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, 1997
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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
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CORPORATE PROPERTY ASSOCIATES 7, A CALIFORNIA LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
CALIFORNIA 13-3327950
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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.
[X] Yes [_] No
CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
INDEX
Page No.
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PART I
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Item 1. - Financial Information*
Consolidated Balance Sheets, December 31, 1996
and March 31, 1997 2
Consolidated Statements of Income for the three
months ended March 31, 1996 and 1997 3
Consolidated Statements of Cash Flows for the
three months ended March 31, 1996 and 1997 4
Notes to Consolidated Financial Statements 5-6
Item 2. - Management's Discussion of Operations 7-8
PART II
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Item 6. - Exhibits and Reports on Form 8-K 9
Signatures 10
*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 7
- a California limited partnership
PART I
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Item 1. - FINANCIAL INFORMATION
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CONSOLIDATED BALANCE SHEETS
December 31, March 31
1996 1997
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(Note) (Unaudited)
ASSETS:
Land, buildings and personal property,
net of accumulated depreciation of
$11,101,853 at December 31, 1996 and
$11,393,055 at March 31, 1997 $33,276,821 $33,008,269
Net investment in direct financing leases 15,542,368 10,844,344
Cash and cash equivalents 5,591,985 5,966,413
Real estate held for sale 4,698,024
Other assets 1,020,950 1,205,133
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Total assets $55,432,124 $55,722,183
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LIABILITIES:
Mortgage notes payable $10,314,828 $10,228,716
Note payable 9,606,837 9,606,837
Accrued interest payable 324,737 321,477
Accounts payable and accrued expenses 676,737 632,505
Accounts payable to affiliates 113,485 121,657
Prepaid and deferred rental income 371,116 387,327
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Total liabilities 21,407,740 21,298,519
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PARTNERS' CAPITAL:
General Partners 161,740 185,697
Limited Partners (45,209 Limited
Partnership Units issued and outstanding) 33,862,644 34,237,967
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Total partners' capital 34,024,384 34,423,664
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Total liabilities and
partners' capital $55,432,124 $55,722,183
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
Note: The balance sheet at December 31, 1996 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
March 31, 1996 March 31, 1997
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Revenues:
Rental income from operating leases $1,051,680 $1,111,914
Interest income from direct financing leases 557,020 551,844
Other interest income 62,782 66,039
Revenue of hotel operations 1,355,341 1,398,349
Other income 241,272
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3,026,823 3,369,418
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Expenses:
Interest 497,727 463,104
Operating expenses of hotel operations 1,009,592 1,022,703
Depreciation 286,370 291,202
General and administrative 104,000 157,127
Property expenses 105,112 111,733
Amortization 7,216 14,719
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2,010,017 2,060,588
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Income before loss from equity investment and
gain on sales of real estate
1,016,806 1,308,830
Loss from equity investment 32,803 30,379
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Income before gain on sales of real estate 984,003 1,278,451
Gain on sales of real estate 74,729
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Net income $1,058,732 $1,278,451
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Net income allocated to
General Partners $ 59,787 $ 76,707
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Net income allocated to
Limited Partners $ 998,945 $1,201,744
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Net income per Unit
(45,209 Limited Partnership Units) $22.10 $26.58
====== ======
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)
Three Months Ended
March 31,
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1996 1997
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Cash flows from operating activities:
Net income $ 1,058,732 $1,278,451
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 293,586 305,921
Other noncash items 37,284 37,284
Loss from equity investment 32,803 30,379
Gain on sales of real estate (74,729)
Net change in operating assets and liabilities (163,851) (289,674)
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Net cash provided by operating activities 1,183,825 1,362,361
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Cash flows from investing activities:
Additional capitalized costs (29,463) (22,650)
Distributions from equity investment 8,316
Net proceeds from sales of real estate 617,867
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Net cash by provided by (used in) investing activities 596,720 (22,650)
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Cash flows from financing activities:
Distributions to partners (863,780) (879,171)
Payments on mortgage principal (367,585) ( 86,112)
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Net cash used in financing activities (1,231,365) (965,283)
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Net increase in cash and cash equivalents 549,180 374,428
Cash and cash equivalents, beginning of period 4,968,410 5,591,985
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Cash and cash equivalents, end of period $ 5,517,590 $5,966,413
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Supplemental disclosure of cash flows information:
Interest paid $ 507,014 $ 466,364
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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:
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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 (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. For
further information, refer to the financial statements and footnotes there to
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 Partner Unit
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December 31, 1996 $52,750 $826,421 $18.28
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A distribution of $18.30 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 periods ended March 31, 1996 and 1997, the Partnership
incurred management fees of $23,720 and $29,106, respectively, and general and
administrative expense reimbursements of $37,499 and $52,597, 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 three months ended
March 31, 1996 and 1997 were $21,223 and $21,615 respectively.
