OMB APPROVAL
--------------------------
OMB Number 3235-0070
Expires October 31, 1995
Estimated average burden
hours per response 90.00
--------------------------
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, 1995
-------------------------------------------------
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 0-14551
---------------------------------------------------------
CORPORATE PROPERTY ASSOCIATES 6
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 13-3247122
--------------------------------------------------------------------------------
(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 6
- a California limited partnership
INDEX
Page No.
--------
PART I
------
Item 1. - Financial Information*
Consolidated Balance Sheets, December 31, 1994 and
June 30, 1995 2
Consolidated Statements of Income for the three and six
months ended June 30, 1994 and 1995 3
Consolidated Statements of Cash Flows for the six
months ended June 30, 1994 and 1995 4-5
Notes to Consolidated Financial Statements 6-8
Item 2. - Management's Discussion of Operations 9-10
PART II
-------
Item 6. - Exhibits and Reports on Form 8-K 11
Signatures 12
*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 6
- a California limited partnership
PART I
------
Item 1. - FINANCIAL INFORMATION
-------------------------------
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1994 1995
------------ -----------
(Note) (Unaudited)
ASSETS:
Land and buildings, net of
accumulated depreciation of
$13,405,377 at December 31, 1994 and
$14,167,472 at June 30, 1995 $45,342,342 $44,628,690
Net investment in direct
financing leases 36,920,755 36,920,755
Cash and cash equivalents 4,412,869 3,210,591
Note receivable from affiliate 1,295,000 1,151,000
Accrued interest and rents receivable 79,510 12,454
Other assets 2,135,538 2,597,312
----------- -----------
Total assets $90,186,014 $88,520,802
=========== ===========
LIABILITIES:
Mortgage notes payable $51,433,354 $37,293,265
Note payable 10,000,000
Accrued interest payable 876,506 504,735
Accounts payable and accrued expenses 481,110 321,018
Accounts payable to affiliates 34,190 116,994
Prepaid rental income and other 360,238 368,018
liabilities ----------- -----------
Total liabilities 53,185,398 48,604,030
----------- -----------
PARTNERS' CAPITAL:
General Partners (345,685) (168,784)
Limited Partners (47,950 and 47,930
Limited Partnership Units issued and
outstanding at December 31, 1994 and
June 30, 1995) 37,346,301 40,085,556
----------- -----------
Total partners' capital 37,000,616 39,916,772
----------- -----------
Total liabilities and
partners' capital $90,186,014 $88,520,802
=========== ===========
The accompanying notes are an integral part of the financial consolidated
statements.
Note: The balance sheet at December 31, 1994 has been derived from the
audited financial statements at that date.
-2-
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended
June 30, 1994 June 30, 1995 June 30, 1994 June 30, 1995
------------- ------------- ------------- -------------
Revenues:
Rental income from
operating leases $1,366,233 $1,335,102 $2,732,466 $2,701,335
Interest income from
direct financing leases 1,300,697 1,481,734 2,650,585 2,826,003
Other interest income 92,277 42,067 175,496 133,870
Revenue of hotel operations 1,062,242 1,166,258 2,083,154 2,244,667
Other income 725,920 224,138 773,876
---------- ---------- ---------- ----------
3,821,449 4,751,081 7,865,839 8,679,751
---------- ---------- ---------- ----------
Expenses:
Interest on mortgages 1,274,017 1,100,534 2,548,493 2,254,732
Depreciation 406,759 382,214 815,192 762,095
General and administrative 143,726 132,599 256,571 310,075
Property expense 597,152 202,985 733,351 277,519
Amortization 42,629 53,914 82,881 94,958
Operating expenses of
hotel operations 850,806 907,285 1,673,206 1,772,982
---------- ---------- ---------- ----------
3,315,089 2,779,531 6,109,694 5,472,361
---------- ---------- ---------- ----------
Income before
extraordinary gain 506,360 1,971,550 1,756,145 3,207,390
Extraordinary gain on
extinguishment of debt 2,088,268 2,088,268
---------- ---------- ---------- ----------
Net income $ 506,360 $4,059,818 $1,756,145 $5,295,658
========== ========== ========== ==========
Net income allocated
to General Partners $ 30,382 $ 243,589 $ 105,369 $ 317,739
