<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended SEPTEMBER 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 November 10, 2000.
CPA(R):14 has 41,066,608 shares of common stock, $.001 Par Value outstanding at
November 10, 2000.
<PAGE> 2
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
PART I
------
<S> <C>
Condensed Consolidated Balance Sheets, December 31, 1999
and September 30, 2000 2
Condensed Consolidated Statements of Income for the three
and nine months ended September 30, 1999 and 2000 3
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 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
Item 1. - Financial Information*
</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 September 30, 2000
----------------- ------------------
(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Real estate leased to others:
Accounted for under the operating method:
Land $ 36,130,456 $ 76,097,456
Buildings 76,917,819 214,361,214
------------- -------------
113,048,275 290,458,670
Accumulated depreciation 1,152,595 3,878,726
------------- -------------
111,895,680 286,579,944
Net investment in direct financing leases 27,161,841 63,174,347
Real estate under construction leased to others 45,775,407 29,026,370
------------- -------------
Real estate leased to others 184,832,928 378,780,661
Equity investments 50,344,119 51,582,496
Cash and cash equivalents 91,420,457 25,169,396
Other assets 4,465,449 9,053,232
------------- -------------
Total assets $ 331,062,953 $ 464,585,785
============= =============
LIABILITIES:
Limited recourse mortgage notes payable $ 49,517,692 $ 110,643,205
Accrued interest 292,118 670,052
Accounts payable to affiliates 2,046,441 3,247,360
Accounts payable and accrued expenses 265,889 931,653
Prepaid rental income and security deposits 1,324,379 2,355,252
Deferred acquisition fees payable to affiliate 5,905,602 9,816,751
Dividends payable 4,515,213 6,227,565
Escrow funds 1,105,530 321,646
------------- -------------
Total liabilities 64,972,864 134,213,484
------------- -------------
Minority interest 8,212,097 4,635,466
------------- -------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized,
120,000,000 shares; issued and outstanding,
29,460,594 and 38,020,823 shares at
December 31, 1999 and September 30, 2000 29,460 38,021
Additional paid-in capital 265,487,028 339,541,616
Distributions in excess of accumulated earnings (6,896,632) (12,830,955)
------------- -------------
258,619,856 326,748,682
Less common stock in treasury at cost, 79,839 and 109,663 shares at
December 31, 1999 and September 30, 2000 (741,864) (1,011,847)
------------- -------------
Total shareholders' equity 257,877,992 325,736,835
------------- -------------
Total liabilities and shareholders' equity $ 331,062,953 $ 464,585,785
============= =============
</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 September 30, Nine Months Ended September 30,
1999 2000 1999 2000
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 1,370,704 $ 6,474,563 $ 3,616,244 $13,935,772
Interest income from direct financing
leases 132,158 1,086,369 132,158 2,407,619
Other interest income 638,180 1,615,054 1,182,155 5,251,615
----------- ----------- ----------- -----------
2,141,042 9,175,986 4,930,557 21,595,006
----------- ----------- ----------- -----------
Expenses
Interest 485,189 2,317,124 643,395 5,237,347
Depreciation and amortization 245,130 1,232,838 590,329 2,765,413
General and administrative 371,339 710,937 818,863 1,851,366
Property expenses 407,931 1,187,994 1,006,674 2,750,878
----------- ----------- ----------- -----------
1,509,589 5,448,893 3,059,261 12,605,004
----------- ----------- ----------- -----------
Income before minority interest in
loss and income from equity
investments 631,453 3,727,093 1,871,296 8,990,002
Minority interest in loss 70,414 28,790 70,414 37,494
----------- ----------- ----------- -----------
Income before income from equity
investments 701,867 3,755,883 1,941,710 9,027,496
Income from equity investments 1,188,318 747,369 2,134,174 2,248,913
----------- ----------- ----------- -----------
Net income $ 1,890,185 $ 4,503,252 $ 4,075,884 $11,276,409
=========== =========== =========== ===========
Basic and diluted earnings per share $ .08 $ .12 $ .24 $ .33
=========== =========== =========== ===========
Weighted average shares outstanding- basic
and diluted 23,086,738 37,188,616 17,293,269 34,154,676
=========== =========== =========== ===========
</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>
Nine Months Ended September 30,
1999 2000
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,075,884 $ 11,276,409
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 590,329 2,765,413
Straight-line rent adjustments and other noncash rent adjustments (137,388) (232,502)
