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 JUNE 30, 1996
ended ---------------------------------------------------------
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 0-9174
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CORPORATE PROPERTY ASSOCIATES
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(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2572215
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
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Identification No.)
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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)
(Former name, former address and former fiscal year, if changed since last
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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.
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PART I
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Item 1. - Financial Information*
Balance Sheets, December 31, 1995 and
June 30, 1996 2
Statements of Income for the three and six
months ended June 30, 1995 and 1996 3
Statements of Cash Flows for the six
months ended June 30, 1995 and 1996 4
Notes to Financial Statements 5-6
Item 2. - Management's Discussion of Operations 7
PART II
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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
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Item 1. - FINANCIAL INFORMATION
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BALANCE SHEETS
December 31, June 30,
1995 1996
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(Note) (Unaudited)
ASSETS:
Land and buildings, net of
accumulated depreciation of
$17,950,541 at December 31, 1995 and
$18,460,641 at June 30, 1996 $16,382,450 $15,872,350
Net investment in direct financing leases 4,895,886 4,904,276
Cash and cash equivalents 872,864 657,150
Accrued interest and rents receivable 377,471 368,230
Other assets 1,001,434 1,055,635
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Total assets $23,530,105 $22,857,641
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LIABILITIES:
Mortgage notes payable $14,888,807 $14,420,436
Accrued interest payable 190,843 116,808
Accounts payable and accrued expenses 81,726 54,948
Prepaid rental income and security deposits 263,548 198,611
Accounts payable to affiliates 46,304 39,322
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Total liabilities 15,471,228 14,830,125
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PARTNERS' CAPITAL:
General Partners (98,679) (98,992)
Limited Partners (40,000 Limited
Partnership Units issued and
outstanding) 8,157,556 8,126,508
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Total partners' capital 8,058,877 8,027,516
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Total liabilities and
partners' capital $23,530,105 $22,857,641
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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 Six Months Ended
June 30, 1995 June 30, 1996 June 30, 1995 June 30, 1996
------------------ ---------------- ------------- -------------
Revenues:
Rental income from
operating leases $1,000,784 $1,007,779 $1,998,686 $2,015,106
Interest from direct
financing leases 128,541 128,964 257,082 257,927
Other interest income 17,093 6,520 35,647 19,662
Other income 118,784 161,038
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1,265,202 1,143,263 2,452,453 2,292,695
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Expenses:
Interest on mortgages 388,589 331,183 783,113 686,898
Depreciation 274,948 240,626 549,897 510,100
General and
administrative 82,936 48,926 138,586 103,470
Property expense 30,617 54,276 50,347 68,305
Amortization 6,764 15,550 13,534 22,320
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783,854 690,561 1,535,477 1,391,093
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Income before extra-
ordinary item 481,348 452,702 916,976 901,602
Extraordinary charge on
extinguishment of debt 255,438 255,438
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Net income $ 481,348 $ 197,264 $ 916,976 $ 646,164
========== ========== ========== ==========
Net income allocated
to General Partners $ 4,814 $ 1,973 $ 9,170 $ 6,462
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Net income allocated
to Limited Partners $ 476,534 $ 195,291 $ 907,806 $ 639,702
========== ========== ========= ==========
Net income per Unit
(40,000 Limited
Partnership Units)
Income before extra-
ordinary charge $11.91 $11.20 $22.69 $22.31
Extraordinary charge (6.32) (6.32)
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$11.91 $ 4.88 $22.69 $15.99
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The accompanying notes are an integral part of the financial statements.
-3-
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30,
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1995 1996
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Cash flows from operating activities:
Net income $ 916,976 $ 646,164
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 563,431 532,420
Scheduled rents on direct financing leases
greater (less) than amortization of unearned income 21,455 (8,390)
Scheduled rents on operating leases less than
straight-line adjustments (33,750) (33,750)
Securities received in connection with settlement (44,561)
Extraordinary charge on extinguishment of debt 255,438
Net change in operating assets and liabilities (209,930) (18,163)
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Net cash provided by operating activities 1,213,621 1,373,719
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Cash flows from financing activities:
Distributions to partners (644,040) (707,475)
Prepayment of mortgage payable (6,194,941)
Proceeds from mortgage note payable 6,400,000
Payments on mortgage principal (706,268) (673,430)
Deferred financing costs (158,149)
Prepayment charges paid on extinguishment of debt (255,438)
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Net cash used in financing activities (1,350,308) (1,589,433)
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Net decrease in cash and cash equivalents (136,687) (215,714)
Cash and cash equivalents, beginning of period 937,631 872,864
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Cash and cash equivalents, end of period $ 800,944 $ 657,150
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Supplemental disclosure of cash flows information:
Interest paid $ 787,588 $ 760,933
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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:
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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:
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Distributions declared and paid to partners during the six months ended
June 30, 1996 are summarized as follows:
Quarter Ended General Partners Limited Partners Per Limited Partnership Unit
- ------------------------ ---------------- ---------------- ----------------------------
December 31, 1995 $3,535 $350,000 $8.75
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March 31, 1996 $3,540 $350,400 $8.76
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A distribution of $8.78 per Limited Partner Unit for the quarter ended June
30, 1996 was declared and paid in July 1996.
