<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended SEPTEMBER 30, 1999
of
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
CPA(R):14
A MARYLAND Corporation
IRS Employer Identification No. 13-3951476
SEC File Number 000-25771
50 ROCKEFELLER PLAZA,
NEW YORK, NEW YORK 10020
(212) 492-1100
CPA(R):14 has SHARES OF COMMON STOCK registered pursuant to Section 12(g) of the
Act.
CPA(R):14 is not registered on any exchanges.
CPA(R):14 does not have any Securities registered pursuant to Section 12(b) of
the Act.
CPA(R):14 is unaware of any delinquent filers pursuant to Item 405 of Regulation
S-K.
CPA(R):14 (1) has filed all reports required by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for 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.
CPA(R):14 has no active market for common stock at November 9, 1999. 26,476,718
shares of common stock, $.001 Par Value outstanding at November 9, 1999.
<PAGE> 2
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
PART I
------
<S> <C> <C>
Item 1. - Financial Information*
Condensed Consolidated Balance Sheets, December 31, 1998
and September 30, 1999 2
Condensed Consolidated Statements of Income for the three
and nine months ended September 30, 1998 and 1999 3
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1999 4
Notes to Condensed Consolidated Financial Statements 5-8
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-10
Item 3. - Quantitative and Qualitative Disclosures About Market Risk 11
PART II - Other Information
-------
Item 4. - Submission of Matters to a Vote of Security Holders 12
Item 6. - Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
* 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 -
<PAGE> 3
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
AND SUBSIDIARIES
PART I
Item 1. - FINANCIAL INFORMATION
-------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
---- ----
(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Land and buildings, net of accumulated
depreciation of $175,977 at December 31, 1998
and $757,591 at September 30, 1999 $ 44,566,025 $117,379,066
Net investment in direct financing lease 6,282,723
Equity investments 36,097,004 57,514,483
Cash and cash equivalents 26,747,058 115,681,953
Other assets 545,842 1,799,426
------------ ------------
Total assets $107,955,929 $298,657,651
============ ============
LIABILITIES:
Limited recourse mortgage notes payable $ 48,376,697
Accrued interest 323,757
Accounts payable to affiliates $ 537,874 1,387,548
Accounts payable and accrued expenses 169,735 137,571
Deferred acquisition fees payable to affiliate 1,628,828 3,545,775
Dividends payable 1,365,622 3,762,373
Prepaid rental income and security deposits 343,767 1,078,532
------------ ------------
Total liabilities 4,045,826 58,612,253
------------ ------------
Minority interest - 6,925,840
------------ ------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized,
120,000,000 shares; issued and outstanding,
11,837,901 and 26,514,803 shares at
December 31, 1998 and September 30, 1999 11,838 26,515
Additional paid-in capital 105,705,582 239,436,372
Distributions in excess of accumulated earnings (1,643,957) (5,983,704)
------------ -------------
104,073,463 233,479,183
Less treasury stock at cost, 16,900 and 38,085
shares at December 31, 1998 and September 30, 1999 (163,360) (359,625)
------------ -------------
Total shareholders' equity 103,910,103 233,119,558
------------ ------------
Total liabilities and
shareholders' equity $107,955,929 $298,657,651
============ ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Note: The balance sheet at December 31, 1998 has been derived from the
audited consolidated financial statements at that date.
