<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended JUNE 30, 2000
of
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
CPA(R):14
A MARYLAND Corporation
IRS Employer Identification No. 13-3951476
SEC File Number 333-31437
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 August 9, 2000. 37,925,637
shares of common stock, $.001 Par Value outstanding at August 9, 2000.
<PAGE> 2
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I
Item 1. - Financial Information*
Condensed Consolidated Balance Sheets, December 31, 1999
and June 30, 2000 2
Condensed Consolidated Statements of Income for the three
and six months ended June 30, 1999 and 2000 3
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 2000 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
PART II - Other Information
Item 3. - Quantitative and Qualitative Disclosures About Market Risk 11
Item 4. - Submission of Matters to a Vote of Security Holders 11
Item 6. - Exhibits and Reports on Form 8-K 12
Signatures 13
</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, 1999 June 30, 2000
----------------- -------------
(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Real estate leased to others:
Accounted for under the operating method:
Land $ 36,130,456 $ 52,622,456
Buildings 76,917,819 174,967,768
------------- -------------
113,048,275 227,590,224
Accumulated depreciation 1,152,595 2,658,982
------------- -------------
111,895,680 224,931,242
Net investment in direct financing leases 27,161,841 27,168,895
Real estate under construction leased to others 45,775,407 35,877,784
------------- -------------
Real estate leased to others 184,832,928 287,977,921
Equity investments 50,344,119 51,387,286
Cash and cash equivalents 91,420,457 91,689,278
Other assets 4,465,449 6,825,821
------------- -------------
Total assets $ 331,062,953 $ 437,880,306
============= =============
LIABILITIES:
Limited recourse mortgage notes payable $ 49,517,692 $ 106,338,835
Accrued interest 292,118 551,459
Accounts payable to affiliates 2,046,441 2,483,237
Accounts payable and accrued expenses 265,889 684,262
Prepaid rental income and security deposits 1,324,379 2,946,112
Deferred acquisition fees payable to affiliate 5,905,602 7,772,773
Dividends payable 4,515,213 5,679,106
Escrow funds 1,105,530 1,105,530
------------- -------------
Total liabilities 64,972,864 127,561,314
------------- -------------
Minority interest 8,212,097 4,196,991
------------- -------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized, 120,000,000
shares; issued and outstanding, 29,460,594 and
35,534,693 shares at December 31, 1999 and June 30, 2000 29,460 35,535
Additional paid-in capital 265,487,028 317,813,486
Distributions in excess of accumulated earnings (6,896,632) (10,844,674)
------------- -------------
258,619,856 307,004,347
Less common stock in treasury at cost, 79,839 and 95,186
shares at December 31, 1999 and June 30, 2000 (741,864) (882,346)
------------- -------------
Total shareholders' equity 257,877,992 306,122,001
------------- -------------
Total liabilities and shareholders' equity $ 331,062,953 $ 437,880,306
============= =============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Note: The balance sheet at December 31, 1999 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 Six Months Ended
June 30, 1999 June 30, 2000 June 30, 1999 June 30, 2000
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 1,225,382 $ 4,363,521 $ 2,245,540 $ 7,461,209
Interest income from direct
financing leases -- 632,250 -- 1,321,250
Other interest income 290,669 1,785,495 543,975 3,636,561
----------- ----------- ----------- -----------
1,516,051 6,781,266 2,789,515 12,419,020
----------- ----------- ----------- -----------
Expenses
Interest 123,027 1,648,957 158,206 2,920,223
Depreciation and amortization 189,777 910,879 345,199 1,532,575
General and administrative 283,191 702,077 447,524 1,140,429
Property expenses 349,238 901,517 598,743 1,562,884
----------- ----------- ----------- -----------
945,233 4,163,430 1,549,672 7,156,111
----------- ----------- ----------- -----------
Income before minority interest
in loss and income from
equity investments 570,818 2,617,836 1,239,843 5,262,909
Minority interest in loss -- 146,766 -- 8,704
