---------------------------------
OMB APPROVAL
---------------------------------
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 JUNE 30, 1995
-----------------------------------------------
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 0-11948
------------------------------------------------------
CORPORATE PROPERTY ASSOCIATES 5
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 13-3164925
- -----------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of 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
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
INDEX
Page No.
--------
PART I
------
Item 1. - Financial Information*
Balance Sheets, December 31, 1994 and
June 30, 1995 2
Statements of Income for the three and six
months ended June 30, 1994 and 1995 3
Statements of Cash Flows for the six
months ended June 30, 1994 and 1995 4
Notes to 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.
- 1 -
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
PART I
------
Item 1. - FINANCIAL INFORMATION
-------------------------------
BALANCE SHEETS
December 31, JUNE 30,
1994 1995
------------- -------------
(Note) (UNAUDITED)
ASSETS:
Land and buildings, net of
accumulated depreciation of
$20,576,121 at December 31, 1994 and
$21,663,441 at June 30, 1995 $46,733,863 $45,878,270
Net investment in direct
financing leases 25,925,844 25,901,974
Real estate held for sale 7,006,938 7,006,938
Cash and cash equivalents 7,926,845 4,973,860
Escrow funds 2,665,179 2,934,445
Accrued interest and rents receivable 267,515 224,390
Other assets 1,839,711 1,010,328
----------- -----------
Total assets $92,365,895 $87,930,205
=========== ===========
LIABILITIES:
Mortgage notes payable $39,449,033 $39,203,030
Note payable to affiliate 1,295,000 1,151,000
Accrued interest payable 184,349 198,857
Accounts payable and accrued expenses 617,812 641,298
Accounts payable to affiliates 113,928 91,742
Prepaid rental income and security deposits 119,601 214,001
Deferred gains and other liabilities 3,338,825 2,805,364
Deposit on real estate held for sale 9,359,000 9,359,000
----------- -----------
Total liabilities 54,477,548 53,664,292
----------- -----------
PARTNERS' CAPITAL:
General Partners (94,987) (197,990)
Limited Partners (113,200 Limited
Partnership Units issued and
outstanding) 37,983,334 34,463,903
----------- -----------
Total partners' capital 37,888,347 34,265,913
----------- -----------
Total liabilities and
partners' capital $92,365,895 $87,930,205
=========== ===========
The accompanying notes are an integral part of the financial statements.
Note: The balance sheet at December 31, 1994 has been derived from the audited
financial statements at that date.
- 2 -
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended
June 30, 1994 JUNE 30, 1995 June 30, 1994 JUNE 30, 1995
------------- ------------- ------------- -------------
Revenues:
Rental income from
operating leases $1,452,355 $1,156,126 $2,905,175 $2,311,931
Interest income from
direct financing leases 1,526,711 1,117,892 3,047,248 2,234,308
Other interest income 21,885 83,233 44,772 213,700
Revenue of hotel operations 1,597,438 1,644,200 2,863,474 2,915,130
Other income 3,184 47,483
----------- ---------- ----------- -----------
4,598,389 4,004,635 8,860,669 7,722,552
----------- ---------- ----------- -----------
Expenses:
Interest on mortgages
and note payable 1,150,516 888,337 2,294,097 1,793,484
Depreciation 554,750 544,642 1,108,712 1,087,320
General and administrative 163,924 196,597 287,544 514,985
Property expense 412,910 127,980 605,992 240,121
Amortization 16,341 8,500 32,682 16,375
Operating expenses of
hotel operations 1,211,921 1,297,603 2,396,151 2,466,245
----------- ---------- ----------- -----------
3,510,362 3,063,659 6,725,178 6,118,530
----------- ---------- ----------- -----------
Net income $1,088,027 $ 940,976 $2,135,491 $1,604,022
=========== ========== =========== ===========
Net income allocated
to General Partners $ 65,282 $ 56,458 $ 128,130 $ 96,241
=========== ========== =========== ===========
Net income allocated
to Limited Partners $1,022,745 $ 884,518 $2,007,361 $1,507,781
=========== ========== =========== ===========
Net income per Unit
(113,200 Limited
Partnership Units) $9.03 $7.81 $17.73 $13.32
===== ===== ====== ======
The accompanying notes are an integral part of the financial statements.