========== ========== ========== ==========
Net income allocated
to Limited Partners $ 475,978 $3,816,229 $1,650,776 $4,977,919
========== ========== ========== ==========
Net income per Unit
(47,930 Limited
Partnership Units):
Income before extraordinary
gain $9.93 $38.67 $34.43 $62.91
Extraordinary gain 40.95 40.95
---------- ---------- ---------- ----------
$9.93 $79.62 $34.43 $103.86
========== ========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30,
---------------------------
1994 1995
------------ -------------
Cash flows from operating activities:
Net income $ 1,756,145 $ 5,295,658
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 898,073 857,053
Extraordinary gain on extinguishment of debt (2,088,268)
Note received in connection
with bankruptcy settlement (172,414)
Net change in operating assets and liabilities 170,994 9,818
----------- ------------
Net cash provided by operating activities 2,652,798 4,074,261
----------- ------------
Cash flows from investing activities:
Amounts received on partial prepayment of note
receivable from affiliate 144,000
Additional capitalized costs (34,613) (48,443)
----------- ------------
Net cash (used in) provided by
investing activities (34,613) 95,557
----------- ------------
Cash flows from financing activities:
Distributions to partners (2,349,807) (2,359,502)
Retirement of Limited Partner Units (20,000)
Proceeds from note payable 10,000,000
Prepayment of mortgages payable (12,055,148)
Payments on mortgage principal (661,782) (670,975)
Deferred financing costs (13,069) (266,471)
----------- ------------
Net cash used in financing activities (3,024,658) (5,372,096)
----------- ------------
Net decrease in cash and
cash equivalents (406,473) (1,202,278)
Cash and cash equivalents, beginning of period 5,464,578 4,412,869
----------- ------------
Cash and cash equivalents, end of period $ 5,058,105 $ 3,210,591
=========== ============
(Continued)
-4-
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), Continued
Supplemental disclosure of cash flows information:
A. Interest paid $ 2,334,025 $ 1,921,116
=========== ============
B. During the six-month period ended June 30, 1995, the Partnership
recognized an extraordinary gain on the extinguishment of debt (see
Note 5).
Cash payment made in connection with satisfaction
of debt obligation $(5,440,000)
Direct costs of transaction (31,085)
Mortgage note payable balance 6,853,966
Accrued interest on mortgage debt 705,387
-----------
Extraordinary gain on extinguishment of debt $ 2,088,268
===========
C. During the six-month period ended June 30, 1995, the Partnership
agreed to transfer to a lessee three properties with a carrying cost
of $591,407 in consideration for the lessee's funding of improvements
and expansion of other Partnership properties occupied by the lessee
(see Note 7).
The accompanying notes are an integral part of the consolidated financial
statements.
-5-
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Presentation:
---------------------
The accompanying unaudited consolidated 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, 1994.
Note 2. Distributions to Partners:
-------------------------
Distributions declared and paid to partners during the six months ended
June 30, 1995 are summarized as follows:
Quarter Ended General Partners Limited Partners Per Limited Partner Unit
------------- ---------------- ---------------- ------------------------
December 31, 1994 $70,403 $1,109,084 $23.13
======= ========== ======
March 31, 1995 $70,435 $1,109,580 $23.15
======= ========== ======
A distribution of $23.25 per Limited Partner Unit for the quarter ended
June 30, 1995 was declared and paid in July 1995.
Note 3. Transactions with Related Parties:
---------------------------------
For the three-month and six-month periods ended June 30, 1994, the
Partnership incurred management fees of $22,429 and $49,759, respectively,
and general and administrative expense reimbursements of $46,879 and
$91,629, respectively. For the three-month and six-month periods ended
June 30, 1995, the Partnership incurred management fees of $69,381 and
$92,803, respectively, and general and administrative expense
reimbursements of $20,961 and $58,637, 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 six months
ended June 30, 1994 and 1995 were $30,829 and $58,327, respectively.
