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 0-11948
--------------------------------------------------------
CORPORATE PROPERTY ASSOCIATES 5
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 13-3164925
- --------------------------------------------------------------------------------
(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 5
(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 5-7
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, March 31,
1995 1996
------------- ------------
(Note) (Unaudited)
ASSETS:
Land, buildings and personal property,
net of accumulated depreciation of
$16,636,945 at December 31, 1995 and
$12,912,742 at March 31, 1996 $34,358,635 $25,837,754
Net investment in direct
financing leases 19,352,938 19,339,895
Real estate held for sale 10,388,398 13,772,271
Cash and cash equivalents 2,300,682 3,592,721
Escrow funds 2,977,622 2,707,100
Accrued interest and rents receivable 9,634 9,736
Other assets 2,880,493 2,958,865
----------- -----------
Total assets $72,268,402 $68,218,342
=========== ===========
LIABILITIES:
Mortgage notes payable $36,065,145 $33,120,919
Note payable to affiliate 1,151,000 1,151,000
Accrued interest payable 170,877 147,743
Accounts payable and accrued expenses 572,267 510,210
Accounts payable to affiliates 144,553 117,618
Prepaid rental income 3,051 110,951
Deferred gains and other liabilities 2,415,446 2,134,498
----------- -----------
Total liabilities 40,522,339 37,292,939
----------- -----------
PARTNERS' CAPITAL:
General Partners (262,961) (227,266)
Limited Partners (113,200 Limited
Partnership Units outstanding) 32,009,024 31,152,669
----------- -----------
Total partners' capital 31,746,063 30,925,403
----------- -----------
Total liabilities and
partners' capital $72,268,402 $68,218,342
=========== ===========
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 5
(a California limited partnership)
STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
March 31, 1995 March 31, 1996
------------------ --------------
Revenues:
Rental income from operating leases $1,155,805 $1,071,969
Interest income from direct financing leases 1,116,416 823,158
Other interest income 130,467 28,511
Revenue of hotel operations 1,270,930 1,293,606
Other income 44,299
---------- ----------
3,717,917 3,217,244
---------- ----------
Expenses:
Interest on mortgages 905,147 759,171
Depreciation 542,678 454,234
General and administrative 318,388 142,885
Property expenses 112,141 117,134
Amortization 7,875 9,792
Operating expenses of
hotel operations 1,168,642 1,230,044
---------- ----------
3,054,871 2,713,260
---------- ----------
Income before gain on sale of
real estate 663,046 503,984
Gain on sale of real estate 90,356
---------- ----------
Net income $ 663,046 $ 594,340
========== ==========
Net income allocated to
General Partners $ 39,783 $ 120,595
========== ==========
Net income allocated to
Limited Partners $ 623,263 $ 473,745
========== ==========
Net income per Unit
(113,200 Limited
Partnership Units) $5.51 $4.19
===== =====
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)
Three Months Ended
March 31,
------------------
1995 1996
------ ------
Cash flows from operating activities:
Net income $ 663,046 $ 594,340
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 550,553 464,026
Other noncash items (15,085) (2,385)
Gain on sale of real estate (90,356)
Net change in operating assets and liabilities 511,067 187,604
----------- -----------
Net cash provided by operating activities 1,709,581 1,153,229
----------- -----------
Cash flows from investing activities:
Additional capitalized costs (153,965) (97,500)
Proceeds from sale of real estate, net 1,741,261
----------- -----------
Net cash (used in) provided by investing activities (153,965) 1,643,761
----------- -----------
Cash flows from financing activities:
Distributions to partners (1,469,191) (1,415,000)
Payments on mortgage principal (113,040) (89,951)
----------- -----------
Net cash used in financing activities (1,582,231) (1,504,951)
----------- -----------
Net (decrease) increase in cash and cash equivalents (26,615) 1,292,039
Cash and cash equivalents, beginning of period 7,926,845 2,300,682
----------- -----------
Cash and cash equivalents, end of period $ 7,900,230 $ 3,592,721
=========== ===========
Supplemental disclosure of cash flows information:
Interest paid $ 842,173 $ 781,524
=========== ============
Supplemental disclosure of noncash investing and financing activities:
In connection with the January 1996 sale of a Partnership property, the
seller assumed a mortgage obligation of $2,854,275 and accrued interest
thereon of $12,049.
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,
1995.
