<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________ to ________________
Commission file number 0-9174
CORPORATE PROPERTY ASSOCIATES
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
CALIFORNIA 94-2572215
<S> <C>
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
(Address of principal executive offices) (Zip Code)
</TABLE>
(212) 492-1100
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
/X/ Yes / / No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
/ / Yes / / No
<PAGE> 2
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I
Item 1. - Financial Information*
Balance Sheets, December 31, 1996 and
June 30, 1997 2
Statements of Income for the three and six
months ended June 30, 1996 and 1997 3
Statements of Cash Flows for the six
months ended June 30, 1996 and 1997 4
Notes to Financial Statements 5-6
Item 2. - Management's Discussion of Operations 7
PART II
Item 6. - Exhibits and Reports on Form 8-K 8
Signatures 9
</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.
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<PAGE> 3
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
PART I
Item 1. - FINANCIAL INFORMATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
---- ----
(Note) Unaudited)
<S> <C> <C>
ASSETS:
Land and buildings, net of
accumulated depreciation of
$18,252,546 at December 31, 1996 and
$18,705,454 at June 30, 1997 $ 14,851,807 $ 14,398,899
Net investment in direct financing leases 4,660,571 4,669,898
Real estate held for sale 434,339 434,339
Cash and cash equivalents 864,889 741,871
Accrued interest and rents receivable 397,309 538,425
Other assets 1,017,079 1,012,349
------------ ------------
Total assets $ 22,225,994 $ 21,795,781
============ ============
LIABILITIES:
Mortgage notes payable $ 13,429,484 $ 12,591,452
Accrued interest payable 108,755 101,842
Accounts payable and accrued expenses 83,443 47,105
Prepaid rental income and security deposits 198,610 218,610
Accounts payable to affiliates 45,840 116,679
------------ ------------
Total liabilities 13,866,132 13,075,688
------------ ------------
PARTNERS' CAPITAL:
General Partners (95,847) (92,245)
Limited Partners (40,000 Limited
Partnership Units issued and
outstanding) 8,455,709 8,812,338
------------ ------------
Total partners' capital 8,359,862 8,720,093
------------ ------------
Total liabilities and
partners' capital $ 22,225,994 $ 21,795,781
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date.
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<PAGE> 4
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1997 June 30, 1996 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income from
operating leases $ 1,007,779 $ 985,144 $2,015,106 $1,976,750
Interest from direct
financing leases 128,964 124,342 257,927 247,745
Other interest income 6,520 10,994 19,662 24,568
Other income 5,852
----------- ----------- ---------- ----------
1,143,263 1,120,480 2,292,695 2,254,915
----------- ----------- ---------- ----------
Expenses:
Interest on mortgages 331,183 269,488 686,898 517,560
Depreciation 240,626 189,995 510,100 452,908
General and
administrative 48,926 59,645 103,470 126,088
Property expense 54,276 22,297 68,305 41,364
Amortization 15,550 22,702 22,320 39,892
----------- ----------- ---------- ----------
690,561 564,127 1,391,093 1,177,812
----------- ----------- ---------- ----------
Income before extra-
ordinary item 452,702 556,353 901,602 1,077,103
Extraordinary charge on
extinguishment of debt (255,438) (255,438)
----------- ----------- ---------- ----------
Net income $ 197,264 $ 556,353 $ 646,164 $1,077,103
=========== =========== ========== ==========
Net income allocated
to General Partners $ 1,973 $ 5,563 $ 6,462 $ 10,771
=========== =========== ========== ==========
Net income allocated
to Limited Partners $ 195,291 $ 550,790 $ 639,702 $1,066,332
=========== =========== ========== ==========
Net income per Unit
(40,000 Limited
Partnership Units):
Income before extra-
ordinary charge $ 11.20 $ 13.77 $ 22.31 $ 26.66
Extraordinary charge (6.32) (6.32)
----------- ----------- ---------- ----------
$ 4.88 $ 13.77 $ 15.99 $ 26.66
=========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE> 5
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1996 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 646,164 $ 1,077,103
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 532,420 492,800
Other noncash adjustments 213,298 (43,077)
Net change in operating assets and liabilities (18,163) (100,297)
----------- -----------
Net cash provided by operating activities 1,373,719 1,426,529
----------- -----------
Cash flows from financing activities:
Distributions to partners (707,475) (711,515)
Prepayment of mortgage payable (6,194,941)
Proceeds from mortgage note payable 6,400,000
Deferred financing costs (158,149)
Prepayment charges paid on extinguishment of debt (255,438)
Payments of mortgage principal (673,430) (838,032)
----------- -----------
Net cash used in financing activities (1,598,433) (1,549,547)
----------- -----------
Net decrease in cash and cash equivalents (215,714) (123,018)
Cash and cash equivalents, beginning of period 872,864 864,889
----------- -----------
Cash and cash equivalents, end of period $ 657,150 $ 741,871
=========== ===========
Supplemental disclosure of cash flows information:
Interest paid $ 760,933 $ 524,473
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE> 6
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Presentation:
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (including normal recurring
accruals) considered necessary for a fair presentation have been included. For
further information, refer to the financial statements and footnotes thereto
included in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1996.