----------- ----------- ----------- -----------
Income before income from
equity investments 570,818 2,764,602 1,239,843 5,271,613
Income from equity investments 612,934 757,682 945,856 1,501,544
----------- ----------- ----------- -----------
Net income $ 1,183,752 $ 3,522,284 $ 2,185,699 $ 6,773,157
=========== =========== =========== ===========
Basic and diluted earnings per share $ .07 $ .10 $ .15 $ .21
=========== =========== =========== ===========
Weighted average shares outstanding-
basic and diluted 16,071,527 34,434,358 14,349,579 32,612,563
=========== =========== =========== ===========
</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>
Six Months Ended June 30,
1999 2000
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,185,699 $ 6,773,157
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 345,199 1,532,575
Straight-line rent adjustments (78,823) (146,655)
Minority interest in loss -- (8,704)
Provision for uncollected rent -- 65,868
Change in operating assets and liabilities, net 135,779 696,957
------------- -------------
Net cash provided by operating activities 2,587,854 8,913,198
------------- -------------
Cash flows from investing activities:
Acquisitions of real estate and equity investments
and other capitalized costs (55,804,696) (94,405,826)
Funds released from escrow 10,488,450
Payment of deferred acquisition fees -- (268,911)
Equity distributions received in excess of
equity income 411,970 57,071
------------- -------------
Net cash used in investing activities (55,392,726) (84,129,216)
------------- -------------
Cash flows from financing activities:
Proceeds from sale of stock, net of costs 98,234,905 52,332,533
Dividends paid (3,415,145) (9,557,306)
Proceeds from mortgages 9,700,000 37,349,727
Payment of mortgage principal (9,662) (226,745)
Distributions paid to minority interest partner -- (4,863,779)
Contributions from minority interest partner -- 857,377
Deferred financing costs and mortgage deposits (654,206) (266,486)
Purchase of treasury stock (101,943) (140,482)
------------- -------------
Net cash provided by financing activities 103,753,949 75,484,839
------------- -------------
Net change in cash and cash equivalents 50,949,077 268,821
Cash and cash equivalents, beginning of period 26,747,058 91,420,457
------------- -------------
Cash and cash equivalents, end of period $ 77,696,135 $ 91,689,278
============= =============
</TABLE>
Noncash investing and financing activities:
In connection with the acquisition of properties during the six months
ended June 30, 2000, the Company assumed mortgage obligations of
$19,698,161.
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 accounting principles
generally accepted in the United States 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 accounting principles generally accepted in the United
States 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, 1999.
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 Asset Management
Corp. (the "Advisor"). Effective commencing June 29, 2000, W.P. Carey & Co. LLC
("WPC"), an affiliate of the Company, acquired the business operations of the
former Advisor, Carey Property Advisors, pursuant to a merger. In connection
with the merger, Carey Asset Management Corp., a wholly-owned subsidiary of WPC,
became the Advisor of the Company. All officers of Carey Property Advisors serve
in the same capacity for the new Advisor.
An initial offering of the Company's shares which commenced on November 10, 1997
concluded on November 10, 1999, at which time the Company had issued an
aggregate of 29,440,594 shares ($294,405,940). On November 17, 1999, the Company
commenced an offering for a maximum of 40,000,000 shares of common stock. The
shares are being offered to the public on a "best efforts" basis at a price of
$10 per share. The initial issuance of shares under the second offering occurred
on February 23, 2000. During the six months ended June 30, 2000, the Company
issued 6,074,099 shares ($60,740,990). An additional 2,486,130 shares
($24,861,300) were issued on July 28, 2000.
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 (the "Preferred Return"), as defined in the advisory agreement
of the Company, the Advisor will not be entitled to receive the performance fee.
