<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, 1997
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or
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
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Commission file number 0-10322
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CORPORATE PROPERTY ASSOCIATES 3
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(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2708080
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
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(Address of principal executive offices) (Zip Code)
(212) 492-1100
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(Registrant's telephone number, including area code)
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(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.
[X] Yes No [ ]
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CORPORATE PROPERTY ASSOCIATES 3
(a California limited partnership)
INDEX
Page No.
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PART I
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Item 1. - Financial Information*
Balance Sheets, December 31, 1996 and
March 31, 1997 2
Statements of Income for the three
months ended March 31, 1996 and 1997 3
Statements of Cash Flows for the three
months ended March 31, 1996 and 1997 4
Notes to Financial Statements 5-6
Item 2. - Management's Discussion of Operations 7
PART II
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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 3
(a California limited partnership)
PART I
------
Item 1. - FINANCIAL INFORMATION
-------------------------------
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
------------------ -------------------
(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Land and buildings, net of
accumulated depreciation of
$1,364,095 at December 31, 1996 and
$1,207,398 at March 31, 1997 $ 4,709,275 $ 3,703,645
Net investment in direct
financing leases 25,689,201 25,803,919
Real estate held for sale 1,589,114
Cash and cash equivalents 1,496,001 980,618
Other assets 635,873 948,815
----------- -----------
Total assets $32,530,350 $33,026,111
=========== ===========
LIABILITIES:
Note payable to affiliate $ 500,000 $ 500,000
Accounts payable and accrued expenses 63,200 74,150
Accounts payable to affiliates 73,313 68,867
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Total liabilities 636,513 643,017
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PARTNERS' CAPITAL:
General Partners 214,807 224,623
Limited Partners (66,000 Limited
Partnership Units issued and
outstanding) 31,679,030 32,158,471
----------- -----------
Total partners' capital 31,893,837 32,383,094
----------- -----------
Total liabilities and
partners' capital $32,530,350 $33,026,111
=========== ===========
</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>
CORPORATE PROPERTY ASSOCIATES 3
(a California limited partnership)
STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1996 March 31, 1997
-------------- --------------
<S> <C> <C>
Revenues:
Interest income from direct financing leases $1,176,722 $1,199,237
Rental income from operating leases 76,261 370,223
Other interest income 23,635 11,390
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1,276,618 1,580,850
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Expenses:
Interest 38,835 10,286
Depreciation 47,407 54,189
General and administrative 86,144 88,669
Property expense 217,336 103,378
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389,722 256,522
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Net income $ 886,896 $1,324,328
========== ==========
Net income allocated
to General Partners $ 17,738 $ 26,487
========== ==========
Net income allocated
to Limited Partners $ 869,158 $1,297,841
========== ==========
Net income per Unit:
(66,000 Limited
Partnership Units) $13.17 $19.66
====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
- 3 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 3
(a California limited partnership)
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
1996 1997
------------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 886,896 $1,324,328
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 47,407 54,189
Income on direct financing leases in excess of
scheduled rents and straight-line adjustments
on operating leases (92,203) (188,043)
Net change in operating assets and liabilities 23,246 (233,113)
----------- ----------
Net cash provided by operating activities 865,346 957,361
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Cash flows from investing activities:
Additional capitalized costs (637,673)
Proceeds from sale of real estate 1,853,816
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Net cash provided by (used in) investing activities 1,853,816 (637,673)
----------- ----------
Cash flows from financing activities:
Distributions to partners (820,138) (835,071)
Partial prepayment of note payable to affiliate (1,500,000)
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Net cash used in financing activities (2,320,138) (835,071)
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Net increase (decrease) in cash and cash equivalents 399,024 (515,383)
Cash and cash equivalents, beginning of period 1,158,302 1,496,001
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Cash and cash equivalents, end of period $ 1,557,326 $ 980,618
=========== ==========
Supplemental disclosure of cash flows information:
Interest paid $ 55,644 $ 10,286
=========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE>
CORPORATE PROPERTY ASSOCIATES 3
(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, 1996.
Note 2. Distributions to Partners:
-------------------------
Distributions declared and paid to partners during the three months ended March
31, 1997 are summarized as follows:
Quarter Ended General Partners Limited Partners Per Limited Partner Unit
- ----------------- ---------------- ---------------- ------------------------
December 31, 1996 $16,671 $818,400 $12.40
======= ======== ======
A distribution of $12.41 per Limited Partner Unit for the quarter ended March
31, 1997 was declared and paid in April 1997.
Note 3. Transactions with Related Parties:
---------------------------------
For the three-month periods ended March 31, 1996 and 1997, the Partnership
incurred management fees of $45,262 and $59,321, respectively, and general and
administrative expense reimbursements of $24,846 and $21,518, respectively.
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, 1996 and 1997 were $24,613 and $17,584, respectively.
