<PAGE>
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 MARCH 31, 1996
---------------------------------------------
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 0-9727
--------------------------------------------------------
CORPORATE PROPERTY ASSOCIATES 2
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 13-3022196
- -------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(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>
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
INDEX
Page No.
--------
PART I
------
Item 1. - Financial Information*
Balance Sheets, December 31, 1995 and
March 31, 1996 2
Statements of Income for the three
months ended 3
Statements of Cash Flows for the three
months ended March 31, 1995 and 1996 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
*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>
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
PART I
------
Item 1. - FINANCIAL INFORMATION
-------------------------------
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
------------- ------------
(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Land and buildings, net of
accumulated depreciation of
$5,351,359 at December 31, 1995 and $12,054,587 $11,929,354
$5,476,592 at March 31, 1996
Net investment in direct
financing leases 20,060,127 20,107,113
Cash and cash equivalents 577,506 336,598
Accrued interest and rents receivable 348,201 374,435
Other assets 82,862 83,057
----------- -----------
Total assets $33,123,283 $32,830,557
=========== ===========
LIABILITIES:
Mortgage notes payable $ 7,262,720 $ 7,006,578
Note payable to affiliate 250,000
Accrued interest payable 109,632 106,716
Accounts payable and accrued expenses 74,884 76,806
Distributions payable 823,518
Prepaid rental income and security deposits 282,800 282,800
Accounts payable to affiliates 57,263 59,945
----------- -----------
Total liabilities 8,037,299 8,356,363
----------- -----------
PARTNERS' CAPITAL:
General Partners 196,888 198,987
Limited Partners (54,900 Limited Partnership
Units issued and outstanding at December 31, 1995
and March 31, 1996) 24,889,096 24,275,207
----------- -----------
Total partners' capital 25,085,984 24,474,194
----------- -----------
Total liabilities and
partners' capital $33,123,283 $32,830,557
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Note: The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date.
-2-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1995 March 31, 1996
------------------ --------------
<S> <C> <C>
Revenues:
Rental income from operating leases $ 407,507 $ 425,582
Interest income from direct financing leases 816,283 672,229
Other interest income 54,739 10,710
Other income 50,244
---------- ----------
1,328,773 1,108,521
---------- ----------
Expenses:
Interest on mortgages 384,240 179,948
Depreciation 132,481 125,233
General and administrative 72,241 69,951
Property expenses 151,942 133,930
Amortization 4,298 2,175
---------- ----------
745,202 511,237
---------- ----------
Net income $ 583,571 $ 597,284
========== ==========
Net income allocated
to General Partners $ 5,836 $ 5,973
========== ==========
Net income allocated
to Limited Partners $ 577,735 $ 591,311
========== ==========
Net income per Unit:
(55,000 and 54,900 Limited
Partnership Units at March 31,
1995 and 1996) $10.50 $10.77
====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1995 1996
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 583,571 $ 597,284
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 136,779 127,408
Interest income on direct financing leases
in excess of scheduled rents (5,268) (46,986)
Net change in operating assets and liabilities (38,651) (26,916)
----------- ---------
Net cash provided by operating activities 676,431 650,790
----------- ---------
Cash flows from financing activities:
Distributions to partners (366,667) (385,556)
Payment of note payable to affiliate (250,000)
Payment of mortgage notes payable (852,003)
Payments on mortgage principal (406,043) (256,142)
----------- ---------
Net cash used in financing activities (1,624,713) (891,698)
----------- ---------
Net decrease in cash
and cash equivalents (948,282) (240,908)
Cash and cash equivalents, beginning of period 4,185,923 577,506
----------- ---------
Cash and cash equivalents, end of period $ 3,237,641 $ 336,598
=========== =========
Supplemental disclosure of cash flows information:
Interest paid $ 394,243 $ 182,864
=========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-4-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 2
(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 (consisting of 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,
1995.
Note 2. Distributions to Partners:
-------------------------
Distributions declared and paid to partners during the three months ended
March 31, 1996 are summarized as follows:
Per Limited Partnership
Quarter Ended General Partners Limited Partners Unit
-------------- ---------------- ---------------- -----------------------
December 31, 1995 $3,856 $381,700 $6.94
====== ======== =====
A special distribution of $15 per Limited Partnership Unit ($823,500) was
declared on March 26, 1996 and paid in April 1996.
A distribution of $7.03 per Limited Partner Unit for the quarter ended
March 31, 1996 was declared and paid in April 1996.
Note 3. Transactions with Related Parties:
---------------------------------
For the three-month periods ended March 31,1995 and 1996, the Partnership
incurred management fees of $10,889 and $22,460, respectively, and general
and administrative expense reimbursements of $14,131 and $15,179,
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 three
months ended March 31, 1995 and 1996 were $22,264 and $16,084,
respectively.