When the Preferred Return is achieved, the Advisor will have the option of
receiving its performance fee in cash or restricted shares of the Company. Asset
management fees for the three-month and six-month periods ended June 30, 2000
were $363,070 and $671,159, respectively, with performance fees in like amount,
and general and administrative reimbursements were $248,209 and $445,453,
respectively. For the three-month and six-month periods ended June 30, 1999,
asset management fees were $155,512 and $276,809, with performance fees in like
amount, and general and administrative reimbursements were $88,436 and $130,523,
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 $16,000,000
assuming the sale of 40,000,000 shares. The Company is also liable for selling
commissions of up to $0.60 (6%) 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 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.
-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 six month periods ended June 30, 1999 and 2000 are as
follows:
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Per Statements of Income:
Rental income $ 2,245,540 $ 7,461,209
Interest income from direct financing leases -- 1,321,250
Adjustment:
Share of leasing revenues applicable to
minority interests -- (587,948)
Share of leasing revenues from equity investments 2,410,436 4,827,985
------------ ------------
$ 4,655,976 $ 13,022,496
============ ============
</TABLE>
For the six-month period ended June 30, 1999 and 2000, the Company earned its
proportionate net lease revenues from its investments as follows:
<TABLE>
<CAPTION>
1999 % 2000 %
---- - ---- -
<S> <C> <C> <C> <C>
Advanced Micro Devices, Inc. (a) $1,524,250 33% $ 1,524,250 12%
Applied Materials, Inc. (a) - - 1,436,345 11
Amerix Corporation - - 1,098,738 8
Atrium Companies, Inc. - - 1,037,500 8
Best Buy Co., Inc. 979,493 21 994,331 8
Ameriserve Food Distribution, Inc. (b) - - 881,922 7
Metagenics, Inc. - - 674,219 5
Compucom Systems, Inc. (a) 329,880 7 652,333 5
Checkfree Holdings Corporation, Inc. (a) 96,162 2 646,369 5
Production Resource Group LLC 223,422 5 638,625 5
Stellex Technologies, Inc. - - 632,452 5
Intesys Technologies, Inc. (a) 460,144 10 568,688 4
Burlington Motor Carrier, Inc. 396,000 8 396,000 3
Builders' Supply and Lumber Co., Inc. - - 380,000 3
The Benjamin Ansehl Company 324,875 7 324,875 3
Contraves Brashear Systems L.P. 321,750 7 321,750 2
Scott Companies, Inc. - - 283,750 2
West Union Corporation - - 283,637 2
APW North America Inc. - - 229,540 2
Galyan's Trading Company - - 15,778 -
International Garden Products, Inc. - - 1,394 -
------------ --- ----------- ---
$4,655,976 100% $13,022,496 100%
============ === =========== ===
</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 limited liability companies 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 properties net leased to Advanced
Micro Devices, Inc. and Compucom Systems, Inc. and 50% interests in properties
net leased to Intesys Technologies, Inc. and CheckFree Holdings Corporation. The
Company owns 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.
The Etec lease obligations are unconditionally guaranteed by Applied Materials,
Inc. Summarized combined financial information of the Company's equity investees
is as follows:
<TABLE>
<CAPTION>
(In thousands) December 31, 1999 June 30, 2000
-------------- ----------------- -------------
<S> <C> <C>
Assets (primarily real estate) $260,115 $263,380
Liabilities (primarily mortgage notes payable) 169,286 170,618
Partners' and members' equity 90,829 92,762
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 2000
---- ----
<S> <C> <C>
Revenues (primarily rental revenues) $ 8,169 $ 13,327
Expenses (primarily interest on mortgage and depreciation) 4,995 8,872
-------- --------
Net income $ 3,174 $ 4,455
======== ========
</TABLE>
Note 7. Acquisitions of Real Estate:
On May 30, 2000, the Company purchased five properties for $29,424,084 and
entered into two net leases with APW North America Inc. ("APW"). The lease
obligations of APW are jointly guaranteed by Applied Power Inc. and Wright Line,
Inc. A master lease for four properties, located in Monon, Indiana; Champlin,
Minnesota; Robbinsville, New Jersey; and Radford, Virginia, and a lease for a
fifth property in North Salt Lake City, Utah, provide for annual rent of
$1,809,225 and $818,125, respectively. The leases have initial terms of 17 years
through May 31, 2017, with two five-year renewal terms at APW North America's
option, and provide for purchase options beginning on June 1, 2013 and annually
thereafter for the remainder of the initial lease term. The purchase options may
be exercised at the higher of (i) fair market value, as defined, or (ii)
acquisition cost plus any prepayment premium related to any mortgage debt placed
on the property by the Company. The leases provide for annual rent increases
beginning in the third year of the lease, based on a formula indexed to
increases in the Consumer Price Index ("CPI"), subject to a cap of 5.78% for the
first increase and of 1.89% for all subsequent increases.