Note 2. Distributions to Partners:
-------------------------
Distributions declared and paid to partners during the three months ended
March 31, 1996 are summarized as follows:
Quarter Ended General Partners Limited Partners Per Limited Partner
---------------- ---------------- ---------------- -------------------
Unit
----
March 31, 1996 $84,900 $1,330,100 $11.75
======= ========== ======
A distribution of $8.40 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 periods ended March 31, 1995 and 1996, the Partnership
incurred management fees of $31,988 and $29,364 respectively, and general
and administrative expense reimbursements of $37,413 and $29,921,
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 three months
ended March 31, 1995 and 1996 were $59,276 and $25,201, 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 three-month periods ended March 31, 1995 and
1996, the Partnership earned its total lease revenues (rental income plus
interest income from financing leases) from the following lease obligors:
1995 % 1996 %
--------- -------- ----------- ----
GATX Logistics, Inc. $349,650 16% $ 349,650 18%
Gould, Inc. 281,250 12 303,750 16
Spreckels Industries, Inc. 255,179 12 255,179 13
DeVlieg Bullard, Inc. 207,746 9 207,746 11
Arley Merchandise Corporation 150,000 7 150,000 8
Exide Electronics Corporation 121,430 5 143,033 8
Penn Virginia Corporation 124,688 5 124,688 7
Stoody Deloro Stellite, Inc. 100,461 5 100,568 5
Harcourt General Corporation 58,438 3 58,438 3
Rochester Button Company 50,104 2 49,208 3
Winn-Dixie Stores, Inc. 47,884 2 47,884 3
Penberthy Products, Inc. 45,632 2 45,632 2
FMP/Rauma Company 31,108 1 36,060 2
Other 129,990 5 23,291 1
Industrial General Corporation 318,661 14
----------- --- ---------- ---
$ 2,272,221 100% $1,895,127 100%
=========== ==== ========== ====
Operating results of the three hotel properties for the three-month periods
ended March 31, 1995 and 1996 are summarized as follows:
1995 1996
------------ ------------
Revenues $ 1,270,930 $ 1,293,606
Fees paid to hotel management company (28,529) (27,663)
Other operating expenses (1,140,113) (1,202,381)
----------- -----------
Hotel operating income $ 102,288 $ 63,562
=========== ===========
Note 5. Sale of Property in Helena, Montana:
-----------------------------------
In May 1985, the Partnership purchased an office building in Helena,
Montana for $6,262,983 of which $2,937,500 was supplied by a limited
recourse mortgage loan collateralized by the property. The Partnership was
assigned an existing net lease with International Business Machines
Corporation ("IBM"), as lessee, with an initial term scheduled to expire in
April 1993. In 1992, the Partnership and IBM entered into a lease
modification agreement whereby the lease was extended through April 2003;
however, IBM would ultimately lease and occupy 60% of the leasable space at
the Helena property. The Partnership was subsequently able to lease the
remaining space to various tenants.
In January 1996, the Partnership sold the property for $4,800,000 including
the assumption of the existing mortgage loan collateralized by the Helena
property. Net of closing costs, the Partnership received cash proceeds of
$1,741,261, assigned the mortgage loan obligation of $2,854,275 and accrued
interest thereon of $12,049 to the lender and recognized a gain of $90,356
on the sale.
- 6 -
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 6. Subsequent Events:
-----------------
In June 1985, the Partnership purchased a warehouse property in Hodgkins,
Illinois for $12,037,466 which was leased to General Motors Corporation
("GM"). In November 1993, GM terminated its lease and the Partnership
entered into a short-term lease with GATX Logistics, Inc.("GATX").
Subsequently, in November 1994, GATX and the Partnership entered into a new
lease which provided for a five-year term and a renewal term of five years
at GATX's option.
On April 9, 1996, the Partnership sold the Hodgkins property for
$13,200,000 and assigned the GATX lease, as lessor, to Centerpoint
Properties Corporation. Net of closing costs and satisfaction of the
limited recourse loan on the Hodgkins property of $3,208,526, the
Partnership received cash proceeds of approximately $9,465,000. In
connection with the transaction, the carrying value for the property,
$8,179,820, was reclassified to real estate held for sale as of March 31,
1996 with the gain on sale to be recognized during the quarter ended June
30, 1996. As a result of the sale of the Hodgkins property, annual cash
flow (GATX rent less debt service on the limited recourse loan) will
decrease by approximately $999,000.
On April 9, 1996, using the proceeds from the sale of the Hodgkins
property, the Partnership made prepayments of $6,090,823 and $1,386,263 to
satisfy the mortgage loan obligations on the Partnership's properties
leased to Gould, Inc. ("Gould") and Exide Electronics Corporation
("Exide"), respectively. The Gould and Exide loans had been scheduled to
mature in March 1996 and April 1996, respectively, at which time balloon
payments for the entire outstanding principal balance were due. As a
result of paying off the mortgage loans, the Partnership's annual cash flow
will increase by approximately $597,000.
