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, 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 0-9174
---------------------------------------------------------
CORPORATE PROPERTY ASSOCIATES
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2572215
- --------------------------------------------------------------------------------
(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
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
INDEX
Page No.
--------
PART I
- ------
Item 1. - Financial Information*
Balance Sheets, December 31, 1995 and
March 31, 1996 2
Statements of Income for the three
months ended March 31, 1995 and 1996 3
Statements of Cash Flows for the three
months ended March 31, 1995 and 1996 4
Notes to Financial Statements 5-6
Item 2. - Management's Discussion of Operations 7
PART II
- -------
Item 6. - Exhibits and Reports on Form 8-K 8
Signatures 9
*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
(a California limited partnership)
PART I
------
Item 1. - FINANCIAL INFORMATION
-------------------------------
BALANCE SHEETS
December 31, March 31,
1995 1996
------------- ------------
(Note) (Unaudited)
ASSETS:
Land and buildings, net of
accumulated depreciation of
$17,950,541 at December 31, 1995 and
$17,565,572 at March 31, 1996 $16,382,450 $15,665,515
Net investment in direct financing leases 4,895,886 4,900,081
Real estate held for sale 447,461
Cash and cash equivalents 872,864 586,451
Accrued interest and rents receivable 377,471 387,083
Other assets 1,001,434 1,209,079
----------- -----------
Total assets $23,530,105 $23,195,670
=========== ===========
LIABILITIES:
Mortgage notes payable $14,888,807 $14,538,423
Accrued interest payable 190,843 184,995
Accounts payable and accrued expenses 81,726 80,177
Prepaid rental income and security deposits 263,548 202,419
Accounts payable to affiliates 46,304 31,031
----------- -----------
Total liabilities 15,471,228 15,037,045
----------- -----------
PARTNERS' CAPITAL:
General Partners (98,679) (97,681)
Limited Partners (40,000 Limited
Partnership Units issued and
outstanding) 8,157,556 8,256,306
----------- -----------
Total partners' capital 8,058,877 8,158,625
----------- -----------
Total liabilities and
partners' capital $23,530,105 $23,195,670
=========== ===========
The accompanying notes are an integral part of the financial statements.
Note: The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date.
- 2 -
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
March 31, 1995 March 31, 1996
-------------- --------------
Revenues:
Rental income from operating leases $ 997,902 $1,007,327
Interest income from direct
financing leases 128,541 128,963
Other interest income 18,554 13,142
Other income 42,254
---------- ----------
1,187,251 1,149,432
---------- ----------
Expenses:
Interest on mortgages 394,524 355,715
Depreciation 274,949 269,474
General and administrative 55,650 54,544
Property expense 19,730 14,029
Amortization 6,770 6,770
---------- ----------
751,623 700,532
---------- ----------
Net income $ 435,628 $ 448,900
========== ==========
Net income allocated
to General Partners $ 4,356 $ 4,489
========== ==========
Net income allocated
to Limited Partners $ 431,272 $ 444,411
========== ==========
Net income per Unit
(40,000 Limited
Partnership Units) $ 10.78 $ 11.11
======== ========
The accompanying notes are an integral part of the financial statements.
- 3 -
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
---------------------
1995 1996
--------- ---------
Cash flows from operating activities:
Net income $ 435,628 $ 448,900
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 281,719 276,244
Scheduled rent on direct financing leases
less than amortization of unearned income 10,727 (4,195)
Scheduled rents on operating leases less than
straight-line adjustments (16,875) (16,875)
Net change in operating assets and liabilities (126,387) (286,568)
--------- ---------
Net cash provided by operating activities 584,812 417,506
--------- ---------
Cash flows from financing activities:
Distributions to partners (320,808) (353,535)
Payments on mortgage principal (348,635) (350,384)
--------- ---------
Net cash used in financing activities (669,443) (703,919)
--------- ---------
Net decrease in cash and cash equivalents (84,631) (286,413)
Cash and cash equivalents, beginning of period 937,631 872,864
--------- ---------
Cash and cash equivalents, end of period $ 853,000 $ 586,451
========= =========
Supplemental disclosure of cash flows information:
Interest paid $ 396,943 $ 361,563
========= =========
The accompanying notes are an integral part of the financial statements.
- 4 -
CORPORATE PROPERTY ASSOCIATES
(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 (including 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 three months ended
March 31, 1996 are summarized as follows:
Per Limited
Quarter Ended General Partners Limited Partners Partnership Unit
- ------------- ---------------- ---------------- ----------------
December 31, 1995 $3,535 $350,000 $8.75
====== ======== =====
A distribution of $8.76 per Limited Partner Unit for the quarter ended
March 31, 1996 was declared and paid in April 1996.
Note 3. Transactions with Related Parties:
---------------------------------
For the three-month period ended March 31, 1995, the Partnership incurred
partnership management fees of $13,509 and general and administrative
expense reimbursements of $11,610, payable to an affiliate. For the three-
month period ended March 31, 1996, the Partnership incurred partnership
management fees of $10,156 and general and administrative expense
reimbursements of $10,517, 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, 1995 and 1996 were $12,266 and $8,179, respectively.
