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, 1995
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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 0-15778
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CORPORATE PROPERTY ASSOCIATES 7, A CALIFORNIA LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
CALIFORNIA 13-3327950
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of 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.
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PART I
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Item 1. - Financial Information*
Consolidated Balance Sheets, December 31, 1994
and September 30, 1995 2
Consolidated Statements of Income for the three and nine
months ended September 30, 1994 and 1995 3
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1994 and 1995 4
Notes to Consolidated Financial Statements 5-7
Item 2. - Management's Discussion of Operations 8-9
PART II
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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 7
- a California limited partnership
PART I
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Item 1. - FINANCIAL INFORMATION
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CONSOLIDATED BALANCE SHEETS
December 31, SEPTEMBER 30,
1994 1995
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(Note) (UNAUDITED)
ASSETS:
Land, buildings and personal property,
net of accumulated depreciation of
$10,532,608 at December 31, 1994 and
$11,554,131 at September 30, 1995 $38,920,078 $38,064,891
Net investment in direct financing leases 15,761,594 15,761,594
Cash and cash equivalents 10,525,885 3,495,427
Accrued interest and rents receivable 97,984 17,841
Other assets 1,559,084 1,473,352
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Total assets $66,864,625 $58,813,105
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LIABILITIES:
Mortgage notes payable $17,314,570 $16,199,275
Note payable 9,606,837 9,606,837
Accrued interest payable 403,686 464,372
Accounts payable and accrued expenses 961,073 773,249
Accounts payable to affiliates 69,568 119,559
Prepaid and deferred rental income 450,341 439,600
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Total liabilities 28,806,075 27,602,892
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PARTNERS' CAPITAL:
General Partners 113,032 47,635
Limited Partners (45,274 and 45,209 Limited
Partnership Units issued and outstanding
at December 31, 1994 and September 30, 1995) 37,945,518 31,162,578
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Total partners' capital 38,058,550 31,210,213
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Total liabilities and
partners' capital $66,864,625 $58,813,105
=========== ===========
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.
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CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended
September 30, 1994 SEPTEMBER 30, 1995 September 30, 1994 SEPTEMBER 30, 1995
------------------ ------------------ ------------------ ------------------
Revenues:
Rental income from
operating leases $ 855,216 $1,077,871 $ 2,571,476 $ 3,239,261
Interest from direct
financing leases 1,008,478 560,902 2,915,978 1,681,789
Other interest income 53,600 42,963 138,174 157,102
Revenue from food service
operations - net of
the cost of sales 446,383 425,412 2,259,909 2,274,157
Revenue of hotel
operations 1,178,838 1,356,089 3,526,547 4,005,659
Other income 321,000 759,368
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3,863,515 3,463,237 12,171,452 11,357,968
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Expenses:
Interest 939,068 620,773 2,682,354 1,918,708
Operating expenses of
food service operations 478,225 474,458 1,853,562 1,883,335
Operating expenses of
hotel operations 863,359 972,213 2,658,608 2,932,730
Depreciation 398,538 350,085 1,218,095 1,021,523
General and administrative 91,598 105,483 309,073 448,734
Property expenses 86,502 81,314 229,837 229,074
Writedowns to net
realizable value 641,731
Amortization 19,760 17,518 58,769 52,551
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2,877,050 2,621,844 9,652,029 8,486,655
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Income before loss
from equity investment
and gains on sale 986,465 841,393 2,519,423 2,871,313
Loss from equity investments 38,399 34,730 114,633 102,502
---------- ---------- ----------- -----------
Income before gains
on sale 948,066 806,663 2,404,790 2,768,811
Gain on sale of securities 682,500 682,500
Gain on sale of real estate 7,814,474 7,814,474
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Net income $9,445,040 $ 806,663 $10,901,764 $ 2,768,811
========== ========== =========== ===========
Net income allocated
to General Partners $ 396,181 $ 48,400 $ 483,584 $ 166,129
========== ========== =========== ===========
Net income allocated
to Limited Partners $9,048,859 $ 758,263 $10,418,180 $ 2,602,682
========== ========== =========== ===========
Net income per Unit $199.87 $16.77 $230.11 $57.53
========== ========== =========== ===========
Weighted Average Limited
Partner Units 45,274 45,209 45,274 45,242
========== ========== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
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CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
CONSOLIDATED STATEMENTS of CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30,
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1994 1995
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Cash flows from operating activities:
Net income $10,901,764 $ 2,768,811
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,276,864 1,074,074
Other noncash items (115,962) 111,850
Loss from equity investment 114,633 102,502
Gains on sales of real estate and warrants (8,496,974)
Writedowns to net realizable value 641,731
Restructuring fees received in connection
with lease modification 722,222
Recognition of deferred rental income on
sale of real estate (321,000)
Note receivable received in connection
with bankruptcy settlement (327,586)
Net change in operating assets and liabilities (614,686) (211,957)
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Net cash provided by operating activities 3,781,006 3,845,280
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Cash flows from investing activities:
Additional capitalized costs (94,537) (166,336)
Distributions from equity investment 25,286 23,041
Net proceeds from sales of real estate and
securities 757,324
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Net cash provided by (used in) investing activities 688,073 (143,295)
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Cash flows from financing activities:
Distributions to partners (2,282,007) (9,575,174)
Payments on mortgage principal (508,558) (1,115,295)
Retirement of Limited Partner Units (41,974)
Deferred financing costs (11,643)
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Net cash used in financing activities (2,802,208) (10,732,443)
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Net increase (decrease) in cash and cash equivalents 1,666,871 (7,030,458)
Cash and cash equivalents, beginning of period 3,260,303 10,525,885
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Cash and cash equivalents, end of period $ 4,927,174 $ 3,495,427
=========== ============
Supplemental disclosure of cash flows information:
Interest paid $ 2,479,130 $ 1,858,022
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
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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. Certain 1994 amounts have been reclassified to conform to the 1995
financial statement presentation.