- 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 period ended March 31, 1996 reflected a
decrease of $69,000 as compared with net income for the three-month period
ended March 31, 1995. Excluding the effects of the 1996 gain on the sale
of a property and $44,000 of nonrecurring income in 1995, such decrease
would have been $115,000. The decrease in income was due to decreases in
lease revenues, other interest income and earnings from the hotel business,
and was partially offset by decreases in interest, depreciation and general
and administrative expenses. Lease revenues decreased due to the September
1995 sale of properties leased to Industrial General Corporation ("IGC")
and the January 1996 sale of the property in Helena, Montana, leased to IBM
Corporation and various other tenants. Other interest income decreased due
to higher cash balances held during the first quarter of 1995, from cash
proceeds received from the 1994 sales of the Pace Membership Warehouse,
Inc. and Liberty Fabrics of New York properties, a portion of which was
still held as of March 31, 1995. The Partnership paid a special
distribution of $20 per Limited Partnership Unit from such funds subsequent
to March 31, 1995, reducing the amount of cash available to be invested in
interest bearing short-term instruments thereafter. Interest expense
decreased due to the satisfaction of the mortgage loans collateralized by
the IGC and Helena properties in September 1995 and January 1996,
respectively, as well as the continuing principal amortization of other of
the Partnership's mortgage debt. The decrease in depreciation expense was
primarily due to the disposition of the Helena property. The decrease in
general and administrative expenses was primarily due to lower estimates of
partnership level state franchise taxes for 1996 as compared with the
estimates for 1995 and, as expected, a moderation of the Partnership's
office costs.
The decrease in earnings from the hotel was due to a slight increase in
operating expenses rather than any significant changes in occupancy rates.
The increase in expenses was due to a moderate increase in payroll and
miscellaneous costs. The three hotels' businesses are seasonal in nature
with the most significant portion of their earnings generated during the
third quarter. Accordingly, the decrease in earnings for the current
quarter is not necessarily indicative of results for the full year.
However, a decrease in overall hotel earnings is anticipated as earnings
from the Petoskey hotel will continue to be affected by increased
competition while the Rapid City hotel revenues are expected to decrease
after 1996, when it will no longer be affiliated with Holiday Inns.
In April 1996, the Partnership sold its property in Hodgkins, Illinois,
which was leased to GATX Logistics, Inc. ("GATX") and utilized a portion of
the proceeds to satisfy two mortgage loans which had been scheduled to
mature in 1996. With the sale, the Partnership has terminated a lease
which represented 18% of lease revenues in the first quarter and provided
annual cash flow of approximately $999,000. Upon paying off the mortgage
loans on two other properties, $597,000 of the annual debt service will be
eliminated, therefore net annual cash flow will be reduced by only
$402,000. Annual cash flow will also decrease by approximately $191,000 as
a result of the sale of the Helena property. The Partnership anticipates
that it will realize a gain of approximately $5,000,000 on the sale of the
Hodgkins property in the second quarter.
Financial Condition:
-------------------
As a result of the sale of the Hodgkins property in April 1996, the asset
base of the Partnership will be reduced by more than $8,000,000. The
Partnership has also decreased mortgage indebtedness by more than
$10,000,000 by paying off the loan on the Hodgkins property as well as
paying off loans on the Exide Electronics Corporation and Gould, Inc.
properties with proceeds from the Hodgkins property sale. In addition,
mortgage indebtedness was reduced by the satisfaction of the loan on the
Helena property. Giving effect to these transactions, the Partnership's
leverage has been significantly reduced. Mortgage indebtedness will
represent approximately 75% of partners' capital as compared with an
historical
- 8 -
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS, Continued
----------------------------------------------------------
relationship of approximately 100%. With the sale of the Helena and GATX
properties, the Partnership will be able to restore cash reserve balances
to an amount which should allow the Partnership to make the necessary
investments of approximately $1,250,000 in its hotel properties while
retaining cash balances which Management believes are prudent for the
operating needs of the Partnership. The Partnership also has an obligation
to deposit 50% of the cash flow from the Rapid City hotel with the issuer
of the letter of credit that supports the mortgage debt of the Rapid City
property, and will not be able to use all cash flow solely for the funding
of distributions to partners and payment of scheduled mortgage principal
installments. In light of such commitments, uncertainties and the
reduction in cash flow from operations in the first quarter, the
Partnership has lowered its distribution rate from 9.79% in January 1996 to
7% in April 1996. Although cash flow from operations will decrease as a
result of property sales, with current cash reserves and anticipated cash
flow from operations, the Partnership should be able to prudently increase
its distribution rate over the coming quarters while maintaining adequate
cash reserves. The Partnership will also benefit from a lease on the
Elyria, Ohio property which should provide $60,000 of revenue per year.
The Partnership is also commencing a Phase II environmental review of the
Elyria property to determine whether there is evidence of any significant
soil or ground water contamination. Based on the results of the review,
the Partnership may need to incur costs to mitigate any effects of
contamination; however, no determination can be made until the review is
performed.
- 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 March 31, 1996, 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.
05/10/96 By: /s/ Claude Fernandez
-------------- ------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
05/10/96 By: /s/ Michael D. Roberts
-------------- -------------------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
- 11 -