Minority interest in loss (70,414) (37,494)
Provision for uncollected rent - 121,500
Change in operating assets and liabilities, net 1,259,742 (925,015)
------------- -------------
Net cash provided by operating activities 5,718,153 12,968,311
------------- -------------
Cash flows from investing activities:
Acquisitions of real estate and equity investments
and other capitalized costs (100,080,816) (185,476,849)
Funds released from escrow - 10,488,450
Payment of deferred acquisition fees - (268,911)
Equity distributions received in excess of
equity income 902,906 191,423
------------- -------------
Net cash used in investing activities (99,177,910) (175,065,887)
------------- -------------
Cash flows from financing activities:
Proceeds from sale of stock, net of costs 133,745,467 74,063,149
Dividends paid (6,018,880) (15,498,380)
Proceeds from mortgages 48,411,028 41,822,601
Payment of mortgage principal (34,331) (395,249)
Distributions paid to minority interest partner - (4,990,406)
Contributions from minority interest partner 6,996,254 1,451,269
Deferred financing costs and mortgage deposits (508,621) (336,486)
Purchase of treasury stock (196,265) (269,983)
------------- -------------
Net cash provided by financing activities 182,394,652 95,846,515
------------- -------------
Net change in cash and cash equivalents 88,934,895 (66,251,061)
Cash and cash equivalents, beginning of period 26,747,058 91,420,457
------------- -------------
Cash and cash equivalents, end of period $ 115,681,953 $ 25,169,396
============= =============
</TABLE>
Noncash investing and financing activities:
In connection with the acquisition of properties during the nine months ended
September 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.
The Company has adopted the provisions of Staff Accounting Bulletin No. 101 -
Revenue Recognition ("SAB 101"). The adoption of SAB 101 has not had a material
effect on the Company's financial position and results of operations.
Note 2. Organization and Offering:
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 nine months ended September 30, 2000, the
Company issued 8,560,229 shares ($85,602,290). An additional 3,155,448 shares
($31,554,480) were issued on October 27, 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 6% 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 nine-month periods ended September 30,
2000 were $433,095 and $1,104,254, respectively, with performance fees in like
amount, and general and administrative reimbursements were $309,760 and
$755,213, respectively. For the three-month and nine-month periods ended
September 30, 1999, asset management fees 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.
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 nine-month periods ended September 30, 1999 and 2000 are
as follows:
<TABLE>
<CAPTION>
1999 2000
------------ ------------
<S> <C> <C>
Per Statements of Income:
Rental income $ 3,616,244 $ 13,935,772
Interest income from direct financing leases 132,158 2,407,619
Adjustment:
Share of leasing revenues applicable to
minority interests (9,495) (1,010,802)
Share of leasing revenues from equity investments 5,061,176 7,448,628
------------ ------------
$ 8,800,083 $ 22,781,217
============ ============
</TABLE>
For the nine-month periods ended September 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) $ 2,286,375 26% $ 2,286,375 10%
Applied Materials, Inc. (a) 957,564 11 2,167,176 10
Atrium Companies, Inc. - - 1,699,583 7
Amerix Corporation - - 1,648,106 7
Ameriserve Food Distribution, Inc. (b) 14,242 - 1,516,204 7
Best Buy Co., Inc. 1,476,659 17 1,491,495 7
Stellex Technologies, Inc. - - 1,406,547 6
Checkfree Holdings Corporation, Inc. (a) 416,702 5 1,163,546 5
Metagenics, Inc. 107,489 1 1,008,093 4
Compucom Systems, Inc. (a) 656,047 7 978,500 4
Production Resource Group LLC 444,422 5 957,938 4
APW North America Inc. - - 886,377 4
Intesys Technologies, Inc. (a) 744,488 8 853,031 4
Galyan's Trading Company - - 729,328 3
Builders' Supply and Lumber Co., Inc. - - 609,362 3
Burlington Motor Carrier, Inc. 594,000 7 594,000 3
Scott Companies, Inc. 132,158 2 510,750 2
The Benjamin Ansehl Company 487,312 6 487,312 2
Contraves Brashear Systems L.P. 482,625 5 482,625 2
West Union Corporation - - 480,574 2
Consolidated Theaters Holding, G.P - - 279,344 1
Fitness Holdings - - 227,729 1
International Garden Products, Inc. - - 128,630 1
Advance Paradigm, Inc. - - 117,808 1
Lennar Corporation - - 42,192 -
Buffets, Inc. - - 15,206 -
Transcore Holdings Inc. - - 9,949 -
Earle M. Jorgensen Company - - 3,437 -
----------- ---- ----------- ----
$ 8,800,083 100% $22,781,217 100%
=========== ==== =========== ====
</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.