Note 2. Distributions to Partners:
Distributions declared and paid to partners during the six months ended June 30,
1997 are summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended General Partners Limited Partners Per Limited Partnership Unit
------------- ---------------- ---------------- ----------------------------
<S> <C> <C> <C>
December 31, 1996 $3,556 $352,000 $8.80
====== ======== =====
March 31, 1997 $3,559 $352,400 $8.81
====== ======== =====
</TABLE>
A distribution of $8.82 per Limited Partner Unit for the quarter ended June 30,
1997 was declared and paid in July 1997.
Note 3. Transactions with Related Parties:
For the three-month and six-month periods ended June 30, 1996, the Partnership
incurred property management fees of $14,219 and $24,375, respectively and
general and administrative expense reimbursements of $11,089 and $21,606,
respectively, payable to an affiliate. For the three-month and six-month periods
ended June 30, 1997, the Partnership incurred property management fees of
$14,395 and $30,644, respectively and general and administrative expense
reimbursements of $13,362 and $25,149, respectively, payable to an affiliate.
The Partnership, in conjunction with certain affiliates, is a participant in a
cost sharing agreement for the purpose of renting and occupying office space.
Under the agreement, the Partnership pays its proportionate share of rent and
other costs of occupancy. Net expenses incurred for the six months ended June
30, 1996 and 1997 were $16,296 and $15,640, respectively.
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<PAGE> 7
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 4. Industry Segment Information:
The Partnership's operations consist of the investment in and the leasing of
industrial and commercial real estate. For the six-month periods ended June 30,
1996 and 1997, the Partnership earned its total operating revenues (rental
income plus interest income from financing leases) from the following lease
obligors:
<TABLE>
<CAPTION>
1996 % 1997 %
---- ---- ---- --
<S> <C> <C> <C> <C>
Prefinish Metals Incorporated $ 718,887 31% $ 725,643 33%
The Gap, Inc. 612,997 27 612,997 28
IMO Industries, Inc. 423,371 19 385,250 17
Unisource Worldwide, Inc. 164,740 7 165,679 7
Broomfield Tech Center Corporation 150,068 7 150,068 7
Kobacker Stores, Inc. 151,770 7 133,658 6
Winn-Dixie Stores, Inc. 51,200 2 51,200 2
---------- ---- ---------- ---
$2,273,033 100% $2,224,495 100%
========== ==== ========== ====
</TABLE>
Note 5. Real Estate Held for Sale:
On September 17, 1996, the Partnership entered into a purchase and sale
agreement for the sale of the Partnership's property in Louisville, Kentucky,
leased to Winn-Dixie Stores, Inc. ("Winn-Dixie") for $1,100,000, less selling
costs, which include a 5% brokerage commission. The sales transaction is
scheduled to occur on August 11, 1997. The Winn-Dixie lease provides annual
rentals of $102,000 and is scheduled to expire in December 1999.
