---------------------------------
OMB APPROVAL
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OMB NUMBER 3235-0070
EXPIRES OCTOBER 31, 1995
ESTIMATED AVERAGE BURDEN
HOURS PER RESPONSE 190.00
---------------------------------
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 MARCH 31, 1995
------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
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Commission file number 0-15778
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CORPORATE PROPERTY ASSOCIATES 7, A CALIFORNIA LIMITED PARTNERSHIP
- - - - - - - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 13-3327950
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 7
- a California limited partnership
INDEX
Page No.
--------
PART I
------
Item 1. - Financial Information*
Consolidated Balance Sheets, December 31, 1994
and March 31, 1995 2
Consolidated Statements of Income for the three
months ended March 31, 1994 and 1995 3
Consolidated Statements of Cash Flows for the three
months ended March 31, 1994 and 1995 4
Notes to Consolidated Financial Statements 5-7
Item 2. - Management's Discussion of Operations 8
PART II
-------
Item 6. - Exhibits and Reports on Form 8-K 9
Signatures 10
*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.
- 1 -
CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
PART I
------
Item 1. - FINANCIAL INFORMATION
-------------------------------
CONSOLIDATED BALANCE SHEETS
December 31, March 31,
1994 1995
------------- ------------
(Note) (UNAUDITED)
ASSETS:
Land, buildings and personal property,
net of accumulated depreciation of
$10,532,608 at December 31, 1994 and
$10,853,656 at March 31, 1995 $38,920,078 $38,611,942
Net investment in direct financing leases 15,761,594 15,761,594
Cash and cash equivalents 10,525,885 3,722,480
Accrued interest and rents receivable 97,984 19,365
Other assets 1,559,084 1,451,155
----------- -----------
Total assets $66,864,625 $59,566,536
=========== ===========
LIABILITIES:
Mortgage notes payable $17,314,570 $16,950,266
Note payable 9,606,837 9,606,837
Accrued interest payable 403,686 451,039
Accounts payable and accrued expenses 961,073 853,863
Accounts payable to affiliates 69,568 70,563
Prepaid and deferred rental income 450,341 450,200
----------- -----------
Total liabilities 28,806,075 28,382,768
----------- -----------
PARTNERS' CAPITAL:
General Partners 113,032 43,530
Limited Partners (45,274 Limited
Partnership Units issued and
outstanding) 37,945,518 31,140,238
----------- -----------
Total partners' capital 38,058,550 31,183,768
----------- -----------
Total liabilities and
partners' capital $66,864,625 $59,566,536
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
Note: The balance sheet at December 31, 1994 has been derived from the
audited consolidated financial statements at that date.
- 2 -
CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
March 31, 1994 March 31, 1995
-------------- ---------------
Revenues:
Rental income from operating leases $ 864,596 $1,076,977
Interest income from direct financing leases 942,558 559,137
Other interest income 31,148 65,581
Revenue from restaurant operations,
net of cost of sales 1,064,572 1,085,410
Revenue of hotel operations 1,101,731 1,221,915
Other income 434,868
Loss from equity investment (37,795) (36,496)
---------- ----------
4,401,678 3,972,524
---------- ----------
Expenses:
Interest on mortgages and note payable 839,074 660,220
Operating expenses of hotel
operations 846,925 925,679
Operating expenses of restaurant
operations 757,513 781,505
Depreciation 411,159 321,048
General and administrative 88,329 213,973
Property expenses 64,890 64,415
Amortization 19,250 17,517
---------- ----------
3,027,140 2,984,357
---------- ----------
Net income $1,374,538 $ 988,167
========== ==========
Net income allocated to
General Partners $ 82,472 $ 59,290
========= =========
Net income allocated to
Limited Partners $1,292,066 $ 928,877
========== ==========
Net income per Unit
(45,274 Limited
Partnership Units) $28.54 $20.52
====== ======
The accompanying notes are an integral part of the consolidated financial
statements.