As a result of the acquisition of Etec by Applied Materials, Inc. in 2000, 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 September 30, 2000
----------------- ------------------
<S> <C> <C>
Assets (primarily real estate) $260,115 $264,326
Liabilities (primarily mortgage notes payable) 169,286 171,331
Partners' and members' equity 90,829 92,995
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 2000
------------- -------------
<S> <C> <C>
Revenues (primarily rental revenues) $15,306 $20,416
Expenses (primarily interest on mortgage and depreciation) 8,982 13,574
------- -------
Net income $ 6,324 $ 6,842
======= =======
</TABLE>
Note 7. Acquisitions of Real Estate:
A. On August 14, 2000, CPA(R):14 purchased a property in Rochester, Minnesota
on which a building is being constructed on a build-to-suit basis and net
leased to Celestica Corporation ("Celestica"). The total purchase price
including construction costs is estimated to be $21,570,681, with Celestica
having the obligation to fund any additional costs necessary to complete the
project. Upon the earlier of completion or June 30, 2001, a lease term of 15
years with two five-year renewal terms at Celestica's option will commence
at an annual rent of $2,193,900 if the entire estimated funding of the
build-to-suit project is required. To the extent that project costs are less
than $21,570,681, initial annual rent will be adjusted by an amount equal to
10.65% of the difference in total project costs and the initial estimated
project costs. The lease provides for stated rent increases of 10% every
five years.
B. On September 21, 2000, CPA(R):14 purchased property located in Scottsdale,
Arizona for $39,790,575 and entered into a net lease with PCS Health
Systems, Inc. ("PCS"). The terms of the lease are unconditionally guaranteed
by Advance Paradigm, Inc., PCS' parent company. The lease provides for
annual rent of $4,300,000 and has an initial term of 21 years, with six
five-year renewal terms at PCS' option.
C. On September 25, 2000, CPA(R):14 purchased a property in Albuquerque, New
Mexico for $6,125,654 and entered into a net lease with Amtech Systems
Corporation ("Amtech"). In connection with the purchase, CPA(R):14 obtained
$3,500,000 of limited recourse mortgage financing. The lease obligations of
Amtech are unconditionally guaranteed by Transcore Holdings, Inc., Amtech's
parent company. The lease provides for an initial annual rent of $605,250
with increases of 7.374% every three years, and has an initial term of 15
years with three five-year renewal terms at Amtech's option. The $3,500,000
limited recourse mortgage loan is collateralized by the property and a lease
assignment, and provides for monthly payments of principal and interest of
$25,902 at an annual rate of 8.09% based on a 30-year amortization. The loan
matures in October 2010, at which time a balloon payment is scheduled.
-7-
<PAGE> 9
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 7. Acquisitions of Real Estate (continued):
D. On September 26, 2000, CPA(R):14 purchased land and building in Houston,
Texas for $7,329,843 and entered into a net lease with US Home Corporation
("US Home"). The lease obligations of US Home are unconditionally guaranteed
by Lennar Corporation, US Home's parent company. The lease provides for an
initial annual rent of $700,000, with rent increases every two years based
on a formula indexed to increases in the Consumer Price Index ("CPI"),
capped at a maximum of 2.25%. The lease has an initial term of 15 years with
four five-year renewal terms at US Home's option.
E. On September 28, 2000, CPA(R):14 purchased a property in Eagan, Minnesota
for $20,942,408 and entered into a net lease with Buffets, Inc. ("Buffets").
The lease provides for an initial annual rent of $1,850,000, rising to
$2,250,000 in the second year. Beginning December 2002, annual rent
increases based on a formula indexed to the CPI are scheduled. The lease has
an initial term of 20 years with two ten-year renewals at Buffets' option.
