<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 SEPTEMBER 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>
<S> <C>
CALIFORNIA 94-2572215
(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
Page No.
PART I
Item 1. - Financial Information*
Balance Sheets, December 31, 1996 and
September 30, 1997 2
Statements of Income for the three and nine
months ended September 30, 1996 and 1997 3
Statements of Cash Flows for the nine
months ended September 30, 1996 and 1997 4
Notes to Financial Statements 5-7
Item 2. - Management's Discussion of Operations 8
PART II
Item 6. - Exhibits and Reports on Form 8-K 9
Signatures 10
*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.
<PAGE> 3
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
PART I
Item 1. - FINANCIAL INFORMATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 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
$18,931,908 at September 30, 1997 $ 14,851,807 $ 14,172,445
Net investment in direct financing leases 4,660,571 4,674,564
Real estate held for sale 434,339
Cash and cash equivalents 864,889 1,588,954
Other assets 1,414,388 1,444,141
------------ ------------
Total assets $ 22,225,994 $ 21,880,104
============ ============
LIABILITIES:
Mortgage notes payable $ 13,429,484 $ 12,200,422
Accrued interest payable 108,755 149,484
Accounts payable and accrued expenses 83,443 92,482
Prepaid rental income and security deposits 198,610 198,610
Accounts payable to affiliates 45,840 41,008
------------ ------------
Total liabilities 13,866,132 12,682,006
------------ ------------
PARTNERS' CAPITAL:
General Partners (95,847) (87,465)
Limited Partners (40,000 Limited
Partnership Units issued and
outstanding) 8,455,709 9,285,563
------------ ------------
Total partners' capital 8,359,862 9,198,098
------------ ------------
Total liabilities and
partners' capital $ 22,225,994 $ 21,880,104
============ ============
</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.
2
<PAGE> 4
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1997 September 30, 1996 September 30, 1997
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income from
operating leases $ 1,008,974 $ 972,577 $ 3,024,080 $ 2,949,327
Interest from direct
financing leases 128,963 123,872 386,890 371,617
Other interest income 13,206 4,223 32,868 28,791
Other income 5,852
----------- ----------- ----------- -----------
1,151,143 1,100,672 3,443,838 3,355,587
----------- ----------- ----------- -----------
Expenses:
Interest on mortgages 303,479 261,733 990,377 779,293
Depreciation 233,016 226,454 743,116 679,362
General and
administrative 54,994 83,241 158,464 209,329
Property expense 35,227 288,390 103,532 329,754
Amortization 19,945 19,946 42,265 59,838
----------- ----------- ----------- -----------
646,661 879,764 2,037,754 2,057,576
----------- ----------- ----------- -----------
Income before gain on
sale of real estate and
extraordinary item 504,482 220,908 1,406,084 1,298,011
Gain on sale of real estate 607,861 607,861
----------- ----------- ----------- -----------
Income before extra-
ordinary item 504,482 828,769 1,406,084 1,905,872
Extraordinary charge on
extinguishment of debt (255,438)
----------- ----------- ----------- -----------
Net income $ 504,482 $ 828,769 $ 1,150,646 $ 1,905,872
=========== =========== =========== ===========
Net income allocated
to General Partners $ 5,044 $ 8,288 $ 11,506 $ 19,059
=========== =========== =========== ===========
Net income allocated
to Limited Partners $ 499,438 $ 820,481 $ 1,139,140 $ 1,886,813
=========== =========== =========== ===========
Net income per Unit
(40,000 Limited
Partnership Units):
Income before extra-
ordinary charge $ 12.49 $ 20.51 $ 34.80 $ 47.17
Extraordinary charge (6.32)
----------- ----------- ----------- -----------
$ 12.49 $ 20.51 $ 28.48 $ 47.17
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 5
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1996 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,150,646 $ 1,905,872
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 785,381 739,200
Gain on sale of real estate (607,861)
Other noncash adjustments (63,211) (64,618)
Extraordinary charge on extinguishment of debt 255,438
Net change in operating assets and liabilities (5,290) 6,213
----------- -----------