- 3 -
CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
CONSOLIDATED STATEMENTS of CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
------------------------
1994 1995
---------- -----------
Cash flows from operating activities:
Net income $1,374,538 $ 988,167
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 430,409 338,565
Other noncash items (38,654) 37,244
Loss from equity investment 37,795 36,496
Distributions from equity investment (38,944)
Restructuring fees received in connection
with lease modification 240,741
Note receivable received in connection
with bankruptcy settlement (327,586)
Net change in operating assets and liabilities (825,589) 75,232
---------- -----------
Net cash provided by operating activities 891,654 1,436,760
---------- -----------
Cash flows from investing activities:
Additional capitalized costs (30,205) (12,912)
---------- -----------
Net cash used in investing activities (30,205) (12,912)
---------- -----------
Cash flows from financing activities:
Distributions to partners (746,539) (7,862,949)
Payments on mortgage principal (164,098) (364,304)
Deferred financing costs (11,643)
---------- -----------
Net cash used in financing activities (922,280) (8,227,253)
---------- -----------
Net decrease in cash and cash equivalents (60,831) (6,803,405)
Cash and cash equivalents, beginning of period 3,260,303 10,525,885
---------- -----------
Cash and cash equivalents, end of period $3,199,472 $ 3,722,480
========== ===========
Supplemental disclosure of cash flows
information:
Interest paid $ 902,552 $ 612,867
========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
- 4 -
CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
NOTES TO CONSOLIDATED 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 (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, 1994.
Note 2. Distributions to Partners:
-------------------------
Distributions declared and paid to partners during the three months ended
March 31, 1995 are summarized as follows:
Per Limited Partner
Quarter Ended General Partners Limited Partners Unit
- - - - - - - -------------------- ---------------- ---------------- ----------------------
December 31, 1994 $60,195 $ 943,057 $ 20.83
======= ========== =======
Special distribution $68,597 $6,791,100 $150.00
======= ========== =======
A distribution of $17.74 per Limited Partner Unit for the quarter ended March
31, 1995 was declared and paid in April 1995.
Note 3. Transactions with Related Parties:
---------------------------------
For the three-month periods ended March 31, 1994 and 1995, the Partnership
incurred property management and leasing fees of $31,128 and $27,239,
respectively, and general and administrative expense reimbursements of $37,860
and $26,326, 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 three months ended March
31, 1994 and 1995 were $9,685 and $38,359, respectively.
- 5 -
CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
NOTES TO CONSOLIDATED 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 and the operation of a food service
facility and a hotel business. For the three-month periods ended March 31, 1994
and 1995, the Partnership earned its lease revenues (rental income plus interest
income from financing leases) from the following lease obligors:
1994 % 1995 %
---------- ---- ---------- ----
Advanced System Applications, Inc. $ 177,843 10% $ 394,658 25%
The Gap, Inc. 231,892 13 231,892 14
Sybron Acquisition Company 204,791 11 204,791 12
KSG, Inc. 187,605 10 204,445 12
Swiss M-Tex, L.P. 125,414 7 136,097 8
AutoZone, Inc. 108,591 6 108,591 7
Other 114,710 6 99,525 6
Northern Automotive, Inc. 97,141 6 97,208 6
NVRyan L.P. 73,046 4 72,889 5
NYNEX Corporation 53,900 3 53,900 3
Winn-Dixie Stores, Inc. 32,118 2 32,118 2
Mid Continent Bottlers, Inc. 400,103 22
---------- --- ---------- ---
$1,807,154 100% $1,636,114 100%
========== === ========== ===
Operating results for the food service business for the three-month periods
ended March 31, 1994 and 1995 are summarized as follows:
1994 1995
----------- -----------
Net sales $1,491,072 $1,517,310
Cost of goods sold (426,500) (431,900)
Other operating expenses (757,513) (781,505)
---------- ----------
Food service operating income $ 307,059 $ 303,905
========== ==========
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CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Operating results for the hotel business for the three-month periods ended
March 31, 1994 and 1995 are summarized as follows:
1994 1995
----------- -----------
Revenues $1,101,731 $1,221,915
Fees paid to hotel management company (16,526) (31,564)
Other operating expenses (830,399) (894,115)
---------- ----------
Income from hotel operations $ 254,806 $ 296,236
========== ==========
Note 5. Equity Investment:
-----------------
The Partnership and Corporate Property Associates 8, an affiliate, own 50%
interests in a limited partnership which owns a hotel property in Topeka,
Kansas leased to Hotel Corporation of America. The Partnership's carrying
value in its investment at March 31, 1995 is included in Other assets.
