<PAGE>
OMB APPROVAL
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OMB Number 3235-0070
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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, 1995
-------------------------------------------------
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 0-11982
----------------------------------------------------------
CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 13-3126150
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or 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 4,
a California limited partnership
INDEX
Page No.
--------
PART I
------
Item 1. - Financial Information*
Balance Sheets, December 31, 1994 and
June 30, 1995 2
Statements of Income for the three and six
months ended June 30, 1994 and 1995 3
Statements of Cash Flows for the six
months ended June 30, 1994 and 1995 4
Notes to Financial Statements 5-6
Item 2. - Management's Discussion of Operations 7-8
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.
- 1 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
PART I
------
Item 1. - FINANCIAL INFORMATION
-------------------------------
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1994 1995
------------- -------------
(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Land and buildings, net of
accumulated depreciation of
$12,212,983 at December 31, 1994 and
$12,794,134 at June 30, 1995 $22,375,100 $21,884,958
Net investment in direct
financing leases 29,952,612 18,238,008
Cash and cash equivalents 2,509,451 11,871,477
Accrued interest and rents receivable 262,998 173,653
Other assets 1,007,653 1,207,633
----------- -----------
Total assets $56,107,814 $53,375,729
=========== ===========
LIABILITIES:
Mortgage notes payable $26,367,583 $19,932,932
Accrued interest payable 193,839 144,676
Accounts payable and accrued expenses 610,264 430,439
Prepaid rental income 119,118 45,600
Accounts payable to affiliates 31,427 56,559
----------- -----------
Total liabilities 27,322,231 20,610,206
----------- -----------
PARTNERS' CAPITAL:
General Partners (486,282) 73,189
Limited Partners (85,568 Limited
Partnership Units issued and
outstanding) 29,271,865 32,692,334
----------- -----------
Total partners' capital 28,785,583 32,765,523
----------- -----------
Total liabilities and
partners' capital $56,107,814 $53,375,729
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Note: The balance sheet at December 31, 1994 has been derived from the audited
financial statements at that date.
- 2 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1994 June 30, 1995 June 30, 1994 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income from
operating leases $ 800,557 $ 812,363 $1,601,114 $1,620,490
Interest income from
direct financing leases 1,353,746 1,352,754 2,707,716 2,705,771
Other interest income 28,197 24,866 52,853 51,524
Revenue of hotel operations 722,163 951,953 1,506,270 1,948,846
Other income 1,972 44,764
---------- ---------- ---------- ----------
2,904,663 3,143,908 5,867,953 6,371,395
---------- ---------- ---------- ----------
Expenses:
Interest on mortgages 589,552 605,848 1,184,230 1,200,367
Depreciation 281,528 292,142 564,448 581,151
General and administrative 99,687 103,723 217,869 243,986
Property expense 291,148 79,866 439,667 172,996
Amortization 31,170 31,150 62,300 62,300
Operating expenses of
hotel operations 494,867 593,089 998,003 1,182,557
---------- ---------- ---------- ----------
1,787,952 1,705,818 3,466,517 3,443,357
---------- ---------- ---------- ----------
Income before gain on
sale of real estate 1,116,711 1,438,090 2,401,436 2,928,038
Gain on sale of real estate 3,497,872 3,497,872
---------- ---------- ---------- ----------
Net income $1,116,711 $4,935,962 $2,401,436 $6,425,910
========== ========== ========== ==========
Net income allocated
to General Partners $ 67,003 $ 616,832 $ 144,086 $ 706,229
========== ========== ========== ==========
Net income allocated
to Limited Partners $1,049,708 $4,319,130 $2,257,350 $5,719,681
========== ========== ========== ==========
Net income per Unit
(85,568 Limited
Partnership Units) $12.27 $50.47 $26.38 $66.84
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- 3 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
1994 1995
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,401,436 $ 6,425,910
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 626,748 643,451
Other noncash items 10,531 12,476
Gain on sale of real estate (3,497,872)
Net change in operating assets and liabilities (41,715) (450,309)
------------ -----------
Net cash provided by operating activities 2,997,000 3,133,656
------------ -----------
Cash flows from investing activities:
Proceeds from sale of real estate 15,200,000
Additional capitalized costs (646,302) (91,009)
------------ -----------
Net cash (used in) provided by investing (646,302) 15,108,991
------------ -----------
Cash flows from financing activities:
Distributions to partners (2,436,868) (2,445,970)
Payments on mortgage principal (524,343) (712,143)
Prepayment of mortgage payable (5,722,508)
------------ -----------
Net cash used in financing activities (2,961,211) (8,880,621)
------------ -----------
Net (decrease) increase in cash and
cash equivalents (610,513) 9,362,026
Cash and cash equivalents, beginning of period 3,629,949 2,509,451
------------ -----------
Cash and cash equivalents, end of period $ 3,019,436 $11,871,477
============ ===========
Supplemental disclosure of cash flows information:
Interest paid $ 1,209,740 $ 1,249,530
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- 4 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
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,
1994.