- 5 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 3
(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, 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>
Gibson Greetings, Inc. $ 636,133 51% $ 649,923 42%
Cleo, Inc. 334,145 27 342,889 22
Hughes Markets, Inc. 76,261 6 242,349 15
AT&T Corporation 114,651 9 114,789 7
New Valley Corporation 91,793 7 91,637 6
Excel Telecommunications, Inc. 80,959 5
Sports & Recreation, Inc. 46,914 3
---------- --- ---------- ---
$1,252,983 100% $1,569,460 100%
========== === ========== ===
</TABLE>
Note 5. Property in Moorestown, New Jersey:
----------------------------------
In April 1997, the Partnership and Corporate Property Associates 2 ("CPA(R):2"),
an affiliate, who own a property in Moorestown, New Jersey as tenants-in-common
with approximate 61% and 39% interests, respectively, entered into an agreement
to sell the property for $4,500,000 (of which the Partnership's share is
approximately $2,745,000), less selling costs.
The property is currently subject to a net lease with Sports & Recreation, Inc.
("Sports & Recreation"). During 1996, Sports & Recreation indicated to the
Partnership and CPA(R):2 that it had decided not to occupy the property and
would seek to terminate the lease. Sports & Recreation has continued to meet
its lease obligations.
The sales agreement provides the purchaser a period of 90 days to complete its
inspection of the property. If based on the inspection, the purchaser is not
satisfied, the purchaser may elect to terminate the sales agreement. The sale
is also contingent upon the purchaser reaching a lease termination agreement
with Sports and Recreation and obtaining permits and approvals from the township
of Moorestown prior to October 1, 1997. If all the conditions are met, the sale
will occur between August 1, 1997 and December 15, 1997. There is no assurance
that the sale will be completed.
In connection with the proposed sale, the $1,589,114 carrying value of the
property has been classified as real estate held for sale.
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<PAGE>
CORPORATE PROPERTY ASSOCIATES 3
(a California limited partnership)
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
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Results of Operations:
- ---------------------
The increase in net income of $437,000 for the three-month period ended March
31, 1997 as compared with the three-month period ended March 31, 1996 was due to
(i) the commencement of leases in July 1996 and November 1996 for the
Partnership's properties in Moorestown, New Jersey and Reno, Nevada,
respectively, and (ii) the modification of the lease with Hughes Markets, Inc.
in May 1996 in connection with a two-year extension of the Hughes lease. As a
result of the Moorestown and Reno leases with Sports & Recreation, Inc. and
Excel Telecommunications, Inc., respectively, lease revenues increased by
$128,000. In addition, with the commencement of the leases, property-related
costs such as insurance and real estate taxes are paid by the lessees rather
than absorbed by the Partnership, thereby reducing the Partnership's property
expenses. As a result of the Hughes lease modification, revenues for the
comparable three-month periods increased by $166,000.
The Hughes lease is scheduled to expire in April 1998. Annual cash flow from
the Hughes property is $676,000. If the sale of the Moorestown property is
completed, annual revenues and cash flow will decrease by $188,000.
Financial Condition:
- -------------------
There has been no material change in the Partnership's financial condition
since December 31, 1996. The decrease in cash of $515,000 was caused by the use
of $638,000 of cash reserves to fund completion of tenant improvements for Excel
in connection with retrofitting the Reno property. Cash provided from operating
activities of $957,000 was sufficient to fund distributions to partners of
$835,000.
The Partnership has entered into preliminary discussions with AT&T
Corporation regarding funding an expansion of the AT&T property in Bridgeton,
Missouri. In exchange for funding improvements, the lease term would be
extended. There is no assurance that an agreement will be completed. If
necessary, the Partnership has sufficient borrowing capacity to fund any
expansion of the AT&T property. If the sale of the Moorestown property is
completed, the Partnership's share of proceeds from the sale are estimated to be
$2,745,000, before selling costs. The sale would not occur prior to August 1,
1997. The Partnership is also actively seeking a new lessee for the Hughes
property.
The General Partners are currently investigating ways to provide liquidity for
limited partners on a tax-effective basis.
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<PAGE>
CORPORATE PROPERTY ASSOCIATES 3
(a California limited partnership)
PART II
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Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) Exhibits:
None
(b) Reports on Form 8-K
During the quarter ended March 31, 1997, the Partnership was not
required to file any reports on form 8-K.
- 8 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 3
(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 3
(a California limited partnership)
By: W.P. CAREY & CO., INC.
5/8/97 By: /s/ Claude Fernandez
---------- ------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
5/8/97 By: /s/ Michael D. Roberts
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Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
- 9 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE
QUARTER ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 980618
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 980618
<PP&E> 30774962
<DEPRECIATION> 1207398
<TOTAL-ASSETS> 33026111
<CURRENT-LIABILITIES> 143017
<BONDS> 500000
0
0
<COMMON> 0
<OTHER-SE> 32383094
<TOTAL-LIABILITY-AND-EQUITY> 33026111
<SALES> 0
<TOTAL-REVENUES> 1580850
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 246236
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10286
<INCOME-PRETAX> 1324328
<INCOME-TAX> 0
<INCOME-CONTINUING> 1324328
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1324328
<EPS-PRIMARY> 19.66
<EPS-DILUTED> 19.66
</TABLE>