Note 2. Distributions to Partners:
-------------------------
Distributions declared and paid to partners during the nine months ended
September 30, 1995 are summarized as follows:
Quarter Ended General Partners Limited Partners Per Limited Partner Unit
- - ----------------------------- ---------------- ---------------- ------------------------
December 31, 1994 $60,195 $ 943,057 $ 20.83
======= ========== =======
March 31, 1995 $51,266 $ 803,161 $ 17.74
======= ========== =======
June 30, 1995 $51,468 $ 806,330 $ 17.81
======= ========== =======
Special distribution -
January, 1995 $68,597 $6,791,100 $150.00
======= ========== =======
A distribution of $17.87 per Limited Partner Unit for the quarter ended
September 30, 1995 was declared and paid in October 1995.
Note 3. Transactions with Related Parties:
---------------------------------
For the three-month and nine-month periods ended September 30, 1994, the
Partnership incurred management fees of $42,623 and $106,011, respectively,
and general and administrative expense reimbursements of $22,172 and
$96,671, respectively. For the three-month and nine-month periods ended
September 30, 1995, the Partnership incurred management fees of $24,704 and
$78,443, respectively, and general and administrative expense
reimbursements of $22,428 and $79,900, respectively.
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, 1994 and 1995 were $29,586 and $62,551,
respectively.
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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 nine-month periods ended
September 30, 1994 and 1995, the Partnership earned its lease revenues
(rental income plus interest income from financing leases) from the
following lease obligors:
1994 % 1995 %
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Advanced System Applications, Inc. $ 533,530 10% $1,183,974 24%
The Gap, Inc. 695,676 13 695,676 14
KSG, Inc. 582,583 11 617,713 13
Sybron Acquisition Company 614,372 11 614,372 13
Swiss M-Tex, L.P. 385,313 7 410,878 8
AutoZone, Inc. 353,485 6 325,774 7
Other 312,612 6 304,321 6
Northern Automotive, Inc. 291,556 5 291,623 6
NVRyan L.P. 231,554 4 218,667 4
NYNEX Corporation 161,700 3 161,700 3
Winn-Dixie Stores, Inc. 96,352 2 96,352 2
Mid Continent Bottlers, Inc. 1,228,721 22
---------- --- ----------
$5,487,454 100% $4,921,050 100%
========== === ========== ===
Operating results for the food service business in Jupiter, Florida for the
nine-month periods ended September 30, 1994 and 1995 are summarized as
follows:
1994 1995
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Sales $ 3,193,108 $ 3,210,536
Cost of goods sold (933,199) (936,379)
Other operating expenses (1,853,562) (1,883,335)
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Food service operating income $ 406,347 $ 390,822
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CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Results for the Partnership's hotel operations of a Holiday Inn in Livonia,
Michigan for the nine-month periods ended September 30, 1994 and 1995 are
summarized as follows:
1994 1995
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Revenues $ 3,526,547 $ 4,005,659
Fees paid to hotel management company (76,204) (94,950)
Other operating expenses (2,582,404) (2,837,780)
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Income from hotel operations $ 867,939 $ 1,072,929
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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 September 30, 1995 is included in Other assets.
Summarized financial information of the limited partnership is as follows:
(in thousands)
December 31, SEPTEMBER 30,
1994 1995
------------------- -------------------
Assets, net of accumulated depreciation $8,395 $8,017
Mortgage notes and bonds payable 8,866 8,750
Other liabilities 14 4
Partners' capital (485) (737)
Nine Months Ended
September 30, 1994 SEPTEMBER 30, 1995
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Revenues $ 633 $ 650
Interest expense (482) (474)
Depreciation and amortization (378) (378)
Other operating expenses (1) (2)
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Net loss $ (228) $ (204)
====== ======
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CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
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Results of Operations:
---------------------
Primarily as a result of $8,497,000 of realized gains from the sale of
assets in 1994, net income for the three-month and nine-month periods ended
September 30, 1995 decreased by $8,638,000 and $8,133,000, respectively, as
compared with net income for the three-month and nine-month periods ended
September 30, 1994. The three and nine-month periods ended September 30,
1994 also included $321,000 and $759,000 of other income, respectively,
from nonrecurring sources. In addition, the nine-month period ended
September 30, 1994 included $642,000 of charges relating to writedowns to
net realizable value of property held for sale.