On June 29, 2000, the Company purchased a property in Lakewood, New Jersey and
committed to fund its expansion for a total of $8,638,743, and entered into a
net lease with Langeveld International, Inc. ("Langeveld"). The lease
obligations of Langeveld are unconditionally guaranteed by its parent company,
International Garden Products, Inc. The lease provides for a primary term ending
on the earlier of the completion of the improvements or December 1, 2001,
followed by a 20-year initial lease with two five-year renewal terms at
Langeveld's option. Annual rent will initially be $508,942, and will increase at
the inception of the initial term by an amount equal to 10.5% multiplied by the
amounts advanced to fund the expansion. If the entire anticipated additional
cost of $3,563,276 is used for the expansion, the annual rent will increase to
$866,250 at the commencement of the initial term. The lease provides for rent
increases based on a formula indexed to increases in the CPI on October 1, 2003
and every third year thereafter, subject to a cap of 12.49%.
-7-
<PAGE> 9
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On June 29, 2000, the Company acquired three properties located in Kennesaw,
Georgia; Leawood, Kansas and Plainfield, Indiana, subject to existing net leases
with Galyan's Trading Company ("Galyan's") for $29,660,686, of which $19,698,161
was financed by the assumption of existing limited recourse mortgage debt on the
three properties. The leases currently provide for combined annual rents of
$2,840,000 with stated annual increases of 1.5% beginning in September 2000. The
leases have initial terms through August 31, 2019, followed by eight five-year
renewal options at Galyan's option.
The limited recourse mortgage loans on the Kennesaw, Leawood, and Plainfield
properties, which had an aggregate balance on the date of acquisition of
$19,698,161, provide for combined monthly payments of interest and principal of
$158,067, at annual interest rates ranging from 8.754% to 8.847%. The loans
mature on September 10, 2009, at which time balloon payments totaling
$17,681,300 will be due.
-8-
<PAGE> 10
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with CPA(R):14's
condensed consolidated financial statements and notes thereto as of June 30,
2000 included in this quarterly report and CPA(R):14's Annual Report on Form
10-K for the year ended December 31, 1999. 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 such statements or the
objectives and plans of CPA(R):14 will be achieved.
Financial Condition:
CPA(R):14 continues to expand and diversify its portfolio of commercial and
industrial real estate by investing its net offering proceeds and proceeds from
limited recourse mortgage financing and entering into long-term net leases with
corporate tenants on a single tenant basis. Under a net lease, a tenant is
generally required to pay all expenses related to the leased property in order
to limit exposure to the effects of increases in real estate taxes and property
maintenance and insurance costs. CPA(R):14's leases, which generally have
initial lease terms of 15 to 20 years and generally provide the lessee with
options for renewal terms, typically include rent increase provisions which are
fixed or based upon increases in the Consumer Price Index. As of June 30, 2000,
CPA(R):14 has raised $265,000,000, net of costs, from its first offering and
$52,333,000 from its current offering. Since June 30, 2000, an additional
$24,861,000 of capital has been raised through the issuance of shares. CPA(R):14
has used $83,917,000 during the six-months ended June 30, 2000, including using
mortgage financing of $52,333,000 to purchase real estate interests in net
leases. As of June 30, 2000, CPA(R):14 has approximately $87,950,000 of cash
available for investment. Remaining costs to complete currently committed
build-to-suit projects are estimated to be $9,700,000. CPA(R):14's build-to-suit
commitments include provisions that require the lessee to fund any cost
overruns.