-5-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 2
(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 three-month periods
ended March 31, 1995 and 1996, the Partnership earned its total operating
revenues (rental income plus interest income from financing leases) from
the following lease obligors:
<TABLE>
<CAPTION>
1995 % 1996 %
---------- ---- ---------- ----
<S> <C> <C> <C> <C>
Unisource Worldwide, Inc. $ 328,560 27% $ 329,168 30%
Pre Finish Metals Incorporated 233,347 19 238,052 22
Gibson Greetings, Inc. 461,928 38 207,281 19
Cleo, Inc. 109,994 10
AT&T 73,903 6 73,984 7
New Valley Corporation 59,324 5 59,233 5
Other 40,728 3 41,099 4
Maybelline Products Co., Inc. 26,000 2 39,000 3
---------- --- ---------- ---
$1,223,790 100% $1,097,811 100%
========== === ========== ===
</TABLE>
Note 5. Property in Maumelle, Arkansas:
------------------------------
On April 29, 1996, the Partnership executed a lease agreement which is
retroactively effective to February 19, 1996, with B & G Contract
Packaging, Inc. ("B & G") to occupy 50% of the leasable space at the
Partnership's distribution facility in Maumelle, Arkansas. The lease will
initially provide for monthly rentals of $14,000 with an initial term
through December 31, 1997 followed by two two-year renewal terms at B & G's
option. The remaining leasable space at the Maumelle facility is currently
leased to Maybelline Products Co., Inc.
-6-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
-----------------------------------------------
Results of Operations:
---------------------
The results of operations for the three-month period ended March 31,
1996 reflected a 2% increase in earnings as compared with the three-month
period ended March 31, 1995. Excluding the effect of a nonrecurring item
of $50,244 reported as other income in 1995, income would have reflected an
increase of approximately 11%. The increase in income was due to decreases
in interest and property expenses. The decrease in interest expense was
the result of paying off four mortgage loans in 1995 and the continuing
amortization of the mortgage loans on properties leased to Pre Finish
Metals Incorporated and Unisource Worldwide, Inc. ("Unisource"). The
decrease in property expenses was due, in part, to the leasing of the
Moorestown, New Jersey property to Sports & Recreation, Inc. ("Sports &
Recreation"). Leasing revenues decreased as a result of the November 1995
restructuring of the Gibson Greetings, Inc. ("Gibson") lease which included
the severing of a property from the Gibson master lease and the leasing of
such severed property to Cleo, Inc. ("Cleo"). As a result of paying off
the mortgage loan on the Gibson properties at the time of the
restructuring, net annual cash flow from the Gibson and Cleo properties
will increase by approximately $400,000. Cash flow and revenues will also
benefit from the scheduled commencement of monthly rental payments of
approximately $10,000 from Sports & Recreation in July 1996 and the new
lease of the Maumelle, Arkansas property which will provide for monthly
rental payments of $14,000.
Financial Condition:
-------------------
There has been no material change in the Partnership's financial
condition since December 31, 1995. Net cash provided from operating
activities of $662,000 was sufficient to fund payments of distributions to
partners and scheduled principal installments of $256,000. In addition,
the Partnership paid off its note payable to W. P. Carey & Co., Inc. ("W.P.
Carey"). On April 8, 1996, the Partnership borrowed an additional
$1,000,000 from W.P. Carey, which was used to pay a special distribution of
$15 per Limited Partnership Unit ($823,500) which was declared in March
1996. The Partnership is in the process of refinancing the limited
recourse mortgage loan on the Unisource property which matured on May 1,
1996. The Partnership has received a commitment for a $7,000,000 loan
which would enable the Partnership to pay off both the matured loan, which
has a balance of $5,540,000, and the $1,000,000 note from W.P. Carey. As
currently structured, the debt service on the $7,000,000 loan would provide
for monthly payments of principal and interest of $61,662 at an annual
interest rate of 7.24% based on a 16-year amortization schedule. As the
matured loan provided for quarterly payments of $278,313 at an annual
interest rate of 10%, annual cash flow will increase by $373,000 if the
refinancing is consummated. Under certain circumstances which relate to
the financial condition of Unisource, the lender would have the right to
increase the stated interest rate on the loan. There is no assurance that
the refinancing will be completed as described; however, Management
believes that completion of such refinancing is highly probable.
-7-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 2
(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 March 31, 1996, the Partnership was not
required to file any reports on Form 8-K.
-8-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 2
(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 2
(a California limited partnership)
By: W.P. CAREY & CO., INC.
5/09/96 By: /s/ Claude Fernandez
-------------- ------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
5/09/96 By: /s/ Michael D. Roberts
-------------- -------------------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
-9-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 336,598
<SECURITIES> 0
<RECEIVABLES> 374,435
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 794,090
<PP&E> 37,513,059
<DEPRECIATION> 5,476,592
<TOTAL-ASSETS> 32,830,557
<CURRENT-LIABILITIES> 1,349,785
<BONDS> 7,006,578
0
0
<COMMON> 0
<OTHER-SE> 24,474,194
<TOTAL-LIABILITY-AND-EQUITY> 32,830,557
<SALES> 0
<TOTAL-REVENUES> 1,108,521
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 331,289
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 179,948
<INCOME-PRETAX> 597,284
<INCOME-TAX> 0
<INCOME-CONTINUING> 597,284
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 597,284
<EPS-PRIMARY> 10.77
<EPS-DILUTED> 10.77
</TABLE>
