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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 MARCH 31, 1998
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 333-31427
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
(Exact name of registrant as specified in its charter)
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MARYLAND 13-3951476
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
(Address of principal executive offices) (Zip Code)
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(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
2,671,661 shares of common stock; $.001 Par Value
outstanding at May 18, 1998
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CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
INDEX
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Page No.
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PART I
Item 1. - Financial Information*
Condensed Balance Sheets, March 31, 1998
and December 31, 1997 2
Condensed Statement of Operations for the three
months ended March 31, 1998 3
Condensed Statement of Cash Flows for the three
months ended March 31, 1998 4
Notes to Condensed Condensed financial statements 5-7
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - Other Information
Item 4. - Submission of Matters to a Vote of Security Holders 9
Item 6. - Exhibits and Reports on Form 8-K 9
Signatures 10
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* 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 14 INCORPORATED
PART I
Item 1. - FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
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December 31, March 31,
1997 1998
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(Note) (Unaudited)
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ASSETS:
Cash and cash equivalents $ 200,000 $ 200,000
Deferred offering costs 3,053,000
Other assets 67,467
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Total assets $ 200,000 $ 3,320,467
=========== ===========
LIABILITIES:
Accounts payable to affiliates $ 4,255 $ 3,150,851
Accounts payable and accrued expenses 8,000 98,500
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Total liabilities 12,255 3,249,351
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Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized,
40,000,000 shares; issued and outstanding,
20,000 shares at December 31, 1997
and March 31, 1998 20 20
Additional paid-in capital 199,980 199,980
Accumulated loss (12,255) (128,884)
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Total shareholders' equity 187,745 71,116
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Total liabilities and
shareholders' equity $ 200,000 $ 3,320,467
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The accompanying notes are an integral part of the condensed financial
statements.
Note: The balance sheet at December 31, 1997 has been derived from the
audited condensed financial statements at that date.
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CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
AND SUBSIDIARIES
CONDENSED STATEMENT of OPERATIONS (UNAUDITED)
For the three months ended March 31, 1998
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Revenues: $ --
---------
Expenses:
General and administrative 116,629
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Net loss $(116,629)
=========
Basic loss per share $ (5.83)
=========
Weighted average shares outstanding - basic 20,000
=========
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The accompanying notes are an integral part of the condensed financial
statements.
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CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
CONDENSED STATEMENT of CASH FLOWS (UNAUDITED)
For the three months ended March 31, 1998
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Cash flows from operating activities:
Net loss $(116,629)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Increase in other assets (67,467)
Increase in accounts payable and
accrued expenses (a) 164,596
Increase in accounts payable to affiliates (a) 19,500
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Net cash provided by operating activities --
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Net change in cash and cash equivalents --
Cash and cash equivalents, beginning of period 200,000
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Cash and cash equivalents, end of period $ 200,000
=========
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(a) Excludes changes in accounts payable and accrued expenses and
accounts payable to affiliates of $71,000 and $2,982,000,
respectively, which relate to the raising of capital (financing
activities) rather than the Company's operating activities.
The accompanying notes are an integral part of the condensed financial
statements.
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CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1. Basis of Presentation:
The accompanying unaudited condensed financial statements of Corporate Property
Associates 14 Incorporated (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Article 10 of Regulation S-X of the Securities and
Exchange Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
condensed financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation of the results of the interim period presented have been included.
The results of operations for the interim period is not necessarily indicative
of results for the full year. For further information refer to the condensed
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"). SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set general purpose condensed
financial statements. For the three-month period ended March 31, 1998, there
were no differences between net loss and comprehensive income.
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 and commercial real estate. Subject to certain restrictions and
limitations, the business of the Company is managed by Carey Property Advisors,
a Pennsylvania limited partnership (the "Advisor").
A maximum of 30,000,000 Shares are being offered to the public on a best efforts
basis by Carey Financial Corporation, an affiliate of the Advisor ("Carey
Financial"), and selected dealers at a price of $10 per share. The offering
commenced November 10, 1997. On June 30, 1997, the Advisor purchased 20,000
shares of common stock for $200,000. Sale of the shares to the public commenced
on December 11, 1997. On April 3, 1998, 2,651,661 shares were issued for
$26,495,178, net of discounts.