CPA(R):14 is using the cash flow from its net leases to pay quarterly dividends
at an increasing rate and meet its debt service installment obligations on
limited recourse mortgage debt. For the six-months ended June 30, 2000, cash
flow from operations of $8,913,000 was not sufficient to pay quarterly dividends
of $9,557,000 and scheduled mortgage principal payment installments of $227,000.
Cash flow from operations does not include approximately $300,000 of
construction period rents on build-to-suit projects during the six-months ended
June 30, 2000, and therefore does not fully reflect certain cash flow benefits.
As of June 30, 2000, CPA(R):14 had cash balances of $91,689,000. CPA(R):14
expects cash flow from operations to increase substantially as this cash is used
to complete build-to-suit projects and purchase additional real estate. As
CPA(R):14 continues to issue shares and invest the proceeds, cash flow from
operations is expected to increase substantially.
Management continues to monitor the bankruptcy of Ameriserve Food Distribution,
Inc. CPA(R):14 owns a 60% interest in four Ameriserve properties and an
affiliate, Corporate Property Associates 12 Incorporated (CPA(R):12) owns the
remaining 40% interest. The joint ownership of properties with affiliates such
as CPA(R):12 and the use of limited recourse mortgage debt has allowed for the
diversification of the portfolio and helped reduce exposure to the risks of any
single lessee. In March 2000, one of the Ameriserve property lenders released
funds from an escrow account of $10,488,000, of which CPA(R):14 was required to
distribute $4,195,000 to CPA(R):12 with the remaining amounts available to fund
construction of the Ameriserve properties. As of June 30, 2000, CPA(R):14's
equity in the Ameriserve property (land and building less limited recourse
mortgage debt and CPA(R):12's 40% ownership interest), was $6,941,000. CPA(R):14
and CPA(R):12 hold an $8,700,000 letter of credit from Ameriserve from which
funds may be received, subject to the consent of the lender, if Ameriserve does
not meet certain obligations under its lease. Ameriserve pays its rent quarterly
in advance installments and is currently meeting its rental obligations.
Management is continuing to monitor the developments relating to Ameriserve's
reorganization closely.
-9-
<PAGE> 11
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS,
CONTINUED
RESULTS OF OPERATIONS:
Since June 30, 1999, CPA(R):14's asset base has increased substantially from
$215,748,000 to $437,880,000; therefore, the results of operations for the
six-month periods ended June 30, 1999 and 2000 are not fully comparable. Net
income for the three-month and six-month periods ended June 30, 2000 was
$3,552,000 and $6,773,000, respectively, and $1,184,000 and $2,186,000 for the
three and six-month periods ended June 30, 1999, respectively, with such
increases primarily reflecting the effects of the increased asset and capital
base. Because of the funds raised in its continuing offering, cash balances have
remained high, and at times have exceeded $100,000,000. As a result, other
interest income has increased substantially and remains a significant component
of overall revenues. CPA(R):14's objective is to invest these proceeds in
additional real estate investments. As CPA(R):14 becomes more fully invested,
other interest income will be a much less significant component of overall
revenues, and lease revenues (rental income and interest income from direct
financing leases) are expected to represent substantially all revenues. After
CPA(R):14 has fully invested the proceeds of its offerings, it will generally
hold substantially lower cash balances but will continue to earn interest income
from investing such cash in money market instruments. CPA(R):14's increased
asset base has resulted in increases in depreciation, property and general
administrative expenses, with interest expense increasing as new limited
recourse mortgage debt is obtained. Since the commencement of the second
offering in November 1999, CPA:14 has raised in excess of $74,000,000, net of
the costs of raising capital.