- 3 -
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30,
---------------------------
1994 1995
---- ----
Cash flows from operating activities:
Net income $ 2,135,491 $ 1,604,022
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,141,394 1,103,695
Other noncash items (32,171) 5,935
Net change in operating assets and liabilities (79,831) 181,549
----------- -----------
Net cash provided by operating activities 3,164,883 2,895,201
----------- -----------
Cash flows from investing activities:
Additional capitalized costs (248,087) (231,727)
----------- -----------
Net cash used by investing activities (248,087) (231,727)
----------- -----------
Cash flows from financing activities:
Distributions to partners (2,927,544) (5,226,456)
Payments on mortgage principal (360,474) (246,003)
Partial prepayment of note payable to affiliate (144,000)
Deferred financing costs (1,248)
----------- -----------
Net cash used by financing activities (3,289,266) (5,616,459)
----------- -----------
Net decrease in cash and
cash equivalents (372,470) (2,952,985)
Cash and cash equivalents, beginning of period 2,294,245 7,926,845
----------- -----------
Cash and cash equivalents, end of period $ 1,921,775 $ 4,973,860
=========== ===========
Supplemental disclosure of cash flows information:
Interest paid $ 2,321,116 $ 1,833,435
=========== ===========
The accompanying notes are an integral part of the financial statements.
- 4 -
CORPORATE PROPERTY ASSOCIATES 5
(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
(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 six months ended June
30, 1995 are summarized as follows:
Quarter Ended General Partners Limited Partners Per Limited Partner Unit
---------------- ---------------- ---------------- ------------------------
December 31, 1994 $88,151 $1,381,040 $12.20
======= ========== ======
March 31, 1995 $88,224 $1,382,172 $12.21
======= ========== ======
Special distribution -
paid April 1995 $22,869 $2,264,000 $20.00
======= ========== ======
A distribution of $11.74 per Limited Partner Unit for the quarter ended June
30, 1995 was declared and paid in July 1995.
Note 3. Transactions with Related Parties:
---------------------------------
For the three-month and six-month periods ended June 30, 1994, the Partnership
incurred management fees of $44,184 and $83,152, respectively, and general and
administrative expense reimbursements of $38,851 and $91,106, respectively.
For the three-month and six-month periods ended June 30, 1995, the Partnership
incurred management fees of $28,422 and $60,410, respectively, and general and
administrative expense reimbursements of $3,363 and $40,776, 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 six months ended June 30,
1994 and 1995 were $37,916 and $108,654, respectively.
- 5 -
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES TO 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 six-month periods ended June 30, 1994 and 1995, the
Partnership earned its total lease revenues (rental income plus interest
income from financing leases) from the following lease obligors:
1994 % 1995 %
---- ---- ---- ----
GATX Logistics, Inc. $ 960,750 16% $ 699,300 15%
Industrial General Corporation 692,822 12 637,321 14
Gould, Inc. 562,500 9 562,500 12
Spreckels Industries, Inc. 580,585 10 510,359 11
DeVlieg Bullard, Inc. 415,492 7 415,492 9
Arley Merchandise Corporation 300,003 5 300,000 7
Penn Virginia Corporation 249,375 4 249,375 6
Exide Electronics Corporation 242,861 4 242,861 5
Stoody Deloro Stellite, Inc. 186,286 3 202,702 5
IBM Corporation 159,048 3 159,048 4
Harcourt General Corporation 116,875 2 116,875 3
Rochester Button Company 107,721 2 100,630 2
Other 71,290 1 100,529 2
Winn-Dixie Stores, Inc. 95,767 2 95,767 2
Penberthy Products, Inc. 91,265 1 91,265 2
FMP/Rauma Company 62,215 1 62,215 1
Liberty Fabrics of New York, Inc. 696,538 12
Pace Membership Warehouse, Inc. 361,030 6
---------- ---- ---------- ----
$5,952,423 100% $4,546,239 100%
========== ==== ========== ====
Operating results of the three hotel properties for the six-month periods
ended June 30, 1994 and 1995 are summarized as follows:
1994 1995
---- ----
Revenues $ 2,863,474 $ 2,915,130
Fees paid to hotel management company (57,266) (61,521)
Other operating expenses (2,338,885) (2,404,724)
----------- -----------
Hotel operating income $ 467,323 $ 448,885
=========== ===========
NOTE 5. ESCROW AND OTHER FUNDS:
----------------------
FUNDS IN ESCROW CONSISTING OF RESERVES AND ESCROW FUNDS ON THE HOTEL
PROPERTIES AND MORTGAGE DEBT THEREON ARE AS FOLLOWS:
December 31, JUNE 30,
1994 1995
------------- -----------
Security reserve $1,650,000 $1,840,000
Debt service escrow account 412,100 412,100
Furniture, fixture and equipment reserves 203,079 282,345
Other escrow accounts 400,000 400,000
---------- ----------
$2,665,179 $2,934,445
========== ==========
- 6 -
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 6. Real Estate Held for Sale:
-------------------------
In January 1984, the Partnership purchased properties in Gordonsville,
Virginia and in North Bergen, New Jersey for $7,000,000 and entered into a net
lease with Liberty Fabrics of New York ("Liberty"). In December 1993, Liberty
notified the Partnership of its intention to exercise its purchase option on
the properties. Pursuant to the lease, the purchase price would be the greater
of $7,000,000 or fair market value as encumbered by the lease.