Note 2. Distributions to Partners:
-------------------------
Distributions declared and paid to partners during the six months ended
June 30, 1995 are summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended General Partners Limited Partners Per Limited Partner Unit
------------- ---------------- ---------------- ------------------------
<S> <C> <C> <C>
December 31, 1994 $73,352 $1,149,178 $13.43
======= ========== ======
March 31, 1995 $73,406 $1,150,034 $13.44
======= ========== ======
</TABLE>
A distribution of $13.50 per Limited Partner Unit for the quarter ended
June 30, 1995 was declared and paid in July 1995.
A special distribution of $43,216 to the Individual General Partner and
$4,278,400 to the Limited Partners was declared and paid in July 1995.
Note 3. Transactions with Related Parties:
---------------------------------
For the three-month and six-month periods ended June 30, 1994, the
Partnership incurred management fees of $23,587 and $52,279, respectively,
and general and administrative expense reimbursements of $39,215 and
$88,003, respectively. For the three-month and six-month periods ended
June 30, 1995, the Partnership incurred management fees of $26,491 and
$53,494, respectively, and general and administrative expense
reimbursements of $10,390 and $42,730, 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 six
months ended June 30, 1994 and 1995 were $28,343 and $77,092, respectively.
The Amended Agreement of Limited Partnership (the "Limited Partnership
Agreement") provides that any gains from sales are first allocated to
partners with negative capital balances. As a result of their negative
capital balances, the General Partners were allocated a portion of the gain
on sale of real estate described in Note 5 to the Financial Statement as
well as the related tax liability. Pursuant to the Limited Partnership
Agreement, the allocation of distributions from sales are allocated 1% to
the Individual General Partner and 99% to the Limited Partners. Cash
distributions from operations are not affected by the aforementioned
allocation of gain.
- 5 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
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 and the operation of a hotel
business. For the six-month periods ended June 30, 1994 and 1995, the
Partnership earned its total lease revenues (rental income plus interest
income from financing leases) from the following lease obligors:
<TABLE>
<CAPTION>
1994 % 1995 %
---------- ---- ---------- ----
<S> <C> <C> <C> <C>
Genesco, Inc. $1,047,510 24% $1,047,510 24%
Simplicity Manufacturing, Inc. 998,356 23 998,356 23
Hughes Markets, Inc. 714,710 17 714,710 17
Brodart Co. 661,850 15 659,906 15
Continental Casualty Company 354,514 8 375,689 9
Family Dollar Stores, Inc. 280,800 7 273,600 6
Petrocon Engineering, Inc. 178,734 4 184,134 4
Winn-Dixie Stores, Inc. 72,356 2 72,356 2
---------- --- ---------- ---
$4,308,830 100% $4,326,261 100%
========== === ========== ===
</TABLE>
Operating results of the hotel for the six-month periods ended June 30, 1994 and
1995 are summarized as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1994 June 30, 1995
-------------- --------------
<S> <C> <C>
Revenues $1,506,370 $ 1,948,846
Fees paid to hotel management (38,649) (69,605)
company
Other operating expenses (959,354) (1,112,952)
---------- -----------
Hotel operating income $ 508,367 $ 766,289
========== ===========
</TABLE>
Note 5. Gain on Sale of Real Estate:
---------------------------
On June 30, 1995, the Partnership sold its property in Allentown,
Pennsylvania, which it purchased in June 1983 for $11,702,128, to its
lessee, Genesco, Inc. ("Genesco") for $15,200,000 and recognized a gain on
the sale of $3,497,872. In connection with the sale, the Partnership paid
off an existing nonrecourse mortgage loan on the Genesco property for
$5,722,508. All of the costs related to the sale of the property and
satisfaction of the loan were paid by Genesco. Pursuant to the Limited
Partnership Agreement, an affiliate may receive a real estate commission of
up to $456,000 with respect to the sale. Such commission amount will be
retained by the Partnership until the subordination provisions of the
Limited Partnership Agreement are satisfied.
The Genesco lease, which had an initial term scheduled to expire in June
2003, provided annual rentals of $2,095,020 and cash flow of $1,081,744,
after annual debt service on the mortgage loan of $1,013,276. The mortgage
was also scheduled to fully amortize in June 2003.
The Partnership used a portion of the net proceeds of $9,477,492 to pay a
special distribution to Limited Partners of $4,278,400 ($50 per Limited
Partnership Unit) and $43,216 to the Individual General Partner. The
special distribution was declared and paid in July 1995.
- 6 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
-----------------------------------------------
Results of Operations:
---------------------
Net income for the three-month and six-month periods ended June 30, 1995
increased by $3,819,000 and $4,024,000, respectively, as compared with net
income for the three-month and six-month periods ended June 30, 1994. A
substantial portion of the increase was due to the gain of $3,498,000 on
the sale of a Partnership property on June 30, 1995. Net of the effect of
the sale, income for the comparable three-month and six-month periods would
have still reflected increases of $321,000 and $526,000, respectively.