Income for the three-month and nine-month periods ended September 30,
1995 would have reflected increases of $180,000 and $482,000, respectively,
as compared with income, net of the effects of the items described above,
for the three-month and nine-month periods ended September 30, 1994. For
both the three-month and the nine-month periods ended September 30, 1995,
the increases were due to an increase in earnings from the hotel operations
and decreases in interest and depreciation expenses. This was partially
offset by a decrease in lease revenues and, for the nine-month period only,
an increase in general and administrative expenses. The decrease in lease
revenues of $566,000 was attributable to the sale in November 1994 of
properties leased to Mid-Continent Bottlers, Inc. ("Mid-Continent") which
had contributed 22% of lease revenues for the comparable 1994 period.
Lease revenues in the 1995 periods benefitted from the 1994 lease
modification with Advanced Systems Applications, Inc. ("ASA") which
contributed an additional $217,000 and $650,000 to lease revenues for the
current year's three-month and nine-month periods. 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 properties leased to KSG, Inc., AutoZone, Inc., NYNEX
Corporation and The Gap Inc. and the prepayment of a portion of the ASA
mortgage loan balance during the fourth quarter of 1994. Such decreases
were offset by higher interest expense of $232,000 on the mortgage loan on
the hotel property and on the Partnership's note payable, both of which are
variable rate loans. Depreciation decreased due to the full depreciation
in the fourth quarter of 1994 of certain furniture, fixtures and equipment
at the hotel property. General and administrative expenses increased for
the nine-month period primarily as a result of the increase in state income
and franchise taxes for several states incurred at the partnership level.
Hotel operating income increased by 24% for the comparable nine-month
period as the result of a strong occupancy rate, which increased 3% to 79%,
a 9% increase in the average room rate and an increase in banquet and
meeting room revenues. The increase in the occupancy and the ability to
increase the average room rate reflects improvements in the overall economy
of the Detroit Metropolitan area. It is anticipated that future operating
results of the hotel will be affected by fluctuations in the regional
economy. Earnings from the food service operation were stable with the
operation sustaining the increase that was attained in 1994. Historically,
the earnings for the third quarter from the food service operation report a
loss as the business is seasonal in nature with the greatest portion of
earnings realized in the first quarter. Management expects to either incur
a moderate loss or break even on food service operations during the fourth
quarter.
-8-
CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS, Continued
----------------------------------------------------------
Financial Condition:
-------------------
Other than paying a special distribution of $6,860,000 in the first
quarter of 1995, there has been no material change in the Partnership's
financial condition since December 31, 1994. This distribution was from
the proceeds of the sale of the Mid-Continent properties in 1994 and
represented a return of capital of $150 per Limited Partner Unit, 15% of
the original cost of a Limited Partner Unit. The Partnership's cash flow
from operating activities of $3,845,000 was sufficient to pay $2,715,000 of
quarterly distributions to partners and the Partnership's scheduled
mortgage principal payment installments of $1,115,000. The Partnership is
currently committed to retaining the hotel's affiliation with Holiday Inn
as a franchisee. As a result of successful discussions with Holiday Inn,
the Partnership's hotel property will not be required to make any
additional improvements in order to comply with the Holiday Inn's core
modernization plan. Included in other assets on the accompanying
consolidated balance sheet at September 30, 1995, is a furniture, fixture
and equipment reserve account of $313,000 which is available for funding
necessary improvements or purchases of furniture, fixtures and equipment at
the hotel operation. The reserve account is funded by allocating 3% of
hotel revenues to the reserve account and the Partnership does not
anticipate utilizing any funds in excess of amounts set aside in the
reserve amount to fund any replacements of furniture, fixtures and
equipment within the next twelve months.
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 the loans if it elects to make a
partial prepayment of $600,000. The Partnership currently has the cash
reserves to fund this payment if it elects to extend the loan.
-9-
CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
PART II
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Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
------------------------------------------
(a) Exhibits:
None
(b) Reports on Form 8-K:
During the quarter ended September 30, 1995 the Partnership
was not required to file any reports on Form 8-K.
-10-
CORPORATE PROPERTY ASSOCIATES 7
- 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 7
- a California limited partnership
By: SEVENTH CAREY CORPORATE PROPERTY, INC.
11/10/95 By: /s/ Claude Fernandez
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Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
11/10/95 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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