Note 3. Federal Income Taxes:
The Company intends to qualify as a real estate investment trust ("REIT") under
the Internal Revenue Code of 1986, and accordingly will not be subject to
Federal income taxes on amounts distributed to shareholders provided it
distributes at least 95% of its real estate investment trust taxable income to
shareholders and meets other conditions necessary to retain REIT status.
Note 4. Agreements and Transactions with Related Parties:
The Company has entered into an advisory agreement with the Advisor pursuant to
which the Advisor performs 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 and certain affiliates will receive
substantial fees and compensation in connection with the offering and the
operation of the Company as described in the Prospectus of the Company. In the
future, real property may be acquired by limited partnerships, REITs or other
entities formed by affiliates of the Company and, accordingly, transactions with
related parties may arise between the Company and affiliated entities.
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CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
The Company's asset management and performance fees payable to the Advisor are
each one-half of 1% per annum of Average Invested Assets, as defined in the
Prospectus. Until Shareholders have received a cumulative dividend return of 6%,
the Advisor will not be entitled to receive the performance fee. At such time as
the Advisor is entitled to receive the performance fee, the Advisor will have
the option of receiving such fee in cash or restricted shares of the Company.
General and administrative expense reimbursement consists primarily of the
actual cost of personnel, needed in providing administrative services, necessary
to the operation of the Company. For the three-month period ended March 31,
1998, the Company incurred general and administrative reimbursements of $80,000.
No asset management and performance fees were incurred for the period.
The Advisor shall reimburse the Company at least annually for the amount by
which operating expenses of the Company exceed the 2%/25% Guidelines (2% of
Average Invested Assets or 25% of net income) as defined in the Prospectus. To
the extent that operating expenses payable or reimbursable by the Company exceed
the 2%/25% Guidelines and the independent directors find that such expenses were
justified based on such unusual and nonrecurring factors which they deem
sufficient, the Advisor may be reimbursed in future years for the full amount or
any portion of such excess expenses, but only to the extent such reimbursement
would not cause the Company's operating expenses to exceed the 2%/25% Guidelines
in any such year.
Fees are payable for services provided by the Advisor to the Company relating to
the identification, evaluation, negotiation, financing and purchase of
properties. A portion of such fees will be deferred and payable in annual
installments with each installment equal to .25% of the purchase price of the
properties over no less than eight years following the first anniversary of the
date a property was purchased. Payment of such fees is subject to the 2%/25%
Guidelines.
As of March 31, 1998, accounts payable to affiliates consists of $168,851 and
$2,982,000 relating to operating activities and raising of capital,
respectively.
Note 5. Commitments and Contingencies:
The Company will be liable for certain expenses of the offering (the "Offering")
described in the Prospectus of the Company, including but not limited to filing,
legal, accounting, printing and escrow fees, which are to be deducted from the
gross proceeds of the Offering and are presently estimated to aggregate a
maximum of $10,500,000 assuming the sale of 30,000,000 Shares. The Company will
also be liable for selling commissions of up to $0.65 (6.5%) per Share sold
except for any Shares sold to the Advisor, its Affiliates, the selected dealers
or any of their employees for their own accounts. The Company will pay a
selected dealer fee not to exceed 1% of the price of each Share sold by the
selected dealer. The Company will reimburse Carey Financial for expenses
(including fees and expenses of its counsel) and for the costs of sales,
wholesaling services and information meetings of Carey Financial's employees
relating to the Offering. To the extent, if any, that all organization and
offering expenses, excluding selling commissions, and any fees paid and expenses
reimbursed to the selected dealers or paid on behalf of the selected dealers,
exceed 3.5% of the gross proceeds of the Offering, such excess will be paid by
the Advisor with no recourse to or reimbursement by the Company.
On April 7, 1998, the Board of Directors declared a dividend, payable on or
about July 15, 1998, to Shareholders of record of each day of the period from
April 7, 1998 through June 30, 1998, at the rate of $.001736 per share per day
for each day of the period from and including April 7, 1998 through June 30,
1998.
Note 6. Etec Systems, Inc.:
In February 1995, Corporate Property Associates 12 Incorporated ("CPA(R):12"),
an affiliate, purchased property in Heyward, California and entered into a net
lease with Etec Systems, Inc. ("Etec"). In February 1998, CPA(R):12 entered into
a series of transactions that included the contribution of the Etec properties
to a limited liability company, ET LLC, entering into a commitment and
construction agency agreement to fund
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CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
additional improvements (the "Project II Improvements") of up to $52,356,000 and
amending the Etec lease. On April 3, 1998, ET LLC received a commitment for
$45,000,000 of limited recourse financing on the Etec properties.