- 2 -
<PAGE> 4
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS of INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 545,372 $1,370,704 $ 547,572 $3,616,244
Interest from direct financing lease 132,158 132,158
Other interest income 286,706 638,180 605,292 1,182,155
---------- ---------- ---------- ----------
832,078 2,141,042 1,152,864 4,930,557
---------- ---------- ---------- ----------
Expenses:
Depreciation and amortization 57,544 245,130 63,210 590,329
Interest 7,837 485,189 7,862 643,395
General and administrative 72,607 371,339 319,194 818,863
Property expenses 99,973 407,931 111,086 1,006,674
---------- ---------- ---------- ----------
237,961 1,509,589 501,352 3,059,261
---------- ---------- ---------- ----------
Income before income from
minority interest in loss and
income from equity investments 594,117 631,453 651,512 1,871,296
Minority interest in loss 70,414 70,414
---------- ---------- ---------- ----------
Income before income from
equity investments 594,117 701,867 651,512 1,941,710
Income from equity investments 1,188,318 2,134,174
---------- ---------- ---------- ----------
Net income $ 594,117 $1,890,185 $ 651,512 $4,075,884
========== ========== ========== ==========
Basic and diluted earnings per share $.30 $.08 $.23 $.24
==== ==== ==== ====
Weighted average shares outstanding
- basic and diluted 1,977,584 23,086,738 2,847,868 17,293,969
========= ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
- 3 -
<PAGE> 5
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS of CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
-------------------
1998 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 651,512 $ 4,075,884
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 63,210 590,329
Straight-line rent adjustments (32,359) (137,388)
Minority interest in loss (70,414)
Increase in other assets (321,180) (368,532)
Increase in accrued interest 323,757
Increase (decrease) in accounts payable and
accrued expenses 83,600 (32,164)
Increase in accounts payable to affiliates 354,889 601,916
Increase in prepaid rental income and
security deposits 74,600 734,765
------------ ------------
Net cash provided by operating activities 874,272 5,718,153
------------ ------------
Cash flows from investing activities:
Acquisitions of real estate and equity investments
and other capitalized costs (40,876,616) (100,080,816)
Equity distributions received in excess of
equity income 902,906
------------ ------------
Net cash used in investing activities (40,876,616) (99,177,910)
------------ ------------
Cash flows from financing activities:
Proceeds from sale of stock, net of costs 49,273,018 133,745,467
Dividends paid (426,510) (6,018,880)
Contributions from minority partner 6,996,254
Proceeds from mortgages 48,411,028
Payment of mortgage principal (34,331)
Deferred financing costs and mortgage deposits (508,621)
Purchase of treasury stock (28,200) (196,265)
------------ ------------
Net cash provided by financing activities 48,818,308 182,394,652
------------ ------------
Net increase in cash equivalents 8,815,964 88,934,895
Cash and cash equivalents, beginning of period 200,000 26,747,058
------------ ------------
Cash and cash equivalents, end of period $ 9,015,964 $115,681,953
============ ============
Interest paid $ 319,638
============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
- 4 -
<PAGE> 6
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements of
Corporate Property Associates 14 Incorporated and its wholly-owned subsidiaries
(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
financial statements. All significant intercompany balances and transactions
have been eliminated. 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 are not necessarily indicative of results for
the full year. For further information, refer to the financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
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 ("Carey Financial"), an affiliate of the
Advisor, and selected dealers at a price of $10 per share. The offering
commenced November 10, 1997 and will conclude on November 22, 1999. Since the
inception of the offering through September 30, 1999, 26,494,803 shares
($264,948,030) have been issued including 14,676,902 ($146,769,020) shares
issued since December 31, 1998. In April 1999, the Company filed an offering
with the Securities and Exchange Commission to sell up to an additional
40,000,000 shares on a best efforts basis. The new offering is expected to
commence in November 1999.
Note 3. Transactions with Related Parties:
The Company's asset management and performance fees payable to the Advisor are
each 1/2 of 1% per annum of Average Invested Assets, as defined in the
Prospectus. Until the Company has achieved a 7% cumulative rate of cash flow
from operations, as defined in the Prospectus, 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. Asset management fees for the
three-month and nine-month periods ended September 30, 1999 were $199,098 and
$475,907, respectively, with performance fees in like amount, and general and
administrative reimbursements were $170,845 and $301,368, respectively. For the
three-month and nine-month periods ended September 30, 1998, asset management
fees were $99,529 and $105,086, with performance fees in like amount, and
general and administrative reimbursements were $65,000 and $85,000,
respectively.
Note 4. Commitments and Contingencies:
The Company is liable for certain expenses of the offering which are being
deducted from the gross proceeds of the offering up to a maximum of $10,500,000
assuming the sale of 30,000,000 Shares. The Company is currently paying selling
commissions of $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 is paying a selected dealer fee not to exceed 1%
of the price of each share sold by the selected dealer. The Company is
reimbursing Carey Financial for expenses (including fees and expenses of its
counsel) and for the costs of sales and wholesaling services. 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. The offering expected to
commence in November 1999 provides for substantially similar selling
commissions, selected dealer fees and reimbursements to Carey Financial.