-6-
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
NOTES TO CONSOLIDATED 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 six-month periods ended June 30, 1994 and 1995,
the Partnership earned its total real estate lease revenues (rental income
plus interest income from financing leases) as follows:
1994 % 1995 %
---------- ---- ---------- ----
Stoody Deloro Stellite, Inc. $ 855,661 16% $1,029,951 19%
AP Parts Manufacturing, Inc. 763,193 14 763,193 14
AutoZone, Inc. 707,002 13 718,342 13
Peerless Chain Company 634,726 12 634,726 11
Anthony's Manufacturing, Inc. 674,053 13 634,710 11
Wal-Mart Stores, Inc. 413,632 8 413,632 7
Kinney Shoe Corporation 336,381 6 336,380 6
Folger Adam Company 282,954 5 282,954 5
Motorola, Inc. 250,000 5 250,000 5
Harcourt General Corporation 233,750 4 233,750 4
Lockheed Martin Corporation 146,500 3 146,500 3
Winn-Dixie Stores, Inc. 85,199 1 85,199 2
---------- --- ---------- ---
$5,383,051 100% $5,529,337 100%
========== === ========== ===
Operating results of three hotels for the six-month periods ended June 30,
1994 and 1995 are summarized as follows:
1994 1995
------------ ------------
Revenues $ 2,083,154 $ 2,244,667
Fees paid to hotel management
company (64,236) (52,517)
Other operating expenses (1,608,970) (1,720,465)
----------- -----------
Hotel operating income $ 409,948 $ 471,685
=========== ===========
Note 5. Properties Leased to Anthony's Manufacturing Company, Inc.:
----------------------------------------------------------
On May 24, 1995, the Partnership and Anthony's Manufacturing Company, Inc.
("Anthony's") entered into a settlement agreement at which time the
Partnership withdrew its eviction suit against Anthony's. Since March
1992, Anthony's had not paid a scheduled monthly rent increase of $10,485
and had made only two monthly rental payments since February 1994. In
connection with the settlement agreement, Anthony's made lump sum payments
aggregating $1,550,000 in settlement of a rent arrearage of $1,712,098. Of
the $1,550,000 received $561,710 was applied to 1995 rents receivable for
period from January 1, 1995 through May 31, 1995 with the remaining
$988,290 applied to prior period rents, all of which had been included in
the Partnership's reserve for uncollected rents of $1,150,388 at December
31, 1994. Net of the legal costs of the settlement of $300,476, the
Partnership realized an additional $687,814 in the current period as Other
income. Under the settlement, the Partnership and Anthony's agreed to
modify the existing lease. Under the lease modification agreement,
effective June 1, 1995, Anthony's monthly rental payment decreased from
$112,342 to $73,000 and the expiration of the initial term of the lease was
extended to May 2007 from February 2002. The amended lease also provides
for rental increases in June 1998, 2001 and 2005 with such increase based
on a formula indexed to increases in the Consumer Price Index.
-7-
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
On May 24, 1994, the Partnership paid off and satisfied the mortgage loan
collateralized by the Anthony's properties. The lender accepted payments
aggregating $5,440,000 to satisfy an outstanding principal balance of
$6,853,966 and accrued interest thereon of $705,387. In connection with
the satisfaction of the debt, the Partnership recognized an extraordinary
gain on the extinguishment of debt of $2,088,268, net of certain related
legal costs. To pay off the mortgage obligation, the Partnership used the
$1,550,000 received from Anthony's under the settlement agreement and
obtained $4,000,000 from the renegotiation of its credit agreement (see
Note 6).
Note 6. Debt Refinancing:
----------------
On March 10, 1995, the Partnership made a balloon payment of $6,615,148 to
satisfy the nonrecourse mortgage loan collateralized by the Partnership's
property leased to Stoody Deloro Stellite, Inc., which matured on March 1,
1995. A portion of the funds necessary for the payment of the mortgage
loan were obtained from a new loan of $6,000,000, pursuant to a credit
agreement. On May 19, 1995, the Partnership and the lender agreed to
modify the credit agreement by increasing the amount available to
$10,000,000. On May 24, 1995, an additional $4,000,000 advance was used to
pay off the Anthony's mortgage loan (see Note 5). As of June 30, 1995, the
Partnership had drawn advances for the entire $10,000,000 available under
the credit agreement.