Under the ET LLC limited liability company agreement, CPA(R):12 and the Company
will initially have 99.99% and .01% interests, respectively, in the Project II
Improvements, with the Company having the commitment to increase its interests
in the Project II Improvements to 49.99%. Such increase in the Company's equity
interest in ET LLC, however, is limited to 10% of the gross offering proceeds of
the Offering.
The Etec lease, as amended, has an initial term through May 2014 with three
five-year renewal terms at Etec's option. After completion of the Project II
Improvements, assuming that the entire funding commitment is needed, annual rent
applicable to the Project II Improvements will be approximately $5,727,000 with
increases every three years based on increases in the Consumer Price Index.
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CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the Company's
condensed consolidated financial statements and notes thereto as of March 31,
1998 included in this quarterly report and the Company's Annual Report on Form
10-K for the year ended December 31, 1997. This quarterly report contains
forward looking statements. Such statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievement of the Company to be materially different from the results of
operations or plan expressed or implied by such forward looking statements.
Accordingly, such information should not be regarded as representations by the
Company that the results or conditions described in such statements or the
objectives and plans of the Company will be achieved.
The Company was formed in June 1997 for the purpose of investing in net
lease commercial and industrial real estate, and has no operating history. The
Company is dependent upon proceeds from its Offering to conduct its proposed
activities. A maximum of 30,000,000 shares of common stock are being offered to
the public on a "best efforts" basis at a price of $10 per share. On April 3,
1998, the Company issued 2,651,661 shares ($26,495,178, net of discounts)
pursuant to the Offering. Other than the costs related to the Offering and
establishing a working capital reserve to satisfy liquidity requirements, the
net proceeds will be used, along with limited recourse mortgage debt, to acquire
properties. Generally, a property will be leased to one tenant deemed to be
creditworthy by the Company under a lease that in most cases requires such
tenant to pay all costs of operating the property such as insurance, maintenance
and real estate taxes. It is anticipated that approximately 86% of the money
raised in the offering will be used to purchase real estate.
The Company's investment objectives are to pay quarterly dividends at
an increasing rate with such dividends funded from operating cash flow, use the
net proceeds of the offering and limited recourse mortgage debt to invest in a
diversified portfolio of real estate that will increase in value and to increase
the Company's equity in its real estate by making regular mortgage principal
payments on its limited recourse mortgage debt. In addition, in structuring
lease transactions, the Company will attempt to negotiate grants of common stock
warrants in order to realize benefits of appreciation that may occur if the
credit rating of a tenant improves or the tenant completes an initial public
offering of common stock. There is no assurance, however, that these objectives
will be realized.
As described in Note 6 to the accompanying condensed financial
statements the Company has entered into a commitment with an affiliate to fund
improvements to a property leased to Etec Systems, Inc. Etec and the affiliate
entered into their initial transaction in 1995. The Company's commitment to fund
improvements is limited to 10% of the gross offering proceeds of the Offering.
To the extent the Company is not limited under this constraint, it may fund
improvements and make contributions to the Etec project up to an ownership
interest of 49.99%.
The Company's loss for the period of $117,000 was due to costs of
administration of the Company. As the Company had not yet received any Offering
proceeds as of March 31, 1998 nor had it acquired any real estate investments
(other than the nominal interest in the Etec project), it has not yet earned any
revenues and has not commenced real estate operations. Accordingly, Management
believes the net loss for the period is not representative of future results.
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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 March 31, 1998 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 March 31, 1998 the Company was not
required to file any reports on Form 8-K.
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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
05/18/98 By: /s/ Steven M. Berzin
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Date Steven M. Berzin
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
05/18/98 By: /s/ Claude Fernandez
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Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FOR THE THREE-MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THE AMOUNTS ARE STATED AT HISTORICAL
COST.
</LEGEND>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 200,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,120,467
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,320,467
<CURRENT-LIABILITIES> 3,249,351
<BONDS> 0
0
0
<COMMON> 20
<OTHER-SE> 71,096
<TOTAL-LIABILITY-AND-EQUITY> 3,320,467
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 116,629
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (116,629)
<INCOME-TAX> 0
<INCOME-CONTINUING> (116,629)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (116,629)
<EPS-PRIMARY> (5.83)
<EPS-DILUTED> (5.83)
</TABLE>