Note 3. Transactions with Related Parties:
---------------------------------
For the three-month and six-month periods ended June 30, 1995, the
Partnership incurred management fees of $14,642 and $28,151, respectively
and general and administrative expense reimbursements of $11,306 and
$22,916, respectively, payable to an affiliate. For the three-month and
six-month periods ended June 30, 1996, the Partnership incurred management
fees of $14,219 and $24,375, respectively and general and administrative
expense reimbursements of $11,089 and $21,606, 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 six
months ended June 30, 1995 and 1996 were $45,560 and $16,296, respectively.
-5-
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 4. Industry Segment Information:
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The Partnership's operations consist of the investment in and the leasing
of industrial and commercial real estate. For the six-month periods ended
June 30, 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 %
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Pre Finish Metals Incorporated $ 705,467 31% $ 718,887 31%
The Gap, Inc. 612,997 27 612,997 27
IMO Industries, Inc. 423,371 19 423,371 19
Unisource Worldwide, Inc. 163,895 7 164,740 7
Kobacker Stores, Inc. 151,770 7 151,770 7
Broomfield Tech Center Corporation 147,068 7 150,068 7
Winn-Dixie Stores, Inc. 51,200 2 51,200 2
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$2,255,768 100% $2,273,033 100%
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Note 5. Extraordinary Charge on Extinguishment of Debt:
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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, certain refinancing costs and prepayment charges of
$255,438. The prepayment charges have been reflected as an extraordinary
charge on the extinguishment of debt on the accompanying financial
statements.
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 approximately $143,000.
The new mortgage loan has a term of three years and a balloon payment of
$5,608,000 will be due on the maturity date, May 1, 1999.
Note 6. Property Leased to Winn-Dixie Stores, Inc.:
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On April 30, 1996, the Partnership entered into a purchase and sale
agreement for the sale of the Partnership's retail property in Louisville,
Kentucky, leased to Winn-Dixie Stores, Inc. ("Winn-Dixie"). In July 1996,
the proposed purchaser notified the Partnership that the transaction would
not be completed. The initial term of the Winn-Dixie lease is not
scheduled to expire until December 1999.
-6-
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
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Results of Operations:
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Net income for the three-month and six-month periods ended June 30, 1996
decreased as compared with the same periods ended June 30, 1995. Such
decreases were due to an extraordinary charge on the extinguishment of debt
in 1996 and the realization of nonrecurring other income in 1995, as
described below. Excluding the effects of these items, income for the
three-month and six-month periods ended June 30, 1996 would have reflected
increases of $90,000 and $146,000, respectively. The increases in income
before nonrecurring items for both the three-month and six-month periods
are primarily attributable to decreases in interest, depreciation and
general and administration expenses and a modest increase in rental
revenues. The decrease in interest expense is due to the continuing
amortization of the Partnership's mortgage loans which balance has
decreased by 3% since December 31, 1995 and the refinancing, at a lower
rate of interest, of the limited recourse mortgage loan collateralized by
the Partnership's property leased to The Gap, Inc. (the "Gap").
Depreciation has continued to decrease due to full depreciation of certain
components of particular properties as the Partnership uses component life
depreciation methods. General and administrative expenses decreased as a
result of the anticipated moderation in costs incurred under the
Partnership's participation in the cost sharing agreement for office
expenses. The increases in rental revenues are the result of the January
1996 rent increases on the equity component of the Pre Finish Metals
Incorporated lease and the Broomfield Tech Center Corporation lease.
Solely as a result of such rent increases, annual cash flow will increase
by $42,000 in 1996.
In April 1996, the Partnership refinanced an existing mortgage loan on
the Gap property which required annual debt service payments of $844,000
at an annual interest rate of 10%. The new mortgage loan which has a
three-year term provides for annual debt service of $701,000, an annual
savings of $143,000 from the prior loan, at an annual interest rate of
7.25%. In connection with paying off the mortgage loan, the Partnership
was obligated to pay prepayment charges of $255,000 which have been
reflected in the accompanying financial statements as an extraordinary
charge on the extinguishment of debt.
Nonrecurring other income items in 1995 consisted of a concession of
$42,000 allowed to the Partnership by a vendor during the first quarter and
$119,000 of cash and securities received during the second quarter as the
final distribution from the Partnership's bankruptcy claims against Storage
Technology Corporation ("STC"). STC had been a tenant of the Partnership
until 1987 at which time the STC lease was terminated pursuant to an order
of the bankruptcy court.
Financial Condition:
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There has been no material change in the Partnership's financial
condition since December 31, 1995. The decrease in the Partnership's cash
balances is directly attributable to the costs of paying off the mortgage
loan on the Gap property. Cash flow from operations was sufficient to fund
payments of mortgage principal and distributions to partners. Cash flow
from operations will benefit substantially from the Gap refinancing;
however, cash flow may be impacted by the uncertainty regarding one of the
Partnership's leases with IMO Industries, Inc. ("IMO") which had originally
been scheduled to terminate in March 1996. The lease was extended to
enable IMO to meet its lease obligation to return the property to the
Partnership in suitable condition. Annual rentals from the property are
currently $91,000, and while the necessary repairs are being funded solely
by IMO and such repairs will enhance the Partnership's ability to remarket
the property, there is no assurance that the remarketing effort will result
in finding a new tenant within a short time.
-7-
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
PART II
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Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits:
None
(b) Reports on Form 8-K:
During the quarter ended June 30, 1996, the Partnership was not
required to file any reports on Form 8-K.
-8-
CORPORATE PROPERTY ASSOCIATES
(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
(a California limited partnership)
By: W.P. CAREY & CO., INC.
8/7/96 By: /s/ Claude Fernandez
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Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
8/7/96 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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