The $10,000,000 loan requires quarterly interest only payments commencing
July 1, 1995 at a variable interest rate based on the three-month London
Inter-Bank Offered Rate plus 4.25% per annum. The Partnership must offer
as a prepayment to the lender the proceeds from the sale of any Partnership
properties; however, the lender may decline such proceeds. The Partnership
must maintain ratios of Free Operating Cash Flow to debt service on the
loan ranging from 3.4:1 to 3:1 over the life of the agreement and maintain
a consolidated net worth and appraised property values of $25,000,000, as
adjusted. Under the terms of the credit agreement, the Partnership also
has agreed that it may obtain new nonrecourse debt on any of its properties
only for the purpose of refinancing existing mortgage debt. Total mortgage
indebtedness may not exceed $37,952,884 as adjusted for subsequent
scheduled principal amortization on existing mortgage loans plus closing
costs on any new loans.
The $10,000,000 credit agreement loan is a recourse obligation of the
Partnership and matures on July 1, 1999. Except for the application of
proceeds from the sale of properties and other limited circumstances, no
loan prepayments may be made until January 1, 1999.
Note 7. Properties Leased to AutoZone, Inc.:
-----------------------------------
In 1986, the Partnership entered into two master leases with AutoZone, Inc.
("AutoZone"), one lease for 15 properties in Texas and North Carolina and
the other lease for 21 properties in Alabama, Louisiana, Missouri and
Illinois. On June 19, 1995, the Partnership and AutoZone entered into an
agreement, effective as of March 15, 1995, in which the Partnership agreed
to remove three Texas properties from the lease and transfer title of such
properties to AutoZone in consideration for AutoZone's funding of leasehold
improvements and expansions at several of the remaining AutoZone
properties. Accordingly, no gain or loss has been recognized on the
transfer of the properties.
The Partnership and AutoZone also entered into a lease modification
agreement. Annual minimum rents under the two leases has been increased by
$73,586 to $1,419,203. In addition, the percentage rent provisions of both
leases were increased from 2% to 2.25% of all sales in excess of specified
amounts for each property. Under the leases, AutoZone has an obligation to
purchase any property it no longer uses as an AutoZone retail store. Under
the lease amendment, the original amount AutoZone was required to pay to
the Partnership if it repurchases a property prior to executing the
amendment, has been reallocated among the remaining 12 Texas and North
Carolina properties.
-8-
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATION
Results of Operations:
---------------------
Net income increased by $3,553,000 and $3,540,000 for the three-month
and six-month periods ended June 30, 1995, respectively, as compared with
the three-month and six-month periods ended June 30, 1994. Results for the
three-month and six-month periods ended June 30, 1995 benefitted from the
Company's settlement with Anthony's Manufacturing Company, Inc.
("Anthony's) which provided Other income of $688,000 and the related
extraordinary gain on the extinguishment of the mortgage debt
collateralized by the Anthony's properties of $2,088,000. Net of the
effect of these two nonrecurring items, the Partnership's results would
have still reflected increases of $777,000 and $764,000 for the three-month
and six-month periods, respectively. The increases for the comparable
three-month and six-month periods were the result of increases in lease
revenues and earnings from the hotel operations and decreases in interest
and property expenses. The increase in lease revenues is due solely to a
rent increase on March 1, 1995 on the Partnership's property leased to
Stoody DeLoro Stellite, Inc. ("Stoody") of $523,000 per annum. The Stoody
increase will fully offset the decrease of $472,000 per annum from the
Anthony's lease modification which was effective as of June 1, 1995. The
Partnership will also benefit from a rent increase on the Folger Adam
Company lease during the third quarter. Earnings from the hotel operations
increased due to increases in the occupancy and average daily room rates at
the Livonia hotel, partially due to improved economic conditions in the
Detroit metropolitan area. Results for the Alpena and Petoskey were stable
with Alpena realizing a slight increase in its occupancy rate. The
decrease in the interest expense was due to a decrease in the aggregate
balance of mortgage notes and notes payable of $4,140,000 since December
31, 1994. In addition, interest expense decreased by the Partnership's
replacement of the Stoody mortgage debt which bore interest at a fixed rate
of 13% per annum with a variable rate obligation with a current annual
interest rate of 10.5%. The decrease in property expense was due to costs
incurred in 1994 in connection with the Partnership's assessment of
liquidity alternatives and charges for increases to the reserve for
uncollected rents from Anthony's. Property expense during the three-month
period ended June 30, 1995 was impacted by legal costs associated with the
Anthony's dispute prior to the settlement agreement.
