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 MARCH 31, 1997
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 (I.R.S. Employer
incorporation or organization) Identification No.)
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
(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, 1996 and
March 31, 1997 2
Statements of Income for the three
months ended March 31, 1996 and 1997 3
Statements of Cash Flows for the three
months ended March 31, 1996 and 1997 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.
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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, March 31,
1996 1997
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(Note) (Unaudited)
ASSETS:
Land and buildings, net of
accumulated depreciation of
$18,252,546 at December 31, 1996 and
$18,515,459 at March 31, 1997 $14,851,807 $14,588,894
Net investment in direct financing leases 4,660,571 4,664,766
Real estate held for sale 434,339 434,339
Cash and cash equivalents 864,889 796,116
Accrued interest and rents receivable 397,309 461,304
Other assets 1,017,079 972,168
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Total assets $22,225,994 $21,917,587
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LIABILITIES:
Mortgage notes payable $13,429,484 $12,992,248
Accrued interest payable 108,755 104,870
Accounts payable and accrued expenses 83,443 83,393
Prepaid rental income and security deposits 198,610 198,610
Accounts payable to affiliates 45,840 29,724
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Total liabilities 13,866,132 13,408,845
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PARTNERS' CAPITAL:
General Partners (95,847) (94,358)
Limited Partners (40,000 Limited
Partnership Units issued and
outstanding) 8,455,709 8,603,100
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Total partners' capital 8,359,862 8,508,742
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Total liabilities and
partners' capital $22,225,994 $21,917,587
=========== ===========
The accompanying notes are an integral part of the financial statements.
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date.
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CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
March 31, 1996 March 31, 1997
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Revenues:
Rental income from operating leases $1,007,327 $ 991,606
Interest income from direct financing leases 128,963 123,403
Other interest income 13,142 13,574
Other income 5,852
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1,149,432 1,134,435
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Expenses:
Interest on mortgages 355,715 248,072
Depreciation 269,474 262,913
General and administrative 54,544 66,443
Property expense 14,029 19,067
Amortization 6,770 17,190
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700,532 613,685
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Net income $ 448,900 $ 520,750
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Net income allocated
to General Partners $ 4,489 $ 5,208
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Net income allocated
to Limited Partners $444,411 $515,542
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Net income per Unit
(40,000 Limited
Partnership Units) $ 11.11 $ 12.89
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The accompanying notes are an integral part of the financial statements.
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CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
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1996 1997
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Cash flows from operating activities:
Net income $ 448,900 $ 520,750
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 276,244 280,103
Other noncash adjustments (21,070) (21,070)
Net change in operating assets and liabilities (286,568) (55,764)
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Net cash provided by operating activities 417,506 724,019
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Cash flows from financing activities:
Distributions to partners (353,535) (355,556)
Payments of mortgage principal (350,384) (437,236)
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Net cash used in financing activities (703,919) (792,792)
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Net decrease in cash and cash equivalents (286,413) (68,773)
Cash and cash equivalents, beginning of period 872,864 864,889
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Cash and cash equivalents, end of period $ 586,451 $ 796,116
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Supplemental disclosure of cash flows information:
Interest paid $ 361,563 $ 251,957
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The accompanying notes are an integral part of the financial statements.
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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, 1996.
Note 2. Distributions to Partners:
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Distributions declared and paid to partners during the three months ended March
31, 1997 are summarized as follows:
Quarter Ended General Partners Limited Partners Per Limited Partnership Unit
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December 31, 1996 $3,556 $352,000 $8.80
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A distribution of $8.81 per Limited Partner Unit for the quarter ended March 31,
1997 was declared and paid in April 1997.
Note 3. Transactions with Related Parties:
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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. For the three-month period
ended March 31, 1997, the Partnership incurred partnership management fees of
$16,249 and general and administrative expense reimbursements of $11,787,
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-month periods
ended March 31, 1996 and 1997 were $8,179 and $9,302, respectively.