- 5 -
<PAGE> 7
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 5. Lease Revenues:
The Company's operations consist of the investment in and the leasing of
industrial and commercial real estate. The financial reporting sources of the
lease revenues for the nine month periods ended September 30, 1998 and 1999 are
as follows:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Per Statements of Income
Rental income $547,572 $3,616,244
Interest from direct financing lease 132,158
Adjustment:
Share of leasing revenues
from equity investments 5,061,176
Share of lease revenue applicable
to minority interest (9,495)
-------- ----------
$547,572 $8,800,083
======== ==========
</TABLE>
For the nine-month periods ended September 30, 1998 and 1999, the Company earned
its proportionate net lease revenues from its investments as follows:
<TABLE>
<CAPTION>
1998 % 1999 %
---- - ---- -
<S> <C> <C> <C> <C>
Advanced Micro Devices, Inc. (a) $2,286,375 26%
Best Buy Co., Inc. $347,372 63% 1,476,659 17
Etec Systems, Inc. (a) 957,564 11
Intesys Technologies, Inc. (a) 744,488 8
Compucom Systems, Inc. (a) 656,047 7
Burlington Motor Carrier, Inc. 200,200 37 594,000 7
The Benjamin Ansehl Company 487,312 6
Contraves Brashear Systems L.P. 482,625 5
Production Resource Group L.L.C. 444,422 5
CheckFree Holdings Corporation (a) 416,702 5
Scott Companies, Inc. 132,158 2
Metagenics, Inc. 107,489 1
Ameriserve Food Distribution, Inc. (b) 14,242
-------- ---- ---------- ----
$547,572 100% $8,800,083 100%
======== ==== ========== ====
</TABLE>
(a) Represents the Company's proportionate share of lease revenues from its
equity investments
(b) Net of Corporate Property Associates 12 Incorporated's minority interest
- 6 -
<PAGE> 8
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 6. Equity Investments:
The Company holds interests in five entities at September 30, 1999 (and two at
December 31, 1998) in which its ownership interest is 50% or less. All of the
underlying investments were formed and are owned with affiliates that have
similar investment objectives as the Company. The Company owns a 33.33% interest
in an entity that in December 1998 purchased property and is net leased to
Advanced Micro Devices, Inc.. The Company holds interests of 50%, 33.33% and 50%
in entities that entered into net leases with Intesys Technologies, Inc.,
Compucom Systems, Inc. and CheckFree Holdings Corporation, respectively, during
the nine-month period ended September 30, 1999 and an interest in a limited
liability company that net leases a property to Etec Systems, Inc. ("Etec"). The
interest in the Etec investment is a 49.99% interest in a building on the Etec
property for which construction was completed in July 1999. Corporate Property
Associates 12 Incorporated ("CPA(R):12"), an affiliate, owns all remaining
interests in the Etec property. Summarized combined financial information of the
Company's equity investees is as follows:
<TABLE>
<CAPTION>
(In thousands) December 31, 1998 September 30,1999
----------------- -----------------
<S> <C> <C>
Assets (primarily real estate) $56,069 $258,010
Liabilities (primarily mortgage notes payable) 16,276 167,551
Members' equity 39,793 90,459
Nine Months Ended
September 30,1999
-----------------
Revenues (primarily rental revenues) $ 15,306
Expenses (primarily interest on mortgage and depreciation) 8,982
Net income 6,324
</TABLE>
Note 7. Acquisitions:
A. On July 19, 1999, the Company purchased land and building in Gardena,
California for $6,282,723 and entered into a net lease with Scott Co. of
California. The lease obligations of Scott are unconditionally guaranteed by its
parent company, The Scott Companies, Inc. The Scott lease has an initial term of
twenty years with three five-year renewal terms at Scott's option. Annual rent
is $681,000 with rent increases every three years based on a formula indexed to
increases in the Consumer Price Index ("CPI").
