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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 SEPTEMBER 30, 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
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Commission file number 333-31427
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CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
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(Exact name of registrant as specified in its charter)
MARYLAND 13-3951476
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of 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
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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
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20,000 shares of common stock; $.001 Par Value
outstanding at December 22, 1997
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CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
INDEX
Page No.
PART I
Item 1. - Financial Information*
Balance Sheets, June 30, 1997
and September 30, 1997 2
Notes to Balance Sheets 3-5
Item 2. - Management's Discussion of Operations 6
PART II
Item 4. - Submission of Matters to a Vote of Security Holders 7
Item 6. - Exhibits and Reports on Form 8-K 7
Signatures 8
* 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
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CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
PART I
Item 1. - FINANCIAL INFORMATION
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1997 1997
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(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Cash $200,000 $200,000
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Total assets $200,000 $200,000
======== ========
LIABILITIES:
Commitments and contingencies
SHAREHOLDER'S EQUITY:
Common stock, $.001 par value; authorized,
60,000,000 shares; 20,000 issued and
outstanding shares 20 20
Additional paid-in capital 199,980 199,980
-------- --------
Total liabilities and shareholder's equity $200,000 $200,000
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Note: The balance sheet at June 30, 1997 has been derived from the audited
financial statements at that date.
2
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CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
NOTES TO BALANCE SHEETS
Note 1. Basis of Presentation:
The accompanying unaudited balance sheet has 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, it does 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.
Corporate Property Associates 14 Incorporated (the "Company") was formed on June
4, 1997 and has had no operations from June 4, 1997 through September 30, 1997.
Accordingly, no statements of income or cash flows have been presented. For
further information refer to the financial statements and footnotes thereto
included in the Company's Registration Statement on Form S-11/A dated November
8, 1997.
Note 2. Organization and Offering:
The Company was formed on June 4, 1997 under the General Corporation Law of
Maryland for the purpose of engaging in the business of investing in and owning
industrial, commercial and governmental real property and personal and mixed
property connected therewith net leased to creditworthy corporations and other
creditworthy entities. Subject to certain restrictions and limitations, the
business of the Company will be managed by Carey Property Advisors, a
Pennsylvania limited partnership (the "Advisor").
On June 30, 1997, the Advisor purchased 20,000 shares of common stock ("Shares")
for $200,000 and was admitted as the initial shareholder.
A minimum of 1,500,000 and a maximum of 30,000,000 Shares are being offered to
the public (the "Offering") on a best efforts basis by Carey Financial
Corporation, an affiliate of the Advisor ("Carey Financial"), and selected other
dealers at a price of $10 per Share. The offering commenced November 10, 1997.
The Company intends to invest the net proceeds of the Offering in properties, as
described in the prospectus of the Company (the "Prospectus"). If 1,500,000 or
more Shares are sold, it is anticipated that the Company will incur limited
recourse indebtedness of approximately 60% of the purchase price of all
properties purchased, but there is no limit on borrowing on individual
properties. Subsequent to the full investment of net proceeds of the Offering,
the aggregate borrowings may not exceed the sum of 75% of the value of all
properties unless the excess is approved by a majority of the Independent
Directors (as defined in the Prospectus) and disclosed to shareholders of the
Company in the next quarterly report of the Company, along with the
justification for such excess.
After the termination of the Offering and prior to such time, if any, as the
Shares are listed on a national securities market, any stockholder (other than
the Advisor) that has held his or her Shares for at least one year may present
all or any portion of such stockholder's Shares to the Company for redemption at
any time, in accordance with the procedures set up by the Company. At such time,
the Company may, at its option, redeem such Shares presented for redemption for
cash to the extent it has sufficient funds available, as determined by the Board
of Directors in its sole discretion. There is no assurance that there will be
sufficient funds available for redemption. The Company will impose a surrender
charge on repurchased shares.
3
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CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
NOTES TO BALANCE SHEETS - (CONTINUED)
Note 3. Federal Income Taxes:
At the earliest date possible, the Company intends to qualify as a real estate
investment trust under the Internal Revenue Code of 1986, and accordingly will
not be subject to Federal income taxes on amounts distributed to shareholders
(except income from foreclosure property) provided it distributes at least 95%
of its real estate investment trust taxable income to shareholders and meets
other conditions.
Note 4. Agreements and Transactions with Related Parties:
The Company has entered into an advisory agreement with Carey Property Advisors,
a Pennsylvania limited partnership, the sole general partner of which is Carey
Fiduciary Advisors, Inc., a corporation which is wholly-owned by William P.
Carey.
Pursuant to the advisory agreement, the Advisor will perform certain services
for the Company including the identification, evaluation, negotiation, purchase
and disposition of property, the day-to-day management of the Company and the
performance of certain administrative services. The Advisor will receive
substantial fees and compensation in connection with the Offering and the
operation of the Company, including reimbursement for organization and offering
expenses, interest on loans made to the Company, acquisition fees payable by
sellers of property or the Company, reimbursement for Company expenses incurred
in connection with the administration of the Company asset management fees, loan
refinancing fees, a subordinated disposition fee and a subordinated incentive
fee.
The Company has entered into a sales agency agreement with Carey Financial,
whereby Carey Financial will receive a selling commission of up to $0.60 per
Share sold and certain other payments.