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CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
NOTES TO CONSOLIDATED 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 and the operation of a hotel business.
For the three-month periods ended March 31, 1996 and 1997, the Partnership
earned its lease revenues (rental income plus interest income from financing
leases) from the following lease obligors:
1996 % 1997 %
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Advanced System Applications, Inc. $ 394,658 25% $ 381,131 23%
The Gap, Inc. 231,892 14 231,892 14
KSG, Inc. 205,726 13 203,609 12
Sybron Acquisition Company 204,800 12 204,800 12
Swiss M-Tex, L.P. 133,205 8 129,774 8
AutoZone, Inc. 105,194 7 98,400 6
Other 77,110 5 97,249 6
CSK Auto Parts, Inc. 97,208 6 97,208 6
NVRyan L.P. 72,889 5 72,889 4
United States Postal Service 60,788 4
NYNEX Corporation 53,900 3 53,900 3
Winn-Dixie Stores, Inc. 32,118 2 32,118 2
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$1,608,700 100% $1,663,758 100%
========== === ========== ===
Results for the Partnership's hotel operations of a Holiday Inn in Livonia,
Michigan for the three-month periods ended March 31, 1996 and 1997 are
summarized as follows:
1996 1997
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Revenues $1,355,341 $1,398,349
Fees paid to hotel management company (36,314) (40,779)
Other operating expenses (973,278) (981,924)
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Hotel operating income $ 345,749 $ 375,646
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Note 5. Real Estate Held For Sale:
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In December 1996, KSG, Inc. ("KSG") notified the Partnership that it was
exercising its option to purchase the property it leases from the Partnership in
Hazelwood, Missouri. The exercise price will be the greater of $4,698,000 (the
Partnership's purchase price for the property in March 1987) or fair market
value as encumbered by the lease. The option provides that the sale of the
property occur no later than March 8, 1998. An appraisal process to determine
fair market value has commenced.
Annual cash flow from the KSG property is approximately $820,000,
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CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS, Continued
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Results of Operations
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Net income for the three-month period ended March 31, 1997 increased by
$220,000 as compared with net income for the three-month period ended March 31,
1996. Excluding the effects of a gain of $75,000 in 1996 and nonrecurring other
income of $241,000 in the current year, income, as adjusted, would have
reflected an increase of $54,000. The nonrecurring other income consists of a
distribution on the Partnership's bankruptcy claim against the former lessee of
the Livonia, Michigan hotel.
The increase in income as adjusted, was due to increases in hotel operating
income and lease revenues and a decrease in interest expense. These effects
were partially offset by an increase in general and administrative expenses.
The increase in hotel operating earnings was due to the Partnership's
maintaining its strategy of sustaining a high average room rate in a favorable
economic environment. As a result of strengthening in the average room rate,
the hotel's occupancy decreased from 74% to 72%. The increase in lease revenues
was due to the commencement of a lease with the United States Postal Service in
May 1996 and new leases during 1996 at two of the former Yellow Front Store,
Inc. properties. The decrease in interest expense was due to the payoff of a
mortgage loan on the Winn-Dixie Stores, Inc. property in 1996 and, to a lesser
extent, the continuing amortization of the Partnership's limited recourse
mortgage loans. The increase in general and administrative expense was due to
higher accruals for state income and franchise taxes in 1997.
The Postal Service has a right of first refusal on the space being vacated by
Advanced System Applications, Inc., in June 1997. The Partnership and the
Postal Service have entered into discussions regarding leasing the additional
space. There is no assurance that the Postal Service will agree to lease all or
a portion of the space being vacated.
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 operating activities of $1,362,000 was
sufficient to fund distributions to partners of $879,000 and scheduled mortgage
principal payments installments of $86,000. KSG, Inc. has notified the
Partnership that it has exercised its option to purchase its leased property.
The option provides that the sale of the property occur no later than March
8,1998 at an exercise price of the greater of (i) $4,698,000 or (ii) fair market
value as encumbered by the lease. An appraisal process to determine fair
market value has commenced. Annual cash flow from the KSG property is
approximately $820,000.
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 7
- 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.
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CORPORATE PROPERTY ASSOCIATES 7
- 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 7
- a California limited partnership
By: SEVENTH CAREY CORPORATE PROPERTY, INC.
5/13/97 By: /s/ Claude Fernandez
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Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
5/13/97 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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