On October 18, 1994, Liberty filed suit to compel the Partnership to transfer
title of the properties to Liberty for $9,359,000, the fair market value which
had been determined pursuant to the purchase option appraisal process. Because
the Partnership believes fair market value of the properties exceeds
$9,359,000, Management challenged the Liberty suit and is seeking a purchase
price at a higher value.
On December 29, 1994, the Partnership and Liberty terminated the lease and
agreed that the properties would be transferred to Liberty for $9,359,000 with
the following conditions: Liberty would deposit $750,000 into an escrow
account, and subject to the determination by the Supreme Court of the State of
New York (the "Court"), if the report by an independent third appraiser was
deemed to be final, and the fair market value of the property was determined
to be equal to or less than $9,359,000, the escrow funds would be released to
Liberty and the Partnership would be obligated to reimburse Liberty for any
difference between the final fair market value and $9,359,000. If the Court
determined the fair market value to be greater than $9,359,000, the
Partnership would receive any difference between the final fair market value
and the $9,359,000 from the escrow funds with any excess to be paid by Liberty
to the Partnership. However, Liberty would have the right within 30 days of
the determination to rescind the transfer, in which case all proceeds would be
returned to Liberty, title of the properties transferred back to the
Partnership and Liberty would pay all rents in arrears for the period from the
initial transfer of title to Liberty. The Court has not yet made a
determiniation on the suit.
Note 7. Properties Leased to Industrial General Corporation:
----------------------------------------------------
On July 28, 1995, Industrial General Corporation ("IGC"), a lessee of four of
the Partnership's properties, filed a voluntary bankruptcy petition under
Chapter 11 of the United States Bankruptcy Code. In connection with the
bankruptcy filing, the Partnership has entered into discussions regarding the
potential sale of the IGC properties with IGC and a newly formed company which
has been formed for the purpose of acquiring certain of IGC's operations. The
Partnership is also considering making an investment in the newly formed
company. There is no assurance that the discussions will lead to an agreement
or that, if an agreement is reached, that it would be approved by the
bankruptcy court. It is also possible that IGC will receive other proposals
for its operating divisions or that IGC will attempt to reorganize its
operations. In the event that it is probable that the properties will be sold
for significantly less than their carrying value or a significant rental
concession is made by the Partnership to IGC in consideration for affirming
the lease with the bankruptcy court, the Partnership would then reevaluate the
estimated net realizable value of the property.
The limited recourse mortgage loan collateralized by the four IGC properties
and a property leased to FMP/Rauma Company (which had previously been occupied
by IGC) matures in September 1995 at which time a balloon payment of
approximately $2,950,000 is scheduled to be paid. As the result of the
violation of financial covenants by IGC, the mortgage loan has been subject to
acceleration.
- 7 -
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
-----------------------------------------------
Results of Operations:
---------------------
Net income for the three-month and six-month periods ended June 30, 1995
decreased by $147,000 and $531,000 as compared with net income for the three-
month and six-month periods ended June 30, 1994. The results of operations for
the 1995 and 1994 periods are not directly comparable as the Partnership sold
its property leased to Pace Membership Warehouse, Inc. ("Pace") in November
1994 and transferred title to its properties leased to Liberty Fabrics of New
York, Inc. ("Liberty") in December 1994. Due to certain contingencies
described in Note 6 to the financial statements, for financial reporting
purposes, no gain has yet been recognized on the transfer of Liberty. Solely
as a result of the Pace sale and Liberty transfer, operating income (lease
revenues less interest expense and depreciation) decreased by $351,000 and
$701,000 for the three-month and six-month periods, respectively. These
decreases have been partially offset by increases in other interest income
which have increased due to the Partnership's higher cash balances which are
also directly attributable to the Pace and Liberty transactions.