F. On September 29, 2000, CPA(R):14 purchased property in Kansas City, Missouri
for $6,439,790 and assumed an existing net lease with Earle M. Jorgensen
Company ("Jorgensen"). The lease provides for an initial annual rent of
$630,299, with stated rent increases taking place every five years beginning
on April 1, 2005. The lease has a remaining initial term through March 2020
with three five-year renewal options.
Note 8. Subsequent Events:
A. On October 6, 2000, CPA(R):14 purchased properties in Johnson City,
Tennessee and Valdosta, Georgia for $17,539,267 and assumed an existing net
lease with Institutional Jobbers Company. In connection with the purchase,
CPA(R):14 obtained $13,416,187 of limited recourse mortgage financing.
The lease provides for an initial annual rent of $1,759,500 with stated
annual rent increases of 2.5%. The lease has a remaining term of 19 years,
with a renewal option of five years followed by an additional four-year
option. The limited recourse mortgage loan of $13,416,187 is collateralized
by the properties and a lease assignment, and provides for monthly payments
of principal and interest of $108,936 at an annual rate of 8.6%, based on a
25-year amortization schedule. The loan matures on November 1, 2010, at
which time a balloon payment is scheduled.
B. On October 30, 2000, CPA(R):14 purchased a property in Elk Grove Village,
Illinois for $8,272,207 and entered into a net lease with Towne Air Freight,
Inc. ("Towne"). The lease obligations of Towne are unconditionally
guaranteed by Towne Holdings, Inc. The lease has an initial term of 20 years
with four five-year renewals at Towne's option and provides for an initial
annual rent of $835,000, with annual increases based on a formula indexed to
the CPI.
-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 CPA(R):14's
condensed consolidated financial statements and notes thereto as of September
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.
RESULTS OF OPERATIONS:
Since September 30, 1999, CPA(R):14's asset base has increased substantially
from $298,658,000 to $464,586,000; therefore, the results of operations for the
nine-month periods ended September 30, 1999 and 2000 are not fully comparable as
they reflect primarily the effects of the increase in the asset base. Net income
for the three-month and nine-month periods ended September 30, 2000 was
$4,503,000 and $11,276,000, respectively, and $1,890,000 and $4,076,000 for the
three and nine-month periods ended September 30, 1999. 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.
FINANCIAL CONDITION:
CPA(R):14 continues to invest its net offering proceeds and proceeds from
limited recourse mortgage financing in properties subject to long-term net
leases with corporate tenants on a single tenant basis, thereby expanding and
diversifying its portfolio of commercial and industrial real estate. Under a net
lease, a tenant is generally required to pay all expenses related to the leased
property for real estate taxes, property maintenance and insurance costs. The
net lease, therefore, limits CPA(R):14 to the effects of inflation on these
property costs, which are borne by the lessor when net lease provisions are not
included. CPA(R):14's leases, which generally have initial lease terms of 15 to
20 years and 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 September 30, 2000, CPA(R):14 has raised
$265,000,000, net of costs, from its first offering and $74,228,000 from its
current offering. Since September 30, 2000, an additional $31,543,000 of capital
has been raised through the issuance of shares. During the nine-months ended
September 30, 2000, CPA(R):14 has used approximately $185,477,000 to purchase
real estate interests in net leases. In connection with this acquisition
activity, CPA(R):14 has obtained $41,823,000 of limited recourse mortgage
financing. As of October 31, 2000, CPA(R):14 has approximately $32,985,000 of
cash available for investment. Remaining costs to complete currently committed
build-to-suit projects are estimated to be $21,647,000. CPA(R):14's
build-to-suit commitments usually require the lessee to fund any cost overruns.
CPA(R):14's objective is to use the cash flow from its net leases and equity
investments to pay quarterly dividends at an increasing rate and meet its debt
service installment obligations on limited recourse mortgage debt. For the
nine-months ended September 30, 2000, cash flow from operations of $12,969,000
was not sufficient to pay quarterly dividends of $15,498,000 and scheduled
mortgage principal payment installments of $395,000. During September 2000, the
Company acquired $80,628,000 of net lease real estate which will provide annual
cash flow (rents less mortgage debt service) of $7,775,000. CPA(R):14 expects
cash flow from operations to increase substantially as cash is used to complete
build-to-suit projects and purchase additional real estate. Solely as a result
of substantial completion of build-to-suit
-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
projects during the quarter ended September 30, 2000 leased to Fitness Holdings,
Inc., Consolidated Theaters Holding, G.P., Builders' Supply and Lumber Co., Inc.