Summarized financial information of the limited partnership is as follows:
(in thousands)
December 31, March 31,
1994 1995
------------ ---------
Assets, net of accumulated depreciation $8,395 $8,265
Mortgage notes and bonds payable 8,866 8,814
Other liabilities 14 15
Partners' capital (485) (564)
Three Months Ended
March 31, 1994 March 31, 1995
-------------- --------------
Revenues $ 211 $ 211
Interest expense (160) (157)
Other operating expenses (126) (127)
------ ------
Net loss $ (75) $ (73)
====== ======
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CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
-----------------------------------------------
Net income decreased by $386,000 for the three-month period ended
March 31, 1995 as compared with net income for the three-month period
ended March 31, 1994. As the results for the three-month period ended
March 31, 1994 included $435,000 from nonrecurring sources, results from
on-going operations would have reflected an increase, even though the
Partnership sold properties in November 1994 which represented over 20% of
its lease revenues for the comparable prior period. The nonrecurring other
income in the three-month period ended March 31, 1994 represented amounts
received in a settlement from an affiliate of the former lessee of the
Partnership's hotel property. The decrease in lease revenues of $171,000
was attributable to the sale in November 1994 of properties leased to Mid-
Continent Bottlers, Inc. ("Mid-Continent") which contributed $400,000 of
lease revenues for the comparable 1994 period. Lease revenues benefited
from the July 1, 1994 lease modification with Advanced Systems
Applications, Inc. ("ASA") which contributed an additional $217,000 to
lease revenues. General and administrative expenses increased as a result
of the increase in partnership level taxes due to several states. Interest
expense decreased due to the satisfaction of the Mid-Continent mortgage
loan in connection with the sale of the properties, the payoff of the
mortgage loans on the KSG, Inc., AutoZone, Inc., NYNEX Corporation and The
Gap Inc. properties and the partial prepayment of the ASA mortgage loan
during the fourth quarter of 1994. Depreciation decreased due to the full
depreciation in the fourth quarter of 1994 of certain furniture, fixtures
and equipment at the hotel property. Hotel operating income increased by
16% as the result of a strong occupancy rate, which increased to 78% from
72%, and a 6% increase in the average room rate. Earnings from the food
service operation were relatively unchanged from the prior period,
maintaining the substantial increase that was attained in 1994.
There has been no material change in the Partnership's financial
condition since December 31, 1994. The Partnership distributed $6,860,000
of proceeds from the Mid-Continent sale to partners during the quarter.
Such distribution of $150 per Limited Partner Unit represented a return of
capital distribution pursuant to the Partnership's Amended Agreement of
Limited Partnership. The amount from this special distribution to Limited
Partners represented 15% of the amount raised under the Partnership's
public offering. With its current cash balance of $3,722,000 and its cash
flow from operations, the Partnership still has sufficient liquidity to pay
its quarterly distributions to partners, meet scheduled debt service
installment obligations and fund replacement of fixtures, furniture and
equipment in the ordinary course of operating the hotel and food service
facility. In addition, the Partnership's cash reserves would be sufficient
to fund the $280,000 in improvements which are required to comply with
Holiday Inn's modernization plan in the event that a decision is made to
retain the hotel's affiliation as a Holiday Inn franchise. Management
believes that it may need to incur such costs in order to remain
competitive even if the affiliation with Holiday Inn is not retained.
Included in other assets on the accompanying consolidated balance sheet at
March 31, 1995, is a furniture, fixture and equipment reserve account of
$128,000 which would be available to partially fund any necessary upgrade.
The reserve account is funded by allocating 3% of hotel revenues to the
reserve account. A balloon payment of $3,871,000 will be due in December
1995 on two mortgage loans collateralized by the food service facility.
The Partnership has the option of extending one of the loans if it elects
to make a partial prepayment of $600,000, in which event the entire
$1,083,000 principal balance of the second loan would be forgiven. If the
Partnership is not able to fully fund the balloon payment from cash
reserves, Management believes that the Partnership currently has the
ability to leverage several of its properties in the event that the current
loan cannot be extended or refinanced. Accordingly, this balloon payment
commitment should not have a significant impact on the Partnership's
liquidity.
- 8 -
CORPORATE PROPERTY ASSOCIATES 7
- 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 March 31, 1995 the Partnership was
not required to file any reports on Form 8-K.
- 9 -
CORPORATE PROPERTY ASSOCIATES 7
- 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 7
- a California limited partnership
By: SEVENTH CAREY CORPORATE PROPERTY, INC.
05/12/95 By: /s/ Claude Fernandez
-------------- ------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
05/12/95 By: /s/ Michael D. Roberts
-------------- -------------------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
- 10 -