For both the three-month and six-month periods, the Partnership had
decreases in lease revenues, depreciation and property and interest expenses
and increases in other interest income and general and administrative
expenses. Of the decreases of $705,000 and $1,406,000 in lease revenue for the
comparable three-month and six-month periods, respectively, the combined
effect from Liberty and Pace represented $529,000 and $1,058,000 of such
decreases. Lease revenues also decreased as the result of the reduction in
rentals from GATX Logistics, Inc. in connection with its agreement to enter
into a five-year lease with the Partnership when its short-term lease for the
Partnership's property in Hodgkins, Illinois expired in November 1994 and
lower rent from Industrial General Corporation ("IGC") which lease was
modified in December 1994 in connection with a reduction in the monthly
mortgage loan debt service payment on the IGC properties. The decrease in
depreciation expense was due solely to the sale of the Pace property. Of the
decreases of $262,000 and $501,000 in interest expense for the three-month and
six-month periods, the combined effect from the payoff of the Pace and Liberty
mortgages in 1994 represented $149,000 and $298,000 of such decreases with the
remainder due to the partial prepayment of the IGC mortgage loan in December
1994 and the continuing amortization of certain of the Partnership's mortgage
loans. The decrease in property expense was due to higher costs incurred in
1994 in connection with the Partnership's assessment of liquidity
alternatives. General and administrative expense increased due to the
increases in partnership level state taxes in three of the states in which the
Partnership owns property and higher costs incurred by the Partnership in
connection with its office space cost sharing agreement and related relocation
costs during the first quarter of 1995. As expected, such costs moderated
during the second quarter of 1995.
Hotel operating results reflect a decrease of $18,000 for the comparable
six-month periods. Although room revenues for the Petoskey hotel increased by
approximately 11% from June 30, 1994, this increase was offset by an 8%
decrease in room revenues for the Rapid City hotel and decreases in the food
and beverage revenues. The occupancy rate at the Alpena hotel increased
slightly, resulting in a modest increase in room revenues. All three hotels
benefitted from increased average daily room rates. Operations of the three
hotels are seasonal in nature, with their highest level of activity and
profitability generally occurring during the third quarter.
- 8 -
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS, Continued
----------------------------------------------------------
Financial Condition:
-------------------
There has been no material change in the Partnership's financial condition
since December 31, 1994 and Management believes that current cash balances and
cash from operating activities will be sufficient to pay quarterly
distributions, meet scheduled debt service installment obligations and fund
necessary replacements of furniture, fixtures and equipment in the ordinary
course of operating the hotel business. For the six-month period ended June
30, 1995, cash flow from operating activities of $2,895,000 was used to pay
quarterly distributions of $2,940,000. In April 1995, the Partnership used a
portion of its cash balance to pay a special distribution of $20 per Limited
Partnership Unit and made an unscheduled $144,000 partial prepayment of a note
payable to an affiliate. Pursuant to the Amended Agreement of Limited
Partnership, the $20 distribution is a return of capital distribution.
The Partnership is in the process of negotiating an extension of its
nonrecourse mortgage loan on the Arley Merchandise Corporation properties
which had a balloon payment of $4,775,000 due in July 1995. In addition, the
Partnership's limited recourse mortgage loan on the IGC properties which has a
current balance of $2,957,000 is scheduled to mature in September 1995. The
Partnership currently has the cash resources to pay off the loan; however, the
Partnership is in the process of evaluating other alternatives before it makes
the commitment to pay off the loan. As described in Note 7 to the financial
statements, IGC has recently filed a voluntary bankruptcy petition. Annual
cash flow from the IGC properties after the related monthly debt service
obligation on the mortgage loan is $778,000.
The Partnership is currently committed to meeting the requirements of the
Holiday Inn core modernization plan for the Partnership's hotel properties in
Alpena and Petoskey, Michigan. The Partnership's share of costs necessary to
meet the requirements of the plan which have been approved by Holiday Inn are
approximately $735,000. The Partnership does not intend to meet the
requirements of the plan for the Rapid City property and is in the process of
seeking an affiliation with another national hotel chain. It is expected that
the Partnership will need to fund $500,000 in renovations at the Rapid City
property over the next twelve to eighteen months. It is also expected that the
average daily room rate would be lower at the Rapid City property after any
change in affiliation; however, the original estimate for meeting the
requirements of the core modernization plan were $1,925,000. The Partnership
does not believe that the return on investment from making the additional
$1,425,000 under the Holiday Inn plan currently justifies attempting to comply
with the Holiday Inn plan.
- 9 -
CORPORATE PROPERTY ASSOCIATES 5
(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 June 30, 1995, the Partnership was not
required to file any reports on Form 8-K.
- 10 -
CORPORATE PROPERTY ASSOCIATES 5
(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 5
(a California limited partnership)
By: CAREY CORPORATE PROPERTY, INC.
08/11/95 By: /s/ Claude Fernandez
-------------- ----------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
08/11/95 By: /s/ Michael D. Roberts
-------------- ----------------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
- 11 -