and Atrium Companies, Inc., annual cash flow will increase $2,447,000. This
added expected cash flow, combined with the recently completed transactions,
will significantly reduce or eliminate the deficit between cash flow from
operations and dividend and mortgage debt service commitments in the near
future. Since September 30, 2000, CPA(R):14 has purchased three properties for
$25,811,000. Net of debt service on the $13,416,000 of limited recourse
financing obtained in connection with the purchase of two of these properties,
the three properties purchased subsequent to September 30, 2000 should provide
annual cash flow of $1,331,000.
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 September 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 $8,181,000. In August
2000, CPA(R):14 and CPA(R):12 funded $1,175,000 of construction costs for work
that had been completed at the Ameriserve property. 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. Although Ameriserve pays its rent quarterly in
advance installments and is currently meeting its rental obligations, CPA(R):14
and CPA(R):12 intend to draw on the letter of credit. It is expected that a
portion of the funds will be applied to the balance on the limited recourse
mortgage loan on the properties, in which event monthly debt service payments
could be reduced. In February 2000, CPA(R):14 purchased two properties and
entered into net leases with subsidiaries of Stellex Technologies, Inc. In
September 2000, Stellex filed voluntary petitions of bankruptcy. Stellex has
arranged for $36,000,000 of "debtor in possession" financing, subject to the
approval of the bankruptcy. Stellex is paying its rent on a timely basis and
preliminary indications are that it intends to affirm its leases. CPA(R):14
holds a $1,883,000 letter of credit which CPA(R):14 may draw upon under certain
conditions. Management is continuing to monitor the developments relating to
Ameriserve's and Stellex's reorganizations closely.
-10-
<PAGE> 12
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
AND SUBSIDIARIES
PART II
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Approximately $101,749,000 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 September 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 $ 191 $ 1,174 $ 963 $ 1,070 $ 1,141 $ 97,210 $101,749 $ 94,168
Average interest rate 8.37% 8.38% 8.41% 8.41% 8.41% 8.52%
Variable rate $ 25 $ 107 $ 118 $ 129 $ 141 $ 8,374 $ 8,894 $ 8,894
</TABLE>
As of September 30, 2000, the Company had no other material exposure to market
risk.
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual Shareholders meeting was held on August 11, 2000, at which
time a vote was taken to elect CPA(R):14's directors through the
solicitation of proxies. 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 18,996,103 18,735,813 260,290
William Ruder 18,996,103 18,705,123 290,980
George E. Stoddard 18,996,103 18,672,334 323,769
Charles C. Townsend, Jr. 18,996,103 18,722,957 273,146
Warren G. Wintrub 18,996,103 18,726,165 269,938
Thomas E. Zacharias 18,996,103 18,727,363 268,740
</TABLE>
An amendment to the Company's By-laws was approved which allows the
Company to give shareholders notice of meetings by electronic mail if
a shareholder chooses to receive notice by such means.
<TABLE>
<CAPTION>
Total Shares Shares Shares
Shares Voting Voting Yes Voting No Abstaining
------------- ---------- --------- ----------
<S> <C> <C> <C>
18,994,463 17,627,050 712,345 655,068
</TABLE>
-11-
<PAGE> 13
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
AND SUBSIDIARIES
PART II, continued
Item 6. - 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
November 17, 1999 (File # 333-76761) is as follows as of
September 30, 2000:
<TABLE>
<CAPTION>
<S> <C>
Shares registered: 40,000,000
Aggregate price of offering amount registered: $400,000,000
Shares sold: 8,560,229
Aggregated offering price of amount sold: $ 85,602,290
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: $ 1,653,046
Direct or indirect payments to others: $ 10,457,189
Net offering proceeds to the issuer after
deducting expenses: $ 73,492,054
Purchases of real estate: $ 47,836,579
Working capital reserves: $ 856,023
Temporary investments in cash and cash equivalents: $ 24,799,452
</TABLE>
(b) Reports on Form 8-K:
During the quarter ended September 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
11/10/00 By: /s/ John J. Park
---------- -----------------------------------
Date John J. Park
Executive Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
11/10/00 By: /s/ Claude Fernandez
----------- -----------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
-13-