In connection with the purchase of the Scott property, the Company obtained
$3,000,000 of limited recourse financing collateralized by a deed of trust and a
lease assignment. The loan provides for monthly payments of interest and
principal of $22,709 at an annual interest rate of 8.21%. The loan matures in
August 2009 at which time a balloon payment will be due.
B. On August 18, 1999, the Company and CPA(R):12 formed two limited liability
companies which entered into net leases for four properties with Ameriserve Food
Distribution, Inc. ("Ameriserve") located in Burlington, New Jersey; Shawnee,
Kansas; Grand Rapids, Michigan and Manassas, Virginia. The total cost of the
transaction, including the funding of expansions and a build-to-suit facility is
expected to amount to $55,779,445. The Company holds a 60% interest in the
limited liability companies.
A new facility will be built at the Shawnee property and existing facilities
will be expanded at the Burlington and Manassas properties. Completion of the
projects is scheduled to occur no later than December 1, 2000. At the earlier of
the completion of construction or December 1, 2000, a lease term of 20 years
will commence, followed by two ten-year renewal terms at Ameriserve's option.
The annual rent will be $5,769,073, subject to reduction if total project costs
are less than $55,779,445. The leases provide for increases every three years
based on a formula indexed to increases in the CPI. Ameriserve has purchase
options that may be exercised at the end of the lease.
- 7 -
<PAGE> 9
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with the purchase of the Ameriserve properties, the Company and
CPA(R):12 obtained limited recourse mortgage financing of $32,000,000
collateralized by the Ameriserve properties and lease assignments. The loans
bear interest at an annual rate of 8.51% with combined monthly payments of
interest and principal of $246,279 and based on a 30-year amortization schedule.
The loans mature September 30, 2009 at which time balloon payments are
scheduled.
C. On September 22, 1999, the Company purchased land and a multiplex movie
theater under construction in Midlothian, Virginia for $6,029,580 and assumed a
lease with Richmond I Cinema L.L.C. ("Richmond I"). The lease obligations of
Richmond I are unconditionally guaranteed by Consolidated Theatres Holding, G.P.
Total project costs for the Richmond I multiplex are estimated to amount to
approximately $14,706,000. The target opening date for the multiplex is August
15, 2000.
Upon completion of the project, an initial lease term of 20 years will commence
with two five-year renewal terms at Richmond I's option. Annual base rent will
initially be $1,550,489 with scheduled rent increases of ten percent every five
years during the initial lease term. Beginning with the third lease year,
Richmond I will pay as additional rent a stated percentage of sales in excess of
specific benchmark amounts. For the third through fifth lease year, the Company
will be entitled to receive five percent of sales in excess of $8,500,000; for
the sixth through tenth lease years five percent of sales in excess of
$8,755,000 and six percent of sales in excess of $9,193,000 thereafter.
The Company obtained a limited recourse mortgage loan for up to $9,391,159
collateralized by a deed of trust and a lease assignment. The loan provides for
annual interest at the sum of the monthly of the London Interbank Offered Rate
and two percent and will initially convert to payments of interest only.
Commencing on the earlier of the rent commencement date or September 30, 2000,
the loan will convert to payments of interest and principal based on a 25-year
amortization schedule. The loan is scheduled to fully amortize on October 1,
2025; however the lender, at its sole option, may call the loan on either
October 1, 2007, 2014 or 2021. The outstanding balance on the loan at September
30, 1999 was $611,028
Consolidated Theatres L.L.C. ("Consolidated LLC"), an affiliate of Richmond I,
granted the Company warrants for 110 Class A-Z units at an exercise price of
$1,000 per unit and are exercisable at any time through September 20, 2019.
There are currently 3,650 units of Consolidated LLC issued and outstanding.
Note 8. Subsequent Events:
A. On October 15, 1999, the Company purchased two properties in Burbank and Los
Angeles, California for $3,743,455 and entered into a net lease with Production
Resource Group L.L.C. ("PRG"). The PRG lease has an initial term of 15 years
with two five-year renewal terms at PRG's option. Annual rent is $393,250 with
increases every two years based on a formula indexed to increases in the CPI.
