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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
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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
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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 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)
(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, 1994 and 2
June 30, 1995
Statements of Income for the three and six
months ended June 30, 1994 and 1995 3
Statement of Partners' Capital for the six
months ended June 30, 1995 4
Statements of Cash Flows for the six
months ended June 30, 1994 and 1995 5
Notes to Financial Statements 6-7
Item 2. - Management's Discussion of Operations 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.
-1-
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
PART I
------
Item 1. - FINANCIAL INFORMATION
-------------------------------
BALANCE SHEETS
December 31, June 30,
1994 1995
-------------------------------------
(Note) (Unaudited)
ASSETS:
Land and buildings, net of
accumulated depreciation of
$16,860,783 at December 31, 1994 and
$17,410,680 at June 30, 1995 $17,472,208 $16,922,311
Net investment in direct
financing leases 4,919,462 4,898,007
Cash and cash equivalents 937,631 800,944
Accrued interest and rents receivable 366,095 369,937
Other assets 722,240 905,974
----------- -----------
Total assets $24,417,636 $23,897,173
=========== ===========
LIABILITIES:
Mortgage notes payable $16,306,218 $15,599,950
Accrued interest payable 202,920 198,445
Accounts payable and accrued expenses 181,118 69,192
Prepaid rental income and security 198,611 202,419
deposits
Accounts payable to affiliates 22,043
-----------
Total liabilities 16,888,867 16,092,049
----------- -----------
PARTNERS' CAPITAL:
General Partners (103,980) (101,216)
Limited Partners (40,000 Limited
Partnership Units issued and
outstanding) 7,632,749 7,906,340
----------- -----------
Total partners' capital 7,528,769 7,805,124
----------- -----------
Total liabilities and
partners' capital $24,417,636 $23,897,173
=========== ===========
The accompanying notes are an integral part of the financial statements.
Note: The balance sheet at December 31, 1994 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, 1994 June 30, 1995 June 30, 1994 June 30, 1995
------------- ------------- ------------- -------------
Revenues:
Rental income from
operating leases $ 974,270 $1,000,784 $1,939,373 $1,998,686
Interest income from
direct financing leases 129,621 128,541 259,242 257,082
Other interest income 12,681 17,093 23,354 35,647
Other income 118,784 161,038
--------- ---------- ----------- ----------
1,116,572 1,265,202 2,221,969 2,452,453
---------- ---------- ---------- ----------
Expenses:
Interest on mortgages 402,088 388,589 803,901 783,113
Depreciation 276,673 274,948 553,345 549,897
General and administrative 52,200 82,936 109,276 138,586
Property expense 161,238 30,617 201,135 50,347
Amortization 3,100 6,764 6,199 13,534
---------- ---------- ---------- ----------
895,299 783,854 1,673,856 1,535,477
---------- ---------- ---------- ----------
Net income $ 221,273 $ 481,348 $ 548,113 $ 916,976
========== ========== ========== ==========
Net income allocated
to General Partners $ 2,213 $ 4,814 $ 5,481 $ 9,170
========== ========== ========== ==========
Net income allocated
to Limited Partners $ 219,060 $ 476,534 $ 542,632 $ 907,806
========== ========== ========== ==========
Net income per Unit
(40,000 Limited
Partnership Units) $5.48 $11.91 $13.57 $22.69
========== ========== ========== ==========
The accompanying notes are an integral part of the financial statements.
-3-
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
STATEMENT OF PARTNERS' CAPITAL (UNAUDITED)
Partners' Capital Accounts
for the six months ended June 30, 1995
----------------------------------------------------
Limited
Partners'
General Limited Per
Total Partners Partners Unit (a)
----------- ----------- --------- ----------
Balance at December 31, 1994 $7,528,769 $ (103,980) $7,632,749 $191
Activity during 1995:
Net income through
June 30,1995 916,976 9,170 907,806 23
Unrealized appreciation 3,419 34 3,385 1
Distributions paid
as of June 30, 1995
- Note 2 (644,040) (6,440) (637,600) (16)
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Balance at June 30, 1995 $7,805,124 ($101,216) $7,906,340 $199
============ ========== ========== ======
(a) Based on 40,000 Units issued and outstanding.
The accompanying notes are an integral part of the financial statements.
-4-
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30,
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1994 1995
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Cash flows from operating activities:
Net income $ 548,113 $ 916,976
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 559,544 563,431
Other noncash items (14,455) (12,295)
Securities received in connection with settlement (44,561)
Net change in operating assets and liabilities 35,744 (209,930)
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Net cash provided by operating activities 1,128,946 1,213,621
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Cash flows from financing activities:
Distributions to partners (633,940) (644,040)
Payments on mortgage principal (635,794) (706,268)
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Net cash used in financing activities (1,269,734) (1,350,308)
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Net decrease in cash and cash equivalents (140,788) (136,687)
Cash and cash equivalents, beginning of period 1,359,019 937,631
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Cash and cash equivalents, end of period $ 1,218,231 $ 800,944
=========== ===========
Supplemental disclosure of cash flows information:
Interest paid $ 806,902 $ 787,588
=========== ===========
The accompanying notes are an integral part of the financial statements.
-5-
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
NOTES TO 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 (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,
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 $3,208 $317,600 $7.94
====== ======== =====
March 31, 1995 $3,232 $320,000 $8.00
====== ======== =====
A distribution of $8.13 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 $15,413 and $30,988, respectively,
and general and administrative expense reimbursements of $13,157 and
$26,308, respectively, payable to an affiliate. 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.