Net cash provided by operating activities 2,122,964 1,978,806
----------- -----------
Cash flows from investing activities:
Proceeds from sale of real estate 1,042,200
-----------
Net cash provided by investing activities 1,042,200
-----------
Cash flows from financing activities:
Distributions to partners (1,062,222) (1,067,879)
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 (1,044,572) (1,229,062)
----------- -----------
Net cash used in financing activities (2,315,322) (2,296,941)
----------- -----------
Net (decrease) increase in cash and cash equivalents (192,358) 724,065
Cash and cash equivalents, beginning of period 872,864 864,889
----------- -----------
Cash and cash equivalents, end of period $ 680,506 $ 1,588,954
=========== ===========
Supplemental disclosure of cash flows information:
Interest paid $ 1,066,171 $ 738,564
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<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 nine months ended
September 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
======== ======== ========
June 30, 1997 $ 3,564 $352,800 $ 8.82
======== ======== ========
</TABLE>
A distribution of $8.83 per Limited Partner Unit for the quarter ended September
30, 1997 was declared and paid in October 1997.
Note 3. Transactions with Related Parties:
For the three-month and nine-month periods ended September 30, 1996, the
Partnership incurred property management fees of $20,298 and $44,673,
respectively, and general and administrative expense reimbursements of $11,415
and $33,021, respectively, payable to an affiliate. For the three-month and
nine-month periods ended September 30, 1997, the Partnership incurred property
management fees of $14,927 and $45,571, respectively, and general and
administrative expense reimbursements of $14,191 and $39,340, respectively,
payable to an affiliate. Management believes that ultimate payment of a
preferred return to the General Partners of $177,773, based upon cumulative
proceeds of sales of assets, is reasonably possible but not probable, as defined
in Statement of Financial Accounting Standards No. 5, and no accrual for such
preferred return has been reflected in the accompanying Financial Statements.
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 nine months ended
September 30, 1996 and 1997 were $24,806 and $23,146, respectively.
5
<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 nine-month periods ended
September 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 $1,079,753 31% $1,090,704 33%
The Gap, Inc. 919,495 27 919,495 28
IMO Industries, Inc. 635,057 19 574,063 17
Unisource Worldwide, Inc. 247,110 7 248,519 7
Broomfield Tech Center Corporation 225,100 7 225,100 7
Kobacker Stores, Inc. 227,655 7 200,486 6
Winn-Dixie Stores, Inc. 76,800 2 62,577 2
---------- ---------- ---------- ----------
$3,410,970 100% $3,320,944 100%
========== ========== ========== ==========
</TABLE>
Note 5. Gain on Sale of Real Estate:
On August 11, 1997, the Partnership completed the sale of a property in
Louisville, Kentucky, for $1,100,000 and received proceeds, net of selling
costs, of $1,042,200. In connection with the sale, the Partnership recognized a
gain of $607,861. The existing lease for the property with Winn-Dixie Stores,
Inc., as lessee, was assigned to the purchaser.
Note 6. Properties Leased to Broomfield Tech Center Corporation:
In October 1993, Broomfield Tech Center Corporation ("Broomfield"), the lessee
of two of five properties in Broomfield, Colorado, notified the Partnership that
it was exercising its option to purchase its leased properties from the
Partnership. The option provided that the sale of the property would occur on
May 1, 1994. The exercise price was to be the greater of (a) approximately
$2,550,000, subject to adjustment for certain allowances; (b) assumption of the
mortgage balances at the date of sale plus an adjustment of fifty percent of the
fair value of the properties in excess of the mortgage balance, or (c)
$2,375,000. Because the Partnership rejected certain claims for adjustment by
Broomfield, no agreement was reached on the purchase price. Broomfield continued
to pay its rent until January 1997, at which time it informed the Partnership
that it would withhold rents until the purchase price issue was resolved.