The Company had previously entered into a net lease with PRG in March 1999 for a
property in Las Vegas, Nevada.
B. On November 1, 1999, the Company purchased a property in Columbia, Maryland
for $22,855,080 and entered into a net lease with Amerix Corporation ("Amerix").
In addition, the Company entered into a commitment to fund an expansion of up to
$3,500,000 of the existing office facility. The lease has an initial term ending
15 years after the earlier of the completion of the expansion or December 1,
2001 with two ten-year renewal terms at Amerix's option. Annual rent will
initially be $2,197,475 and will increase by $355,250 upon completion of the
expansion, subject to a reduction if the project costs for the expansion cost
are less than $3,500,000. The lease provides for rent increases on the sixth
anniversary of the lease and every three years thereafter based on a formula
indexed to increases in the CPI, subject to a cap on the increase of 1.04% per
annum.
- 8 -
<PAGE> 10
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
-------------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The following information should be read in conjunction with the Corporate
Property Associates 14 Incorporated's ("CPA(R):14,") condensed consolidated
financial statements and notes thereto as of September 30, 1999 included in this
quarterly report and the Company's Annual Report on Form 10-K for the year ended
December 31, 1998. 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 CPA(R):14 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 CPA(R):14 that the results or conditions
described in these statements or the objectives and plans of CPA(R):14 will be
achieved.
RESULTS OF OPERATIONS:
- ----------------------
CPA(R):14 was formed in June 1997 for the purpose of investing in net
lease commercial and industrial real estate. During the fourth quarter of 1997,
CPA(R):14 commenced an offering of up to 30,000,000 shares of common stock on a
"best efforts" basis at a price of $10 per share. CPA(R):14 first issued shares
on April 3, 1998, and the Company purchased its first property on June 29, 1998.
Because CPA(R):14 has a limited operating history and has significantly
increased its asset base since the initial property purchase, the results of
operations for the three-month and nine-month periods ended September 30, 1998
and 1999 are not comparable. CPA(R):14 is still raising capital and evaluating
potential investments and will continue to acquire new properties for its real
estate portfolio for the foreseeable future. Therefore, the operating results
for the current three-month and nine-month periods are not expected to be
indicative of future results. As the asset base continues to increase and the
portfolio becomes more diversified, revenues and expenses will increase
substantially. As new mortgage financing is obtained, interest expense will also
increase substantially. Earnings from the Company's current holdings will
increase because CPA(R):14 purchased investments in real estate leased to
Intesys Technologies, Inc., Compucom Systems, Inc., Production Resource Group
L.L.C., CheckFree Corporation, The Scott Companies, Inc., Ameriserve Food
Distribution, Inc. and Amerix Corporation and completed build-to-suit projects
leased to Metagenics, Inc. and Etec Systems, Inc. since December 31, 1998.
Since the inception of its offering, CPA(R):14 has issued shares for
$265,000,000. It is using this capital, net of offering costs, along with
limited recourse financing to purchase a diversified real estate portfolio and
to enter into long-term leases with corporate tenants on a net lease, single
tenant basis. Under a net lease, a tenant is generally required to pay all
operating expenses related to the leased property. The tenant's responsibility
for operating expenses limits CPA(R):14's exposure to the effects of increases
in real estate taxes, insurance and maintenance costs that are generally borne
by landlords. The leases are generally structured to include rent increase
provisions which have periodic, stated increases or are based upon increases in
the Consumer Price Index.
FINANCIAL CONDITION:
- --------------------
Cash flow from operations and distributions from equity investments
totalling $6,621,000 were sufficient to fund fully dividends of $6,019,000.
Because the funds currently invested in build-to-suit projects under
construction do not produce a return that is reflected in cash flow from
operations, operating cash flow from the current portfolio is lower than if the
funds used for these investments had been used to purchase completed projects.