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, 1994 and 1995 were $7,736 and $45,560, respectively.
-6-
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
NOTES TO 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. For the six-month periods ended
June 30, 1994 and 1995, the Partnership earned its total operating revenues
(rental income plus interest income from financing leases) from the
following lease obligors:
1994 % 1995 %
---------- ---- ---------- ----
Pre Finish Metals Incorporated $ 659,522 30% $ 705,467 31%
The Gap, Inc. 612,997 28 612,997 27
IMO Industries, Inc. 423,371 19 423,371 19
Unisource Worldwide, Inc. 166,055 8 163,895 7
Kobacker Stores, Inc. 151,770 7 151,770 7
Broomfield Tech Center Corporation 133,700 6 147,068 7
Winn-Dixie Stores, Inc. 51,200 2 51,200 2
---------- --- ---------- ---
$2,198,615 100% $2,255,768 100%
========== === ========== ===
Note 5. Settlement Income:
=========-----------------=
Included in other income is $118,784 in cash and securities received from
Storage Technology Corporation ("STC") as the final distribution from STC's
disputed claim reserve which the United States Bankruptcy Court ordered
disbursed to STC's creditors. STC, which had been a tenant of three of the
Partnership's properties, filed a petition of voluntary bankruptcy in
October 1984 and subsequently received approval from the bankruptcy court
in 1987 to terminate its lease on the three properties. In connection with
its claims against STC, the Partnership had received $1,161,358 of cash and
debentures and 460,434 shares of stock in 1987. The stock was sold at that
time for $1,420,391.
In May 1995, the Partnership received cash of $29,251 (which was not
deposited until after June 30, 1995) and has a receivable of $44,972 for
taxes withheld on the distribution. In addition, the Partnership received
1,948 shares of STC stock, which were valued at $44,561 based on STC's
market value as of May 23, 1995.
Pursuant to SFAS No. 115 - Accounting for Certain Investments in Debt
Equity Securities, the Partnership has classified the 1,948 shares of STC
as securities available for sale and are reflected at their market value at
June 30, 1995 in the accompanying financial statements in Other assets.
Increases and decreases in unrealized appreciation are credited or charged
to partners' capital rather than to earnings. As of June 30, 1995,
unrealized appreciation of $3,419 was credited to partners' capital.
-7-
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
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Results of Operations:
----------------------
Net income for the three-month and six-month periods ended June 30, 1995
increased by $260,000 and $369,000, respectively, as compared with net
income for the three-month and six-month periods ended June 30, 1994. For
both the three-month and six-month periods ended June 30, 1995
approximately 45% of the increase in net income resulted from the effect of
nonrecurring events which are included as Other income in the accompanying
financial statements. Other income includes a concession of $42,000
allowed to the Partnership by a vendor during the first quarter which had
been accrued as a payable at December 31, 1994, and $119,000 realized in
connection with the final distribution from the Storage Technology
Corporation ("STC") bankruptcy; STC had been a tenant of three of the
Partnership's properties until 1987, at which time the STC lease was
terminated pursuant to the order of the bankruptcy court.
Net of the effects of the above-mentioned nonrecurring items, income
would have reflected increases of $141,000 and $208,000 for the three-month
and six-month periods ended June 30, 1995, respectively. For both periods,
the increase is primarily due to decreases in property expenses due to
higher costs incurred in 1994 in connection with the assessment of
liquidity alternatives. Property expenses for the three-month and six-
month periods ended June 30, 1995 are generally expected to be more
representative of future property expenses in the short-term than the
property expenses incurred for the periods ended June 30, 1994. For both
the three-month and six-month periods ended June 30, 1995, the Partnership
benefitted from moderate increases in lease revenues and moderate decreases
in interest expense. Lease revenue increased as a result of an increase in
rents received from Pre Finish Metals Incorporated ("Pre Finish"). The Pre
Finish lease has a rent provision which passes through changes in debt
service on a variable debt obligation as a rent adjustment to Pre Finish.
Pre Finish's rent increased due to increases in principal payments due on
the Pre Finish mortgage loan. In addition, there was an increase in rent
from Broomfield Tech Center Corporation ("Broomfield") which increase was
negotiated under the 1994 lease modification agreement with Broomfield.
The decrease in interest expense is due to the declining balances of the
Partnership's mortgage loans. The trend of decreases in interest expense
is expected to continue.
Financial Condition:
--------------------
There has been no material change in the Partnership's financial
condition since December 31, 1994 and Management believes that the current
cash balance of $801,000 and cash provided from operating activities will
be sufficient to meet the Partnership's current cash requirements which
currently consist solely of paying quarterly distributions and meeting
scheduled debt service obligations. Cash provided from operations was
sufficient to fund distributions of $644,000 and $570,000 of the $706,000
of principal payment installments. Amortization of mortgage principal
during the current six-month period increased to $706,000 and represented
payment of 4% of the mortgage principal balance at the beginning of the
six-month period. For the six-month period, principal payments exceeded
distributions to partners. A $77,253 promissory note, purchased in
connection with the 1994 refinancing of the mortgage loan collateralized by
the Broomfield properties, was scheduled to mature in April 1995. The
maker of the promissory note is currently negotiating with the Partnership
to extend the maturity until 1996. In September 1995, the mortgage loan on
the Unisource Worldwide, Inc. property will be fully amortized and net
annual cash flow from that property will increase by $80,000.
-8-
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, 1995, the Partnership was not
required to file any reports on Form 8-K.
-9-
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.
08/9/95 By: /s/ Claude Fernandez
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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)
-10-