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<PAGE> 8
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
Results of Operations:
Excluding the effect of an extraordinary charge of $255,000 in the second
quarter of 1996, income for the three-month and six-month periods ended June 30,
1997 increased by $104,000 and $176,000, respectively, as compared with the
similar periods ended June 30, 1996. The increases were due to decreases in
interest, property and depreciation expenses, and were partially offset by
decreases in lease revenues and, to a lesser extent, increases in general and
administrative expenses.
The decreases in interest were due to the benefit realized on refinancing
the mortgage loan on The Gap, Inc. property at a lower rate of interest in the
second quarter of 1996 and the continuing amortization of mortgage loans on the
Pre Finish Metals Incorporated and IMO Industries, Inc. properties. The Pre
Finish Metals loan will fully amortize in 1998 and the IMO Industries loan is
amortizing over ten years through 2002. The decreases in depreciation were due
to the full depreciation of certain improvements which utilize component-method
depreciation schedules. The decreases in property expense were due to charges
incurred in 1996 for the writeoff of certain property-related receivables. The
decreases in lease revenues were due to the termination of a lease with IMO
Industries in February 1997 which provided annual rentals of $91,000 and a
reduction in rentals from Kobacker Stores, Inc. subsequent to the sale of two
Kobacker properties in the fourth quarter of 1996.
Financial Condition:
There has been no material change in the Partnership's condition since
December 31, 1996. Cash flow from operations of $1,427,000 was sufficient to
fund distributions of $712,000 and $715,000 of scheduled principal payment
installments of $838,000. Scheduled amortization of mortgage principal will
decrease substantially beginning in July 1998 when the loan on the Pre Finish
Metals property will be paid off; principal paid on the Pre Finish Metal
mortgage loan during the six-month period ended June 30, 1997 amounted to
$420,000. Accordingly, Management believes that the Partnership can sustain the
current distribution rate even though uses of cash currently exceed cash
generated from operations.
Annual operating cash flow is expected to decrease by $102,400 when the
sale of the Winn-Dixie Stores, Inc. property in Louisville, Kentucky is
completed. Proceeds from the proposed sale will be approximately $1,100,000,
less selling costs. The sale is scheduled to occur on August 11, 1997.
The Partnership released IMO Industries from its lease on a property in
February 1997 and in exchange, IMO returned the property in an "as is" condition
and paid $486,000 into an escrow account held by an affiliate of the
Partnership. The escrow account is being used to fund repair costs and
construction management fees. Any unused funds will be released to the
Partnership. A second lease with IMO has an initial term which expires in
September 2002.
The General Partners are currently investigating ways to provide liquidity
for limited partners on a tax-effective basis.
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<PAGE> 9
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
PART II
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
During the quarter ended June 30, 1997, the Partnership was
not required to file any reports on Form 8-K.
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<PAGE> 10
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
By: W.P. CAREY & CO., INC.
08/08/97 By: /s/ Steven M. Berzin
---------------- ------------------------------------------
Date Steven M. Berzin
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
08/08/97 By: /s/ Claude Fernandez
---------------- ------------------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
08/08/97 By: /s/ Michael D. Roberts
---------------- ------------------------------------------
Date Michael D. Roberts
First Vice President and Controller
- 9 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCES TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 741,871
<SECURITIES> 0
<RECEIVABLES> 538,425
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,280,296
<PP&E> 37,774,251
<DEPRECIATION> 18,705,454
<TOTAL-ASSETS> 21,795,781
<CURRENT-LIABILITIES> 484,236
<BONDS> 12,591,452
0
0
<COMMON> 0
<OTHER-SE> 8,720,093
<TOTAL-LIABILITY-AND-EQUITY> 27,795,781
<SALES> 0
<TOTAL-REVENUES> 2,254,915
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 660,252
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 517,560
<INCOME-PRETAX> 1,077,130
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,077,130
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,077,130
<EPS-PRIMARY> 26.66
<EPS-DILUTED> 26.66
</TABLE>
