
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
incorporation or organization) Identification No.)
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, 1996
and September 30, 1997 2
Consolidated Statements of Income for the three and nine
months ended September 30, 1996 and 1997 3
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996 and 1997 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,
1996 1997
------------ -----------
(Note) (Unaudited)
ASSETS:
Land, buildings and personal property,
net of accumulated depreciation of
$16,594,902 at December 31, 1996 and
$17,921,644 at September 30, 1997 $ 47,968,552 $46,672,943
Net investment in direct financing leases 32,887,655 32,887,655
Cash and cash equivalents 3,338,391 3,228,640
Note receivable from affiliate 1,151,000 1,151,000
Other assets 2,807,973 2,837,285
------------ -----------
Total assets $ 88,153,571 $86,777,523
============ ===========
LIABILITIES:
Mortgage notes payable $ 32,057,088 $29,193,315
Note payable 10,000,000 10,000,000
Accrued interest payable 439,078 459,415
Accounts payable and accrued expenses 372,012 264,413
Accounts payable to affiliates 131,275 193,064
Other liabilities 361,816 455,527
Deferred rental income 3,544,624 3,360,753
------------ -----------
Total liabilities 46,905,893 43,926,487
------------ -----------
PARTNERS' CAPITAL:
General Partners (4,515) 103,100
Limited Partners (47,930 Limited
Partnership Units issued and outstanding) 41,252,193 42,747,936
------------ -----------
Total partners' capital 41,247,678 42,851,036
------------ -----------
Total liabilities and
partners' capital $ 88,153,571 $86,777,523
============ ===========
The accompanying notes are an integral part of the consolidated financial
statements.
Note: The consolidated balance sheet at December 31, 1996 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, 1996 September 30, 1997 September 30, 1996 September 30, 1997
------------------ ------------------ ------------------ ------------------
Revenues:
Rental income from
operating leases $1,431,957 $ 1,527,846 $ 4,177,918 $ 4,583,535
Interest from direct
financing leases 1,405,979 1,416,964 4,188,918 4,346,998
Other interest income 94,603 63,862 252,954 208,681
Revenue of hotel operations 1,344,830 1,356,923 3,654,370 3,795,820
Other income 72,868 72,868 126,985
---------- ----------- ----------- -----------
4,350,237 4,365,595 12,347,028 13,062,019
---------- ----------- ----------- -----------
Expenses:
Interest 978,224 910,598 3,036,477 2,818,262
Depreciation 396,165 448,399 1,182,665 1,326,742
General and administrative 161,411 129,193 405,480 464,082
Property expenses 116,927 108,030 247,206 196,032
Amortization 70,158 44,168 203,592 182,126
Operating expenses of
hotel operations 959,621 942,102 2,757,917 2,771,024
---------- ----------- ----------- -----------
2,682,506 2,582,490 7,833,337 7,758,268
---------- ----------- ----------- -----------
Income before gain on
sales of real estate 1,667,731 1,783,105 4,513,691 5,303,751
Gain on sales of real estate 70,878
---------- ----------- ----------- -----------
Net income $1,667,731 $ 1,783,105 $ 4,584,569 $ 5,303,751
========== =========== =========== ===========
Net income allocated
to General Partners $ 100,063 $ 106,986 $ 341,699 $ 318,225
========== =========== =========== ===========
Net income allocated
to Limited Partners $1,567,668 $ 1,676,119 $ 4,242,870 $ 4,985,526
========== =========== =========== ===========
Net income per Unit:
(47,930 Limited
Partnership Units) $ 32.71 $ 34.97 $ 88.52 $ 104.01
========== =========== =========== ===========
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,
1996 1997
----------- -----------
Cash flows from operating activities:
Net income $ 4,584,569 $ 5,303,751
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,386,257 1,508,868
Other noncash items (26,652) (44,921)
Amortization of deferred rental income (183,871) (183,871)
Gain on sales of real estate (70,878)
Net change in operating assets and liabilities (53,137) (278,279)
----------- -----------
Net cash provided by operating activities 5,636,288 6,305,548
----------- -----------
Cash flows from investing activities:
Additional capitalized costs (1,860,915) (31,133)
Proceeds from sales of real estate 603,286
----------- -----------
Net cash used in investing activities (1,257,629) (31,133)
----------- -----------
Cash flows from financing activities:
Distributions to partners (3,651,211) (3,700,393)
Proceeds from mortgage 9,500,000
Prepayment of mortgage payable (9,550,413) (1,872,107)
Payments on mortgage principal (871,112) (991,666)
Refund of deferred financing costs 180,000
Deferred financing costs (370,842)
----------- -----------
Net cash used in financing activities (4,943,578) (6,384,166)
----------- -----------
Net decrease in cash and cash equivalents (564,919) (109,751)
Cash and cash equivalents, beginning of period 3,476,915 3,338,391
----------- -----------
Cash and cash equivalents, end of period $ 2,911,996 $ 3,228,640
=========== ===========
Supplemental disclosure of cash flows information:
Interest paid $ 3,083,447 $ 2,797,925
=========== ===========
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, 1996.