CPA(R):14 believes that the build-to-suit projects in its portfolio, including
the commitments at the CheckFree, Builders Supply and Lumber Company,
Consolidated Theatres Holdings G.P., Ameriserve and Amerix properties, will
provide greater long-term results than other potential investments that it
evaluated. CPA(R):14's intention to fund fully dividends from its operating cash
flow and equity investment distributions. In order to meet this objective,
CPA(R):14 will need to invest in real estate. CPA(R):14 believes that to meet
long-term objectives, it is necessary to analyze proposed transactions prudently
and deliberately and to invest its funds with long-term diversification and
return considerations in mind.
- 9 -
<PAGE> 11
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
-------------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
---------------------------------------------------------
Investing activities consisted of using approximately $100,000,000 for the
purchase of the equity interests in Intesys, Compucom and CheckFree, to fund the
build-to-suit projects on the Metagenics, Etec, Builders Supply, CheckFree and
Consolidated Theatres properties and to purchase the Scott, Ameriserve and
Production Resource Group properties. As of September 30, 1999, CPA(R):14 had
approximately $106,000,000 of cash available for investment. Since September 30,
1999, CPA(R):14 has used approximately $26,600,000 to purchase properties net
leased to Amerix Corporation and additional properties net leased to Production
Resource Group.
In addition to paying dividends, CPA(R):14's financing activities included
raising new equity capital of $133,745,000, net of costs, and obtaining limited
recourse mortgage loans of $48,411,000. CPA(R):14 also received $6,996,000 from
an affiliate to fund its 40% equity interest in the Ameriserve properties.
CPA(R):14 has also filed a registration statement with the U.S. Securities and
Exchange Commission for a public offering of up to 40,000,000 shares of common
stock on a "best efforts" basis at a price of $10 per share. The offering will
commence after the completion of the current offering which is scheduled to
conclude on November 22, 1999.
YEAR 2000 ISSUES:
- -----------------
The "Year 2000 issue" refers to the series of problems that have resulted
or may result from the inability of certain computer software and embedded
processes to properly process dates. This shortcoming could result in the
failure of major systems or miscalculations causing major disruptions to
business operations. CPA(R):14 has no information technology systems of its own,
but is dependent upon systems maintained by an affiliate of its Advisor, and
certain other third parties including banks and its transfer agent.
CPA(R):14 and its affiliates have been evaluating their readiness relating
to Year 2000 issues since 1998. The affiliates' core information technology
systems used in administering CPA(R):14's business operations have been upgraded
or replaced, as needed, to become Year 2000 compliant. These systems include
desktop computers, network servers, operating systems and applications software.
A new, compliant, integrated accounting and asset management system is currently
being installed and the accounting component is currently functional. Compliance
of these systems with Year 2000 requirements has been determined through a
combination of internal testing, where feasible, and vendor representations.
Non-core information technology systems have been reviewed for compliance with
Year 2000 requirements. Such systems, although not critical to the Company's
business operations, are expected to be substantially upgraded or replaced
before the end of 1999. Management believes that substantially all costs related
to Year 2000 compliance and remediation have been incurred.
CPA(R):14 has contacted and is evaluating documentation from its critical
third party vendors and suppliers including banks, transfer agents and
telecommunications service providers regarding their Year 2000 compliance. The
responses received have generally been positive although CPA(R):14 cannot be
assured that these providers have adequately considered the impact of Year 2000
issues on their systems.
CPA(R):14 has contacted its tenants regarding Year 2000 readiness and
emphasized the need to address Year 2000 issues. Generally, tenants are
contractually required to maintain their leased properties in good working order
and to make necessary alterations, foreseen or unforeseen, to meet their
contractual obligations. Because of those obligations, CPA(R):14 believes that
the risks and costs of upgrading systems related to operations of the buildings
and that contain technology affected by Year 2000 issues will generally be
absorbed by tenants rather than CPA(R):14. The major risk is that Year 2000
issues have such an adverse effect on the financial condition of a tenant that
its ability to meet its lease obligations, including the timely payment of rent,
is impaired. In such an event, CPA(R):14 may ultimately incur the costs for Year
2000 readiness at the affected properties. The potential materiality of any
impact is not known at this time.
CPA(R):14 will continue to monitor critical third party vendors and
suppliers to determine its vulnerability to potential disruptions caused by Year
2000 issues. Limited scope contingency plans are currently being developed to
address potential disruptions of a temporary nature that may affect CPA(R):14.
