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, 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 0-15778
CORPORATE PROPERTY ASSOCIATES 7, a California limited partnership
(Exact name of registrant as specified in its charter)
CALIFORNIA 13-3327950
(State or other jurisdiction of (I.R.S. Employer
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 7
- a California limited partnership
INDEX
Page No.
PART I
Item 1. - Financial Information*
Consolidated Balance Sheets, December 31, 1995
and June 30, 1996 2
Consolidated Statements of Income for the three and
six months ended June 30, 1995 and 1996 3
Consolidated Statements of Cash Flows for the
six months ended June 30, 1995 and 1996 4
Notes to Consolidated 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 7
- a California limited partnership
PART I
Item 1. - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1995 1996
----------- -----------
(Note) (Unaudited)
ASSETS:
Land, buildings and personal property,
net of accumulated depreciation of
$9,947,765 at December 31, 1995 and
$10,521,682 at June 30, 1996 $34,006,723 $33,542,068
Net investment in direct financing leases 15,542,368 15,542,368
Real estate held for sale 543,138
Cash and cash equivalents 4,968,410 5,809,251
Accrued interest and rents receivable 24,838 58,394
Other assets 1,143,067 1,043,607
----------- -----------
Total assets $56,228,544 $55,995,688
=========== ===========
LIABILITIES:
Mortgage notes payable $11,928,751 $11,480,057
Note payable 9,606,837 9,606,837
Accrued interest payable 345,418 327,454
Accounts payable and accrued expenses 708,394 572,499
Accounts payable to affiliates 102,020 87,551
Prepaid and deferred rental income 428,827 443,950
----------- -----------
Total liabilities 23,120,247 22,518,348
----------- -----------
PARTNERS' CAPITAL:
General Partners 110,512 128,920
Limited Partners (45,209 Limited
Partnership Units issued and outstanding) 32,997,785 33,348,420
----------- -----------
Total partners' capital 33,108,297 33,477,340
----------- -----------
Total liabilities and
partners' capital $56,228,544 $55,995,688
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
Note: The balance sheet at December 31, 1995 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 Six Months Ended
June 30, 1995 June 30, 1996 June 30, 1995 June 30, 1996
----------- ---------- ---------- ----------
Revenues:
Rental income from
operating leases $ 1,084,413 $1,077,086 $2,161,390 $2,128,766
Interest from direct
financing leases 561,750 554,596 1,120,887 1,111,616
Other interest income 48,558 68,358 114,139 131,140
Revenue of hotel
operations 1,427,655 1,437,277 2,649,570 2,792,618
----------- ---------- ---------- ----------
3,122,376 3,137,317 6,045,986 6,164,140
----------- ---------- ---------- ----------
Expenses:
Interest 637,715 487,819 1,297,935 985,546
Operating expenses of
hotel operations 1,034,838 1,030,732 1,960,517 2,040,324
Depreciation 350,390 287,547 671,438 573,917
General and administrative 129,278 116,089 343,251 220,089
Property expenses 83,345 114,692 147,760 219,804
Amortization 17,516 24,780 35,033 31,996
----------- ---------- ---------- ----------
2,253,082 2,061,659 4,455,934 4,071,676
----------- ---------- ---------- ----------
Income before loss from equity
investments, gain on sales of
real estate and earnings from
discontinued operations 869,294 1,075,658 1,590,052 2,092,464
Loss from equity investments 31,276 32,980 67,772 65,783
----------- ---------- ---------- ----------
Income before gain on
sales of real estate and
earnings from discontinued
operations 838,018 1,042,678 1,522,280 2,026,681
Gain on sales of real estate 74,729
----------- ---------- ---------- ----------
Income from continuing
operations 838,018 1,042,678 1,522,280 2,101,410
Earnings from discontinued
operations 135,963 439,868
----------- ---------- ---------- ----------
Net income $ 973,981 $1,042,678 $1,962,148 $2,101,410
=========== ========== ========== ==========
Net income allocated
to General Partners $ 58,439 $ 62,561 $ 117,729 $ 122,348
=========== ========== ========== ==========
Net income allocated
to Limited Partners $ 915,542 $ 980,117 $1,844,419 $1,979,062
=========== ========== ========== ==========
Net income per Unit:
Income from continuing
operations $17.41 $21.68 $31.62 $43.78
Discontinued operations 2.83 9.14
------ ------ ------ ------
$20.24 $21.68 $40.76 $43.78
====== ====== ====== ======
Weighted Average Limited
Partner Units 45,242 45,209 45,252 45,209
====== ====== ====== ======
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)
Six Months Ended
June 30,
----------------------------------------
1995 1996
----------- -----------
Cash flows from operating activities:
Net income $ 1,962,148 $ 2,101,410
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 706,471 605,913
Other noncash items 74,566 74,566
Loss from equity investment 67,772 65,783
Gain on sales of real estate (74,729)
Net change in operating assets and liabilities (172,323) (276,102)
----------- -----------
Net cash provided by operating activities 2,638,634 2,496,841
----------- -----------
Cash flows from investing activities:
Additional capitalized costs (70,570) (109,262)
Distributions from equity investment 5,716 16,456
Net proceeds from sales of real estate 617,867
----------- -----------
Net cash (used in) provided by investing activities (64,854) 525,061
----------- -----------
Cash flows from financing activities:
Distributions to partners (8,717,376) (1,732,367)
Payments on mortgage principal (734,851) (448,694)
Retirement of Limited Partnership Units (41,974)
----------- -----------
Net cash used in financing activities (9,494,201) (2,181,061)
----------- -----------
Net (decrease) increase in cash and cash equivalents (6,920,421) 840,841
Cash and cash equivalents, beginning of period 10,525,885 4,968,410
----------- -----------
Cash and cash equivalents, end of period $ 3,605,464 $ 5,809,251
=========== ===========
Supplemental disclosure of cash flows information:
Interest paid $ 1,242,318 $ 1,003,510
=========== ============
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, 1995.