The Partnership responded by informing Broomfield that the withholding of rents
was impermissible under the lease. As Broomfield refused to bring its rent
current in August 1997, the Partnership declared the lease in default. Since no
rent has been received in 1997, the Partnership has established a reserve for
uncollected rents for the entire arrearage and incurred a charge of $250,113 to
property expenses. The Partnership is vigorously pursuing its remedies against
Broomfield.
6
<PAGE> 8
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
The Partnership has not paid the debt service on the limited recourse mortgage
loan collateralized by the Broomfield properties since June 1997. As a result of
such nonpayment, the lender has declared the loan in default and is seeking
either to accelerate payment of the entire outstanding principal balance on the
loan of $2,213,154 or proceed with a lawsuit to foreclose on the properties. The
General Partners are evaluating various alternatives including, but not limited
to, whether to bring the debt service arrearage current in exchange for the
lender's withdrawal of its demand for acceleration or paying off the entire
balance. In the event that the mortgage is not paid off or debt service is not
brought current, the lender's sole recourse is to the collateralized properties
and the assignment of the Broomfield leases.
Note 7. Consent Solicitation:
On October 15, 1997, Carey Diversified LLC ("CDSM") filed a Consent Solicitation
Statement/Prospectus ("consent solicitation") with the United States Securities
and Exchange Commission. The General Partners are proposing that the Limited
Partners of the nine CPA(R) limited partnerships approve a transaction in which
each CPA(R) limited partnership would be merged with a subsidiary partnership of
CDSM, of which CDSM is the general partner. As described in the consent
solicitation, each limited partner would have the option of either exchanging
his or her limited partnership units for an interest in CDSM ("Listed Shares")
or to retain a limited partnership interest in the subsidiary partnership
("Subsidiary Partnership Units"). If the holders of a majority of the
outstanding limited partnership units of the Partnership consent to the
transaction, the merger of the Partnership with the corresponding subsidiary
partnership of CDSM may be consummated. If the transaction is consummated, the
General Partners will exchange a portion of their general partnership interests
in exchange for Listed Shares. The transaction will not occur unless the CPA(R)
Partnerships approving the transaction represent at least $200,000,000 in Total
Exchange Value, as defined. There is no assurance that the holders of limited
partnership units of the Partnership will consent to the transaction or that the
transaction will occur.
If the transaction is completed, the Listed Shares will be listed and publicly
traded on the New York Stock Exchange. Subsidiary Partnership Units will provide
substantially the same economic interest and legal rights as those of a limited
partnership unit in the Partnership, but will not be listed on a securities
exchange. Conversion of limited partnership units to Listed Shares or Subsidiary
Partnership Units will not result in a taxable event to the limited partners.
The risk factors and benefits relating to the proposed transaction are described
in the consent solicitation. The General Partners, as well as all the Directors
of the Corporate General Partners of the CPA(R) Partnerships, have unanimously
approved the proposed transaction.
7
<PAGE> 9
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
Results of Operations:
Net income for the three-month and nine-month periods ended September 30,
1997 increased by $324,000 and $755,000, respectively, as compared with the
similar periods ended September 30, 1996. Excluding the effects of the $255,000
extraordinary charge on extinguishment of debt in connection with the
refinancing of the mortgage loan on The Gap, Inc. property in the second quarter
of 1996 and the $608,000 gain on the sale of the Partnership's property in
Louisville, Kentucky leased to Winn-Dixie Stores, Inc. in the current quarter,
income would have reflected decreases of $284,000 and $108,000 for the
three-month and nine-month periods, respectively. The decreases in income before
gain and the extraordinary charge for both comparable periods were primarily due
to an increase in property expenses and, to a lesser extent, a decrease in lease
revenues. These effects were partially offset by a decrease in interest expense.