Because it is not possible to anticipate all of the possible disruptions that
may be caused by Year 2000 events, there can be no assurance that CPA(R):14 will
not be adversely affected if such disruptions occur.
- 10 -
<PAGE> 12
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
AND SUBSIDIARIES
Item 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--------------------------------------------------------------------
As of September 30, 1999 the Company has limited recourse mortgage
notes payable of $47,765,669 that bears interest at fixed-rates and
$611,028 at a variable rate. The variable rate loan was obtained on
September 22, 1999. The carrying amount of the mortgage notes payable
approximates fair value. As of September 30, 1999 the Company had no
other material exposures to market risk.
- 11 -
<PAGE> 13
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
AND SUBSIDIARIES
PART II
-------
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
During the quarter ended September 30, 1999 the Company submitted to
the vote of the Security Holders, the election of directors and the
approval of an offering of common stock. The following directors were
elected for a one-year term:
<TABLE>
<CAPTION>
Total Shares Shares
Name Of Director Shares Voting Voting Yes Voting No
---------------- ------------- ---------- ---------
<S> <C> <C> <C>
William P. Carey 8,432,001 8,320,974 111,027
William Ruder 8,432,001 8,295,174 136,827
George E. Stoddard 8,432,001 8,288,266 143,735
Charles C. Townsend, Jr. 8,432,001 8,316,574 115,427
Warren G. Wintrub 8,432,001 8,322,974 109,027
Thomas E. Zacharias 8,432,001 8,326,474 105,527
</TABLE>
An amendment to the Company's Certificate of Incorporation was approved
which increased the shares of common stock the Company is authorized to
issue from 60,000,000 to 120,000,000.
<TABLE>
<CAPTION>
Shares Shares Shares
Total Shares Voting Voting Yes Voting No Abstaining
------------------- ---------- --------- ----------
<S> <C> <C> <C>
8,432,001 7,507,579 577,549 346,873
</TABLE>
- 12 -
<PAGE> 14
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
AND SUBSIDIARIES
PART II (Continued)
-------------------
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Pursuant to Rule 701 of Regulation S-K, the use of proceeds
from the Company's offering of common stock which commenced
February 2, 1996 (File # 33-31437) is as follows as of
September 30, 1999:
<TABLE>
<S> <C>
Shares registered: 30,000,000
Aggregate price of offering amount registered: $300,000,000
Shares sold: 26,494,803
Aggregated offering price of amount sold: $264,948,035
Direct or indirect payments to directors, officers, general
partners of the issuer or their associates, to persons
owning ten percent or more of any class of equity
securities of the issuer and to affiliates of
the issuer: $ 3,298,175
Direct or indirect payments to others: $ 22,386,973
Net offering proceeds to the issuer after
deducting expenses: $239,262,887
Purchases of real estate: $178,857,824
Working capital reserves: $ 2,649,480
Temporary investments in cash and cash
equivalents: $ 57,755,583
</TABLE>
(b) Reports on Form 8-K:
During the quarter ended September 30, 1999, the Company not
required to file any reports on form 8-K.
- 13 -
<PAGE> 15
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
AND SUBSIDIARIES
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
AND SUBSIDIARIES
11/09/99 By: /s/ John J. Park
-------- ----------------------------------------
Date John J. Park
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
11/09/99 By: /s/ Claude Fernandez
-------- ----------------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
- 14 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 115,681,953
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 115,681,953
<PP&E> 124,419,380
<DEPRECIATION> 757,591
<TOTAL-ASSETS> 298,657,651
<CURRENT-LIABILITIES> 7,013,538
<BONDS> 48,376,697
0
0
<COMMON> 26,515
<OTHER-SE> 233,093,043
<TOTAL-LIABILITY-AND-EQUITY> 298,657,651
<SALES> 0
<TOTAL-REVENUES> 4,930,557
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,468,932
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 590,329
<INCOME-PRETAX> 4,075,884
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,075,884
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,075,884
<EPS-BASIC> .24
<EPS-DILUTED> .24
</TABLE>