- 5 -
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
NOTES TO 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. For the three-month periods
ended March 31, 1995 and 1996, the Partnership earned its total operating
revenues (rental income plus interest income from financing leases) from
the following lease obligors:
1995 % 1996 %
---------- ---- ---------- ----
Pre Finish Metals Incorporated $ 351,293 31% $ 359,218 31%
The Gap, Inc. 306,498 27 306,498 27
IMO Industries, Inc. 211,685 19 211,685 19
Unisource Worldwide, Inc. 81,948 7 82,370 7
Kobacker Stores, Inc. 75,885 7 75,885 7
Broomfield Tech Center Corporation 73,534 7 75,034 7
Winn-Dixie Stores, Inc. 25,600 2 25,600 2
---------- --- ---------- ---
$1,126,443 100% $1,136,290 100%
========== === ========== ===
Note 5. Subsequent Events:
-----------------
A. On April 25, 1996, the Partnership obtained $6,400,000 of new limited
recourse mortgage financing on the Partnership's property leased to The
Gap, Inc. (the "Gap"). Proceeds from the mortgage financing were used
to pay off the remaining balance of $6,194,941 on an existing mortgage
loan on the Gap property, related prepayment charges of approximately
$203,000 and certain refinancing costs.
The new mortgage loan is a limited recourse obligation and is
collateralized by a deed of trust and a lease assignment. The loan
bears interest at 7.25% per annum and provides for monthly payments of
principal and interest of $58,423 based on a 15-year amortization
schedule. The retired mortgage loan provided for quarterly payments of
$211,000 at an annual interest rate of 10%. As a result of the
refinancing, annual debt service on the Gap property will decrease by
$143,000.
The new mortgage loan has a term of three years and a balloon payment
for $5,608,150 will be due on the maturity date, May 1, 1999.
B. On April 25, 1996, the Partnership entered into a purchase and sales
agreement for the sale of the Partnership's retail property in
Louisville, Kentucky, leased to Winn-Dixie Stores, Inc. ("Winn-Dixie")
for $900,000, less selling costs, including a 3% brokerage commission.
Completion of the transaction is subject to completion of certain due
diligence procedures. Accordingly, there can be no assurance that the
sale of the property will be executed.
The Winn-Dixie lease provides annual rentals of $102,400 and is
scheduled to expire in December 1999.
- 6 -
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
-----------------------------------------------
Results of Operations:
----------------------
Net income for the three-month period ended March 31, 1996 increased
by 3% as compared with net income for the similar period in 1995.
Excluding the benefit of a $42,000 nonrecurring item in 1995, income for
the current three-month period would reflect an increase of 14% due to an
increase in rental revenues and a decrease in interest expense. The
increase in rental revenues was due to scheduled increases on the
Partnership's leases with Pre Finish Metals Incorporated ("Pre Finish") and
Broomfield Tech Center Corporation ("Broomfield"), both of which were
effective on January 1, 1996. The Pre Finish increase was based on a
formula indexed to increases in the Consumer Price Index and applied to the
equity component of Pre Finish's rental obligation, while the Broomfield
increase was a scheduled increase. Solely as a result of these rent
increases, annual cash flow will increase by $42,000. The decrease in
interest expense was due to the continuing amortization of the
Partnership's mortgage loans. The Partnership's mortgage balances
decreased by 9% in 1995 and by approximately 2.5% in the current quarter.
Since March 31, 1996, the Partnership has refinanced the mortgage loan
collateralized by its property leased to The Gap, Inc. (the "Gap") at a
significantly lower rate of interest. As a result of the refinancing, the
Partnership's annual cash flow will increase by $143,000.
One of the Partnership's leases with IMO Industries, Inc. ("IMO") had
been scheduled to terminate in March 1996. The Partnership granted IMO an
extension of three months to enable IMO to meet its lease obligation to
return the property to the Partnership in suitable condition. The
necessary repairs, which will be funded solely by IMO, will enhance the
Partnership's ability to remarket the property. Rents from the property
contribute $91,000 to the Partnership's annual revenues and cash flow.
Financial Condition:
--------------------
There has been no material change in the Partnership's financial
condition since December 31, 1995. The decrease in cash balances is
entirely due to costs and deposits totalling $323,000 directly attributable
to the Gap property refinancing, $256,000 of which was refunded to the
Partnership when the refinancing was executed. Excluding the cash used to
effect the refinancing, cash flow from operations would have been
sufficient to pay distributions and mortgage principal obligations.
Because of the projected increase to cash flow from refinancing the Gap
property mortgage loan, the Partnership should be able to utilize the
benefit to cash flow to increase its cash balances from current levels and
continue to increase the rate of distributions to partners without any
adverse effect on the Partnership's financial condition. In the event that
the sale of the Winn-Dixie Stores, Inc. property in Lousiville, Kentucky is
sold, the Partnership will receive $900,000, less selling costs; however,
annual cash flow will decrease by $102,400.
- 7 -
CORPORATE PROPERTY ASSOCIATES
(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, 1996, the Partnership was not
required to file any reports on Form 8-K.
- 8 -
CORPORATE PROPERTY ASSOCIATES
(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
(a California limited partnership)
By: W.P. CAREY & CO., INC.
05/09/96 By: /s/ Claude Fernandez
-------- ---------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
05/09/96 By: /s/ Michael D. Roberts
-------- --------------------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
- 9 -