The increase in property expenses was solely due to the $250,000 charge
incurred in connection with establishing a reserve for uncollected rents on the
rent arrearage from Broomfield Tech Center Corporation. The decrease in lease
revenues was due to the sale of two properties leased to Kobacker Stores, Inc.
in November 1996 and the termination of the lease on a property occupied by IMO
Industries, Inc. in January 1997. The decreases in interest expense were due to
the benefit realized on the 1996 refinancing mentioned above of the mortgage
loan collateralized by the property leased to The Gap and the continuing
amortization of the mortgage loans on properties leased to Pre Finish Metals
Incorporated and IMO Industries. The Pre Finish Metals mortgage loan will fully
amortize in 1998.
The Partnership has paid off its mortgage loan collateralized by the
Kobacker Stores, Inc. properties, whereby annual cash flow will increase by
$175,000 and offsets the reduction in annual cash flow of $102,000 resulting
from the sale of the Winn-Dixie property.
Financial Condition:
There has been no material change in the Partnership's condition since
December 31, 1996. Cash flow from operations of $1,979,000 was not fully
sufficient to fund distributions to partners and scheduled principal payment
installments totalling $2,297,000, primarily due to the nonpayment of rents by
Broomfield Tech Center Corporation. Cash balances increased by $724,000 since
December 31, 1996 as a result of completing the sale of the Winn-Dixie property.
On November 7, 1997, the Partnership used $969,000 to pay off the loan on the
Kobacker properties.
Because of its dispute with Broomfield Tech Center Corporation, the
Partnership is not currently paying debt service on the limited recourse loan
collateralized by the Broomfield properties. As a result of such nonpayment, the
lender has declared the loan in default and proceeded with a lawsuit to
foreclose on the properties. The lender has demanded an acceleration of payment
of the entire outstanding principal balance on the loan of $2,213,000 and
accrued interest thereon, as a condition for withdrawing its foreclosure action.
As the loan is limited recourse, the lender has no recourse to any of the
Partnership's assets other than the encumbered properties. The Partnership is
currently evaluating whether to bring the mortgage debt service arrearage
current. If the Partnership cannot reach an agreement with the lender for the
withdrawal of the acceleration demand, it does not currently have sufficient
cash, but has sufficient borrowing capacity, to pay off the loan, if it
determines that it is in the Partnership's financial interest to do so. If
necessary, the Partnership does have sufficient borrowing capacity and could
raise the necessary funds from such borrowing capacity to payoff the loan.
As more fully described in Note 7 to the Financial Statements, the General
Partners have distributed to Limited Partners a consent solicitation which
proposes an exchange of limited partnership units for securities in a
publicly-traded limited liability company. The exchange would not result in a
taxable event to the limited partners, and the General Partners believe that
this proposed transaction will provide limited partners with liquidity on a
tax-effective basis. There is no assurance that the proposed transaction will be
completed.
8
<PAGE> 10
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 September 30, 1997, the Partnership
was not required to file any reports on Form 8-K.
9
<PAGE> 11
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.
11/10/97 By: /s/ Steven M. Berzin
-------- ----------------------------------
Date Steven M. Berzin
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
11/10/97 By: /s/ Claude Fernandez
-------- ----------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q FOR
THE QUARTER ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,588,954
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,588,954
<PP&E> 37,778,917
<DEPRECIATION> 18,931,908
<TOTAL-ASSETS> 21,880,104
<CURRENT-LIABILITIES> 282,974
<BONDS> 12,200,422
0
0
<COMMON> 0
<OTHER-SE> 9,198,098
<TOTAL-LIABILITY-AND-EQUITY> 21,880,104
<SALES> 0
<TOTAL-REVENUES> 3,355,587
<CGS> 0
<TOTAL-COSTS> 1,218,445
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 779,293
<INCOME-PRETAX> 1,905,872
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,905,872
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,905,872
<EPS-PRIMARY> 47.17
<EPS-DILUTED> 0
</TABLE>