Note 5. Commitments and Contingencies:
The preparation of a balance sheet in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the balance sheet. Actual
results can differ from those estimates.
a. The Company will be liable for certain expenses of the
Offering described in the Prospectus, which include filing,
legal, accounting, printing and escrow fees, which are to be
deducted from the gross proceeds of the Offering. The Company
will reimburse Carey Financial for expenses (including fees
and expenses of its counsel) and for the costs of any sales
and information meetings of Carey Financial's employees
relating to the Offering. The Company, the Advisor or
affiliates of the Advisor may provide sales incentive programs
directly to employees of Carey Financial and other dealers in
compliance with the requirements of the Rules of Fair Practice
of the National Association of Securities Dealers, Inc., which
incentives, in no event, shall exceed in any year an aggregate
amount of $100 per participating salesman. The total
underwriting compensation to Carey Financial and other dealers
in connection with the Offering shall not exceed 10% of the
gross proceeds of the Offering plus an additional 0.5% of such
gross proceeds for bona fide due diligence expenses. The
Advisor has agreed to be responsible for the repayment of (i)
organization and offering expenses (excluding selling
commissions to Carey Financial with respect to Shares held by
clients of it and selected dealers and fees paid and expenses
reimbursed to selected dealers) which exceed 3.5% of the gross
proceeds of the Offering and (ii) organization and offering
expenses (including selling commissions, fees and fees paid
and expenses reimbursed to selected dealers) which exceed 15%
of the gross proceeds of the Offering.
4
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CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
NOTES TO BALANCE SHEETS - (CONTINUED)
b. If at any time the Company does not have sufficient funds to
pay the equity portion of the purchase price of any property
normally paid with Offering proceeds, but would have if it
could use Offering proceeds being held in escrow, funds may be
borrowed from affiliates of the Advisor or from third parties
on a short-term basis which would be repaid by the Company at
the time of or subsequent to the release of funds from escrow.
At any time, the Company may borrow funds from affiliates of
either the Advisor or third parties on a short-term basis to
provide the debt portion of the purchase price of any property
if (i) the Company is unable to obtain a permanent loan or, in
the judgment of the Company or the Advisor, it is not in the
best interests of the Company to obtain a permanent loan at
the interest rates then prevailing and (ii) the Advisor has
reason to believe that the Company will be able to obtain a
permanent loan on or prior to the end of the loan term. Any
such short-term loans may be fully or partially amortized, may
provide for the payment of interest only during the term of
the loan or may provide for the payment of principal and
interest only upon maturity. In addition, such loans may be
collateralized by a first or junior mortgage on the property
to be acquired or by a pledge of or security interest in the
net proceeds to be received by the Company from the sale of
Shares. Interest on any of the above-described loans will be
paid at the rate of the lesser of: (a) 1% above the prime rate
of interest or (b) the rate that would be charged to the
Company by unrelated lending institutions on comparable loans
for the same purpose in the locality of the property.
c. The Advisor has informed the Company that in the event the
minimum Offering is not achieved, the Advisor will bear
responsibility for all organization and offering expenses of
the Company (including underwriters' expenses).
5
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CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
On November 10, 1997, the Company commenced a public offering of a
minimum of 1,500,000 and a maximum of 30,000,000 shares of common stock at $10
per share on a "best efforts" basis. Prior to the commencement of the offering,
the Company's Advisor purchased 20,000 shares for $200,000. The Company intends
to use the net offering proceeds to purchase industrial and commercial real
estate properties. The capital required to purchase any property will be
obtained from offering proceeds and any mortgage financing obtained in
connection with the acquisition of properties. It is anticipated that the
Company will incur limited recourse indebtedness of approximately 60% of the
purchase price of all properties. Generally, a transaction is expected to be
structured so that properties will be leased to one lessee deemed to be
creditworthy by the Company's Advisor under a lease that will, in most cases,
require the lessee to pay all of the costs of maintenance, insurance and real
estate taxes. Approximately 86% of the total amount of the funds raised in the
offering is expected to be used to purchase real estate with the balance of the
funds used to establish a working capital reserve and pay costs related to the
offering. The Company does not have commitments to acquire specific properties.
The Company's primary objective is to generate an increasing cash flow
to pay quarterly dividends while building underlying value through property
appreciation. The Company intends to meet this objective by entering into
long-term net leases with corporate lessees. The Company expects leases
negotiated by the Advisor to include rent escalations which are either fixed or
based upon increases in the Consumer Price Index. Under a net lease, lessees are
generally required to pay all operating expenses related to the leased property,
thereby limiting the Company's exposure to the effects of increases in real
estate taxes, property maintenance and insurance costs. The Advisor intends to
negotiate lease covenants which serve to protect its lessor's interest in the
event of a lessee's reorganization or restructuring. While there is no assurance
that the Company will realize its objective, Management believes that its
ability to structure leases with rent escalations and protective covenants is a
key to meeting the Company's objective.
As of December 22, 1997, the Company had not yet issued any shares
pursuant to the offering and had no operating history.
6
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CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
PART II
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended September 30, 1997 no matters were
submitted to a vote of Security Holders.
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
During the quarter ended September 30, 1997 the Company was
not required to file any reports on Form 8-K.
7
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CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
12/22/97 By: /s/ Steven M. Berzin
Date Steven M. Berzin
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
12/22/97 By: /s/ Claude Fernandez
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 200,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 200,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 200,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 2,000
<OTHER-SE> 199,980
<TOTAL-LIABILITY-AND-EQUITY> 200,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