Approximately $45,000 of other income for the six-month period ended June
30, 1995 was from a nonrecurring item. For both the three-month and six-
month periods, the increase in income before the gain on sale was
attributable to increased earnings from the hotel operation and a decrease
in property expense. Earnings from the hotel operations have continued to
benefit from the ability to sustain the increase in the average daily room
rate for noncorporate customers in 1995. The occupancy rate of
approximately 85% reflected increases for the periods ended June 30, 1995
as compared with the occupancy rates for the periods ended June 30, 1994.
The current occupancy rate is consistent with historical levels. Occupancy
rates in 1994 were negatively impacted by renovation work which was
performed during 1994 and resulted in a decrease in the occupancy rate to
79% for the three-month period ended June 30, 1994. The decrease in
property expense was due to higher costs in 1994 related to the
Partnership's assessment of liquidity alternatives. Although the
Partnership has generally experienced a trend of decreasing interest
expense over the past several years, the current three-month and six-month
periods have reported a moderate increase as the result of the floating
rate obligation of the mortgage loan cross-collateralized by three of the
Partnership's properties and which had an outstanding balance of $7,220,000
at June 30, 1995. As described below, future results of operations and
operating cash flow will be significantly affected by the sale of the
property leased to Genesco, Inc. ("Genesco"); Genesco contributed 24% of
the Partnership's lease revenues and represented approximately 18% of the
Partnership's gross investment in real estate.
Financial Condition:
-------------------
There has been no material change in the Partnership's financial
condition since December 31, 1994. Cash balances increased by $9,362,000
to $11,871,000 primarily as the result of the receipt of proceeds from the
sale of the Genesco property, net of $9,477,000 paid to satisfy the related
mortgage loan obligation. Since June 30, 1995, a special distribution of
approximately $4,322,000 has been declared and paid. Cash flow from
operating activities for the six-month period ended June 30, 1995 was
sufficient to pay quarterly distributions to partners and a substantial
portion of principal payment installments on the Partnership's mortgage
loans. Management has not yet made a determination as to the most
appropriate use for the remaining $5,155,000 generated from the sale of the
Genesco property. Alternatives include, but are not limited to, paying off
higher interest mortgage debt or maintaining higher cash reserves as the
Partnership is faced with some uncertainty with regard to the expiration of
the lease in April 1996 with Hughes Markets, Inc. ("Hughes") on the
Partnership's property in Los Angeles, California.
As a result of the sale of the Genesco property, the Partnership's cash
flow will decrease by $1,082,000 (based on Genesco rent, net of the debt
service obligation on that property). As future cash flow from operations
will decrease as a result of the sale, the dollar amount of quarterly
distributions will not reach the same level achieved prior to the sale of
the property, however, the distribution rate may continue to increase as
the distribution rate takes into account capital returned to limited
partners. The special distribution paid in July 1995 of $50 per Limited
Partnership Unit and represents a return of 10% of the original capital of
$500 per Limited Partnership Unit.
- 7 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS, Continued
----------------------------------------------------------
Financial Condition, continued:
------------------------------
As noted in the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1994, future liquidity may be impacted by the scheduled
termination of the Hughes Markets, Inc. ("Hughes") lease in April 1996 and
the Partnership's share of annual carrying costs for the property, which,
if vacant, is estimated to be $467,000. The Partnership is in the process
of remarketing the Hughes property. The Partnership is in the discussion
stage with a potential long-term tenant and has entered into preliminary
discussions with Hughes regarding a short-term extension. There can be no
assurance that a long-term lease or a short-term extension will be
executed. As the result of successful discussions with Holiday Inn, the
Partnership's hotel at the New Orleans Airport will not be subject to
Holiday Inn's core modernization plan as major renovations have been made
since 1989. The Partnership is currently committed to retaining the
hotel's affiliation with Holiday Inn as a franchisee. Included in other
assets on the accompanying balance sheet at June 30, 1995, is a furniture,
fixture and equipment reserve account for the hotel of $355,000. The
reserve account is funded by allocating 5% of hotel revenues to the reserve
account and the Partnership does not anticipate utilizing any funds in
excess of the reserve amount to fund any improvements or purchases of
furniture, fixtures and equipment within the next 12 months.
- 8 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
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, 1995, the Partnership was
not required to file any reports on Form 8-K.
- 9 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
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 4,
a California limited partnership
By: CAREY CORPORATE PROPERTY, INC.
--- ------------------------------
08/9/95 By: /s/ Claude Fernandez
------------- ------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
08/9/95 By: /s/ Michael D. Roberts
------------- -------------------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
- 10 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 11,871,477
<SECURITIES> 0
<RECEIVABLES> 173,653
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,207,633
<PP&E> 52,917,100
<DEPRECIATION> 12,794,134
<TOTAL-ASSETS> 53,375,729
<CURRENT-LIABILITIES> 677,274
<BONDS> 19,932,932
<COMMON> 0
0
0
<OTHER-SE> 32,765,523
<TOTAL-LIABILITY-AND-EQUITY> 53,375,729
<SALES> 0
<TOTAL-REVENUES> 6,371,395
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,060,433
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,200,367
<INCOME-PRETAX> 6,425,910
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,425,910
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,425,910
<EPS-PRIMARY> 66.84
<EPS-DILUTED> 66.84
</TABLE>