Accounting principles require that construction period rents on build-to-suit
projects be recorded as a reduction of cost rather than rental income. As a
result, rents on build-to-suit projects are not currently reflected in income or
cash flow from operations, even though management believes that these projects
provide an economic return on CPA(R):14's investment during the construction
period. If not for the accounting method of build-to-suit projects, lease
revenues recognized currently in net income would have been approximately
$300,000 greater than the net income amount presented in the accompanying
consolidated financial statements. Management believes that the return on
investment on build-to-suit projects will produce long-term returns that are
superior to those of other opportunities that have been evaluated.
-10-
<PAGE> 12
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
AND SUBSIDIARIES
PART II
Item 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Approximately $98,051,000 of the Company's long-term debt bears interest at
fixed rates, and therefore the fair value of these instruments is affected by
changes in the market interest rates. The following table presents principal
cash flows based upon expected maturity dates of the debt obligations and the
related weighted-average interest rates by expected maturity dates for the fixed
rate debt. The interest rate on the variable rate debt as of June 30, 2000 was
the sum of LIBOR plus 2%. There has been no material change since December 31,
1999.
(in thousands)
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate $356 $782 $938 $1,044 $1,115 $93,815 $98,050 $90,329
Average
interest rate 8.36% 8.37% 8.40% 8.40% 8.40% 8.51%
Variable rate $25 $107 $118 $129 $141 $7,401 $7,921 $7,921
</TABLE>
As of June 30, 2000, the Company had no other material exposure to market risk.
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended June 30, 2000, no matters were submitted to a
vote of security holders. A shareholders' meeting was scheduled for
June 15, 2000. Shareholders representing a quorum were not present in
person or by proxy, and the meeting was adjourned until August 11,
2000.
Item 5. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
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 June
30, 2000:
<TABLE>
<S> <C>
Shares registered: 30,000,000
Aggregate price of offering amount registered: $300,000,000
Shares sold: 29,440,594
Aggregated offering price of amount sold: $294,405,940
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: $ 3,684,995
Direct or indirect payments to others: $ 25,477,481
Net offering proceeds to the issuer after
deducting expenses: $265,243,464
Purchases of real estate: $262,299,405
Working capital reserves: $ 2,944,059
Temporary investments in cash and cash equivalents: -
</TABLE>
-11-
<PAGE> 13
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
AND SUBSIDIARIES
PART II
Item 5. - EXHIBITS AND REPORTS ON FORM 8-K (continued)
(b) Exhibits:
Pursuant to Rule 701 of Regulation S-K, the use of proceeds
from the Company's offering of common stock which commenced
November 17, 1999 (File # 333-76761) is as follows as of
June 30, 2000:
<TABLE>
<S> <C>
Shares registered: 40,000,000
Aggregate price of offering amount registered: $400,000,000
Shares sold: 6,074,099
Aggregated offering price of amount sold: $ 60,740,990
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: $ 1,228,776
Direct or indirect payments to others: $ 7,179,681
Net offering proceeds to the issuer after
deducting expenses: $ 52,332,533
Purchases of real estate: $ 18,600,074
Working capital reserves: $ 607,410
Temporary investments in cash and cash equivalents: $ 33,125,049
</TABLE>
(b) Reports on Form 8-K:
During the quarter ended June 30, 2000, the Company was not
required to file any reports on form 8-K.
-12-
<PAGE> 14
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
<TABLE>
<S> <C>
8/11/00 By: /s/ John J. Park
--------- -----------------
Date John J. Park
Executive Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
8/11/00 By: /s/ Claude Fernandez
--------- ---------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
</TABLE>
-13-