Note 2. Distributions to Partners:
Distributions declared and paid to partners during the nine months ended
September 30, 1997 are summarized as follows:
Quarter Ended General Partners Limited Partners Per Limited Partner Unit
- ------------- ---------------- ---------------- ------------------------
December 31, 1996 $70,142 $1,162,303 $24.25
======= ========== ======
March 31, 1997 $70,203 $1,163,261 $24.27
======= ========== ======
June 30, 1997 $70,265 $1,164,219 $24.29
======= ========== ======
A distribution of $24.31 per Limited Partner Unit for the quarter ended
September 30, 1997 was declared and paid in October 1997.
Note 3. Transactions with Related Parties:
For the three-month and nine-month periods ended September 30, 1996, the
Partnership incurred property management fees of $26,093 and $80,830,
respectively, and general and administrative expense reimbursements of $22,402
and $84,556, respectively. For the three-month and nine-month periods ended
September 30, 1997, the Partnership incurred property management fees of $29,687
and $88,685, respectively, and general and administrative expense reimbursements
of $61,621 and $150,985, respectively. Management believes that ultimate payment
of a preferred return to the General Partners of $18,099, based upon cumulative
proceeds of sales of assets, is reasonably possible but not probable, as defined
in Statement of Financial Accounting Standards No. 5, and no accrual for such
preferred return has been reflected in the accompanying Financial Statements.
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, 1996
and 1997 were $85,156 and $68,402, 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, 1996 and 1997,
the Partnership earned its total real estate lease revenues (rental income plus
interest income from financing leases) as follows:
1996 % 1997 %
---------- --- ---------- ---
Thermadyne Holdings Corporation
(assigned by Stoody Deloro Stellite, Inc.) $1,675,643 20% $1,675,643 19%
AP Parts Manufacturing, Inc. 1,292,786 15 1,377,401 15
Peerless Chain Company 1,184,454 14 1,281,440 14
AutoZone, Inc. 1,006,503 12 1,086,651 12
Kinney Shoe Corporation 504,570 6 723,706 8
Wal-Mart Stores, Inc. 625,771 7 668,347 8
Anthony's Manufacturing Company, Inc. 657,000 8 657,000 7
Motorola, Inc. 405,000 5 405,000 5
Harcourt General Corporation 350,624 4 350,624 4
Yale Security, Inc. 240,898 3 344,421 4
Lockheed Martin Corporation 226,833 3 232,500 3
Winn-Dixie Stores, Inc. 127,800 2 127,800 1
Folger Adam Company 68,954 1
---------- --- ---------- ---
$8,366,836 100% $8,930,533 100%
========== === ========== ===
Operating results of the three hotels for the nine-month periods ended September
30, 1996 and 1997 are summarized as follows:
1996 1997
----------- -----------
Revenue $ 3,654,370 $ 3,795,820
Fees paid to hotel management company (88,724) (102,442)
Other operating expenses (2,669,193) (2,668,582)
----------- -----------
Hotel operating income $ 896,453 $ 1,024,796
=========== ===========
Note 5. Consent Solicitation:
On October 15, 1997, Carey Diversified LLC ("CD(SM)") filed a Consent
Solicitation Statement/Prospectus ("consent solicitation") with the United
States Securities and Exchange Commission. The General Partners are proposing
that the Limited Partners of the nine CPA(R) limited partnerships approve a
transaction in which each CPA(R) limited partnership would be merged with a
subsidiary partnership of CD(SM), of which CD(SM) is the general partner. As
described in the consent solicitation, each limited partner would have the
option of either exchanging his or her limited partnership units for an interest
in CD(SM) ("Listed Shares") or to retain a limited partnership interest in the
subsidiary partnership ("Subsidiary Partnership Units"). If the holders of a
majority of the outstanding limited partnership units of the Partnership consent
to the transaction, the merger of the Partnership with the corresponding
subsidiary partnership of CD(SM) may be consummated. If the transaction is
consummated, the General Partners will exchange a portion of their general
partnership interests in exchange for Listed Shares. The transaction will not
occur unless the CPA(R) Partnerships approving the transaction represent at
least $200,000,000 in Total Exchange Value, as defined. There is no assurance
that the holders of limited partnership units of the Partnership will consent to
the transaction or that the transaction will occur.