With the settlement of the dispute with Anthony's, property expenses are
expected to reflect a decrease in future periods. Future operating results
will be impacted by any changes in the interest rate environment as the
Partnership's unsecured $10,000,000 note payable is a variable rate
obligation which is indexed to the London Inter-Bank Offered Rate. The
Partnership's operations of the Alpena and Petoskey hotel properties are
seasonal in nature and, based on the results of prior periods, are expected
to reflect its highest proportion of annual earnings during the third
quarter.
Financial Condition:
-------------------
There has been no material change in the Partnership's financial
condition since December 31, 1994. The debt financing structure of the
Partnership has significantly changed as the result of obtaining
$10,000,000 of unsecured recourse debt pursuant to a credit agreement which
requires the Partnership to meet certain financial covenants. All of the
proceeds from the issuance of the unsecured debt was used to satisfy a
balloon payment on a mortgage loan and to pay off a mortgage loan at a
substantial discount. Prior to the execution of the credit agreement, all
of the Partnership's debt financing consisted of nonrecourse mortgage debt.
At June 30, 1995, the Partnership was in compliance with all financial
covenants under the credit agreement. Management believes that its cash
balance of $3,211,000 and cash from operating
-9-
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATION, Continued
Financial Condition, continued:
------------------------------
activities will be sufficient to meet the Partnership's cash requirements
which consist primarily of paying quarterly distributions to partners,
meeting scheduled principal payment obligations on its mortgage and funding
the replenishment of furniture, fixtures and equipment in the ordinary
course of business for its hotel operations. For the six-month period
ended June 30, 1995, cash provided from operations of $3,386,000, as
adjusted for the $688,000 included in Other income which was used to pay
off the Anthony's mortgage loan, was sufficient to pay quarterly
distributions of $2,360,000 and principal payment installments of $671,000.
As the result of successful discussions with Holiday Inn, the
Partnership's hotel in Livonia, Michigan will not be subject to the Holiday
Inn's core modernization plan as major renovations have been made since
1989. The Partnership is currently committed to retaining the hotel's
affiliation with Holiday Inn as a franchisee. Included in other assets on
the accompanying balance sheet at June 30, 1995, is a furniture, fixture
and equipment reserve account for the Livonia hotel of $117,000. The
reserve account is funded by allocating 3% of hotel revenues to the
account. The Partnership does not anticipate utilizing any funds in excess
of the reserve amount and further additions to the reserve from hotel
revenues to fund any improvement or purchases within the next 12 months.
In addition, the Partnership is currently committed to meeting the
requirements of the Holiday Inn core modernization plan for the
Partnership's hotel properties in Alpena and Petoskey, Michigan. The
Partnership's share of costs necessary to meet the requirements of the
modernization plan, as approved by Holiday Inn, are approximately $395,000.
The Partnership had previously estimated that the costs to comply with the
core modernization plan would be approximately $850,000.
-10-
CORPORATE PROPERTY ASSOCIATES 6
- 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, 1995, the Partnership was
not required to file any reports on Form 8-K
-11-
CORPORATE PROPERTY ASSOCIATES 6
- 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 6
- a California limited partnership
By: CAREY CORPORATE PROPERTY, INC.
08/9/95 By: /s/ Claude Fernandez
------------- ------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
08/9/95 By: /s/ Michael D. Roberts
------------- -------------------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
-12-