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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 three-month periods ended March
31, 1996 and 1997, the Partnership earned its total operating revenues (rental
income plus interest income from financing leases) from the following lease
obligors:
1996 % 1997 %
---- --- ---- ---
Prefinish Metals Incorporated $ 359,218 31% $ 362,241 33%
The Gap, Inc. 306,498 27 306,498 27
IMO Industries, Inc. 211,685 19 196,437 18
Unisource Worldwide, Inc. 82,370 7 82,370 7
Broomfield Tech Center Corporation 75,034 7 75,034 7
Kobacker Stores, Inc. 75,885 7 66,829 6
Winn-Dixie Stores, Inc. 25,600 2 25,600 2
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$1,136,290 100% $1,115,009 100%
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Note 5. Real Estate Held for Sale:
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On September 17, 1996, the Partnership entered into a purchase and sale
agreement for the sale of the Partnership's property in Louisville, Kentucky,
leased to Winn-Dixie Stores, Inc. ("Winn-Dixie") for $1,100,000, less selling
costs, which includes a 5% brokerage commission. Completion of the transaction
is subject to completion of certain due diligence procedures and the ability of
the buyer to obtain financing by May 15, 1997. Accordingly, there can be no
assurance that the sale of the property will be completed. The Winn-Dixie lease
provides annual rentals of $102,000 and is scheduled to expire in December 1999.
Note 6. Property Leased to IMO Industries, Inc.:
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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 in suitable condition. As IMO did not satisfy such obligation, the
Partnership refused to release IMO from the lease and continued to collect
monthly rental payments from IMO. On February 12, 1997, the Partnership and IMO
entered into an agreement which released IMO from the lease. Under the
agreement, IMO returned the property in "as is" condition to the Partnership,
and paid $485,766, representing estimated maintenance and repair costs and
construction management fees, into an escrow account held by an affiliate for
the Partnership. Funds in escrow will only be released under certain conditions
including, but not limited to, the payment for repairs and maintenance on the
property. Any excess funds will be released to the Partnership.
Rents from the terminated IMO lease contributed annual revenues of approximately
$91,000. The Partnership's lease with IMO for an adjacent property currently
provides for annual rent of $687,750 and has a lease term through 2002.
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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 months ended March 31, 1997 increased $72,000 as
compared to net income for the three months ended March 31, 1996. The increase
was primarily due to a decrease in interest expense. The decrease in interest
expense was due to refinancing the limited recourse mortgage loan collateralized
by the property leased to The Gap, Inc. in April 1996 at a lower interest rate
and the effect of a $100,000 mortgage loan prepayment in the fourth quarter of
1996 on one of the IMO Industries, Inc. properties. Such prepayment was paid
with funds which were released from an escrow account and assigned to the IMO
mortgage lender. Lease revenues for the three month periods were stable. The
slight decrease in revenues was due to lower rentals from Kobacker Stores, Inc.
as a result of selling two Kobacker properties to the lessee in 1996 and the
termination of the lease on one of the IMO properties in February 1997. The
decrease in annual cash flow (rent less debt service) from the Kobacker
properties is approximately $3,000 as a reduction in debt service resulting from
using proceeds from the sale to prepay a portion of the Kobacker mortgage loan
offset most of the decrease in Kobacker in cash flow resulting from lower rent
from Kobacker. Annual cash flow from the IMO property was approximately
$91,000.
Financial Condition:
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There has been no material change in the Partnership's financial condition
since December 31, 1996. Cash flow from operations of $724,000 was sufficient
to fund distributions of $356,000 and $368,000 of total scheduled mortgage
principal payments of $437,000.
In the event that the sale of the Partnership's property leased to Winn-Dixie
Stores, Inc. is completed, annual cash flow would decrease by $102,400.
Anticipated sale proceeds from such proposed sale is approximately $1,100,000,
less selling costs. Completion of the sale is subject to the ability of the
purchaser to obtain financing. Accordingly, there can be no assurance that the
sale of the property will be completed.
The Partnership released IMO from its lease on one property in February 1997
and in exchange, IMO returned the property in an "as is" condition and paid
$486,000 into an escrow account held by an affiliate of the Partnership. The
escrow account is being used to fund maintenance and repair costs and
construction management fees. Any unused funds will be released to the
Partnership.
The General Partners are currently investigating ways to provide liquidity
for limited partners on a tax-effective basis.
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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 March 31, 1997, 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.
05/12/97 By: /s/ Claude Fernandez
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Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
05/12/97 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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