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CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
If the transaction is completed, the Listed Shares will be listed and publicly
traded on the New York Stock Exchange. Subsidiary Partnership Units will provide
substantially the same economic interest and legal rights as those of a limited
partnership unit in the Partnership, but will not be listed on a securities
exchange. Conversion of limited partnership units to Listed Shares or Subsidiary
Partnership Units will not result in a taxable event to the limited partners.
The risk factors and benefits relating to the proposed transaction are described
in the consent solicitation. The General Partners, as well as all the Directors
of the Corporate General Partners of the CPA(R) Partnerships, have unanimously
approved the proposed transaction.
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CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
Results of Operations:
Net income for the three-month and nine-month periods ended September 30,
1997 increased by $115,000 and $719,000, respectively, as compared with net
income for the similar periods ended September 30, 1996. Excluding nonrecurring
other income of $73,000 in the prior year's three-month period, income for the
current three-month period would have increased by $188,000 The increases were
due to increases in lease revenues and earnings from the Partnership's hotel
operations, and decreases in interest expense.
The increase in lease revenues was due to scheduled rent increases becoming
effective between May 1996 and January 1997, the commencement of the lease with
Yale Security, Inc. in March 1996 and higher percentage rents from AutoZone,
Inc. Solely as a result of the scheduled rent increases, annual cash flow
increased by $661,000. Year-to-date revenues for the Petoskey hotel increased by
10%, while the revenues of the Alpena and Livonia hotels increased by 2% and 3%,
respectively. The increase in earnings for the Petoskey hotel was due to an
increase in the occupancy rate from 52% to 57% and a 3% increase in the average
room rate. The occupancy rate of the Livonia hotel was unchanged. The increase
in earnings resulted from a 10% increase in the average room rate. The occupancy
rate for the Alpena hotel decreased by 1%. The average room rate at Alpena
increased by 6%, continuing the trend observed in the second quarter. The
earnings of the Alpena and Petoskey hotels are seasonal in nature, with most of
their annual profit realized in the summer. The Livonia hotel's earnings are
affected by the economic condition of the Detroit metropolitan area. The Livonia
hotel has been successful in continuing to strengthen and increase the average
room rate during the current economic cycle. The decrease in interest expense
was due to the payoff of mortgage loans collateralized by the property leased to
Winn-Dixie Stores, Inc. and Yale Security in 1996 and 1997, respectively, and
the continuing amortization of the Partnership's limited recourse mortgage
loans.
Financial Condition:
There has been no material change in the Partnership's financial condition
since December 31, 1996. Cash flow from operations of $6,305,000 was sufficient
to fund distributions to partners of $3,700,000, scheduled mortgage principal
installments of $992,000 and replacement of furniture and fixtures at the hotel
properties of $31,000.
Since December 31, 1996, the Partnership used $1,872,000 to satisfy the
limited recourse mortgage loan on the Yale Security property. A limited recourse
mortgage loan on the Motorola property of $2,087,000 has continued to be
extended on a short-term basis. The Partnership is also seeking to extend the
maturity on the mortgage loan on the Livonia hotel property which matures in
November 1997 and has an outstanding balance of $2,579,000. The Partnership
believes that the prospects for refinancing both loans are favorable. Although
the Partnership does not have sufficient cash available to pay off the loans, it
has significant borrowing power on several unleveraged properties that could be
financed to raise funds needed pay off any matured debt. The mortgage loan on
the AutoZone properties is scheduled to mature in August 1998, at which time a
balloon payment of $8,540,000 will be due.
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CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS, Continued
Financial Condition (continued):
A purchase option of the properties leased to Anthony's Manufacturing
Company, Inc. may be exercised by the lessee beginning February 1998. If
exercised, the option price will be the greater of fair market value or
$11,500,000, the amount that the Partnership paid to purchase the Anthony's
properties. Annual cash flow from the Anthony's properties is $876,000. The
Partnership has not received any indication from the lessee as to whether it
intends to exercise the option.
In connection with the Holiday Inn product improvement plan, the Partnership
anticipates that it will be required to make certain improvements to the Livonia
hotel property in order to retain its Holiday Inn affiliation. The amount
required for such improvements is in the process of being determined.
As more fully described in Note 5 to the Consolidated Financial Statements,
the General Partners have distributed to Limited Partners a consent solicitation
which proposes an exchange of limited partnership units for securities in a
publicly-traded limited liability company. The exchange would not result in a
taxable event to the limited partners, and the General Partners believe that
this proposed transaction will provide limited partners with liquidity on a
tax-effective basis. There is no assurance that the proposed transaction will be
completed.
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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, 1997, 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.
11/06/97 By: /s/ Steven M. Berzin
------- --------------------------------------
Date Steven M. Berzin
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
11/06/97 By: /s/ Claude Fernandez
------- --------------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
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