Note 2. Distributions to Partners:
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 Partner Unit
------------- ---------------- ---------------- ------------------------
December 31, 1995 $51,827 $811,953 $17.96
======= ======== ======
March 31, 1996 $52,113 $816,474 $18.06
======= ======== ======
A distribution of $18.17 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 $26,500 and $53,739, respectively, and general and
administrative expense reimbursements of $31,146 and $57,472, respectively. For
the three-month and six-month periods ended June 30, 1996, the Partnership
incurred management fees of $25,574 and $49,294, respectively, and general and
administrative expense reimbursements of $30,444 and $67,943, 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 six months ended June
30, 1995 and 1996 were $49,369 and $40,920, respectively.
-5-
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 hotel business. For
the six-month periods ended June 30, 1996 and 1995, the Partnership earned its
lease revenues (rental income plus interest income from financing leases) from
the following lease obligors:
1995 % 1996 %
----------- --- ----------- ---
Advanced System Applications, Inc. $ 789,316 24% $ 780,090 24%
The Gap, Inc. 463,784 14 463,784 14
KSG, Inc. 411,503 13 410,842 13
Sybron Acquisition Company 409,581 13 409,581 13
Swiss M-Tex, L.P. 274,168 8 265,496 8
AutoZone, Inc. 217,183 7 203,594 6
Northern Automotive, Inc. 194,415 6 194,415 6
Other 204,514 6 154,242 5
NVRyan L.P. 145,778 4 145,778 5
NYNEX Corporation 107,800 3 107,800 3
Winn-Dixie Stores, Inc. 64,235 2 64,235 2
United States Postal Service 40,525 1
----------- --- ----------- ---
$ 3,282,277 100% $ 3,240,382 100%
=========== === =========== ===
Results for the Partnership's hotel operations of a Holiday Inn in Livonia,
Michigan for the six-month periods ended June 30, 1996 and 1995 are summarized
as follows:
1995 1996
----------- -----------
Revenues $ 2,649,570 $ 2,792,618
Fees paid to hotel management company (67,084) (74,065)
Other operating expenses (1,893,433) (1,966,259)
----------- -----------
Income from hotel operations $ 689,053 $ 752,294
=========== ===========
Note 5. Discontinued Operations:
The Partnership sold its food service business in December 1995. Operating
results for the food service business in Jupiter, Florida for the six-month
period ended June 30, 1995 is summarized as follows:
Sales $ 2,601,269
Cost of goods sold (752,524)
Other operating expenses (1,408,877)
-----------
Food service operating income $ 439,868
===========
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CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
Results of Operations:
Income from continuing operations increased $204,000 and $579,000 for the
three-month and six-month periods ended June 30, 1996 as compared with the
similar periods ended June 30, 1995. The increase for the six-month period was
due to higher earnings from the hotel operation and decreases in depreciation,
interest and general and administrative expenses, and were partially offset by
an increase in property expenses. Lease revenues for the comparable periods were
stable. Hotel earnings benefited from a 12% increase in the average room rate
which more than offset a decrease in the occupancy rate from 79% to 75%. The
decrease in depreciation expense was primarily attributable to the December 1995
sale of a property in Jupiter, Florida. The decrease in interest expense was due
to the satisfaction of the mortgage loan on the Advanced System Applications,
Inc. ("ASA") property which fully amortized in March 1996 and the satisfaction
of the Jupiter, Florida property mortgage at the time of sale. The decrease in
general and administrative expenses was due to higher accruals for partnership
level state franchise taxes in 1995. The increase in income from continuing
operations for the three-month period was due to the same factors as for the
six-month period; however, earnings from the hotel operations were stable.
The Partnership's lease with the United States Postal Service (the "Postal
Service") at the ASA property commenced May 1, 1996. Annual rent from the Postal
Service lease will be approximately $243,000 before operating costs; however,
until June 1997, the Partnership is obligated to share one-third of Postal
Service rentals, net of expenses, with ASA in lieu of reducing ASA's rent for
relinquishing its space. As a result of the full amortization of the ASA loan,
the Partnership's annual cash flow will increase by approximately $1,344,000
through June 1997 when the remaining term of the ASA lease expires.
Financial Condition:
There has been no material change in the Partnership's financial condition
since December 31, 1995. Cash reserves increased by $841,000, primarily due to
proceeds of $618,000 that was received from the sale of two properties. Cash
flow from operations of $2,497,000 was sufficient to pay cash distributions of
$1,732,000 and scheduled mortgage principal payments of $449,000. The
Partnership currently has sufficient cash reserves to fund a remaining $129,000
tenant improvement allowance for the Postal Service and other costs which may be
necessary to retrofit the ASA property for multi-tenant use.
A $1,000,000 mortgage balloon payment on a loan, which is collateralized by
the property leased to Winn-Dixie Stores, Inc., is due in September 1996. In the
event the Partnership chooses not to seek refinancing, such payment could be
funded from cash reserves; however, it is currently anticipated that the loan
will be refinanced.
-7-
CORPORATE PROPERTY ASSOCIATES 7
- 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, 1996 the Partnership was not
required to file any reports on Form 8-K.
-8-
CORPORATE PROPERTY ASSOCIATES 7
- 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 7
- a California limited partnership
By: SEVENTH CAREY CORPORATE PROPERTY, INC.
8/9/96 By: /s/ Claude Fernandez
------------ -----------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
8/9/96 By: /s/ Michael D. Roberts
------------ -----------------------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
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