<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 SEPTEMBER 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 Identification No.)
incorporation or organization)
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
September 30, 1995 2
Statements of Income for the three and nine
months ended September 30, 1994 and 1995 3
Statements of Cash Flows for the nine
months ended September 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, SEPTEMBER 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
$13,082,961 at September 30, 1995 $22,375,100 $21,716,040
Net investment in direct
financing leases 29,952,612 18,231,362
Cash and cash equivalents 2,509,451 7,326,823
Accrued interest and rents receivable 262,998 201,888
Other assets 1,007,653 1,036,803
----------- -----------
Total assets $56,107,814 $48,512,916
=========== ===========
LIABILITIES:
Mortgage notes payable $26,367,583 $19,712,408
Accrued interest payable 193,839 137,779
Accounts payable and accrued expenses 610,264 421,920
Prepaid rental income 119,118
Accounts payable to affiliates 31,427 72,254
----------- -----------
Total liabilities 27,322,231 20,344,361
----------- -----------
PARTNERS' CAPITAL:
General Partners (486,282) 21,840
Limited Partners (85,568 Limited
Partnership Units issued and
outstanding) 29,271,865 28,146,715
----------- -----------
Total partners' capital 28,785,583 28,168,555
----------- -----------
Total liabilities and
partners' capital $56,107,814 $48,512,916
=========== ===========
</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 Nine Months Ended
September 30, 1994 SEPTEMBER 30, 1995 September 30, 1994 SEPTEMBER 30, 1995
------------------ ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income from
operating leases $ 660,157 $ 812,362 $2,261,271 $2,432,852
Interest from direct
financing leases 1,353,513 828,723 4,061,229 3,534,494
Other interest income 26,424 103,049 79,277 154,573
Revenue of hotel operations 775,723 918,388 2,281,993 2,867,234
Other income 44,764
---------- ---------- ---------- ----------
2,815,817 2,662,522 8,683,770 9,033,917
---------- ---------- ---------- ----------
Expenses:
Interest on mortgages 597,583 453,836 1,781,813 1,654,203
Depreciation 287,913 288,827 852,361 869,978
General and administrative 103,724 103,781 321,593 347,767
Property expense 329,909 59,868 769,576 232,864
Amortization 31,151 25,768 93,451 88,068
Operating expenses of
hotel operations 540,071 609,118 1,538,074 1,791,675
---------- ---------- ---------- ----------
1,890,351 1,541,198 5,356,868 4,984,555
---------- ---------- ---------- ----------
Income before gain on
sale of real estate 925,466 1,121,324 3,326,902 4,049,362
Gain on sale of real
estate (167,774) 3,330,098
---------- ---------- ---------- ----------
Net income $ 925,466 $ 953,550 $3,326,902 $7,379,460
========== ========== ========== ==========
Net income allocated
to General
Partners $ 55,528 $ 65,601 $ 199,614 $ 771,830
========== ========== ========== ==========
Net income allocated
to Limited
Partners $ 869,938 $ 887,949 $3,127,288 $6,607,630
========== ========== ========== ==========
Net income per Unit
(85,568 Limited
Partnership Units) $10.17 $10.38 $36.55 $77.22
========== ========== ========== ==========
</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>
Nine Months Ended
September 30,
----------------------------
1994 1995
------------ --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,326,902 $ 7,379,460
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 945,812 958,046
Other noncash items 16,141 7,305
Gain on sale of real estate (3,330,098)
Net change in operating assets and liabilities 94,279 (534,760)
----------- ------------
Net cash provided by operating activities 4,383,134 4,479,953
----------- ------------
Cash flows from investing activities:
Proceeds from sale of real estate 15,200,000
Additional capitalized costs (790,212) (210,918)
----------- ------------
Net cash (used in) provided by investing activities (790,212) 14,989,082
----------- ------------
Cash flows from financing activities:
Distributions to partners (3,656,667) (7,996,488)
Payments on mortgage principal (842,573) (932,667)
Prepayment of mortgage payable (5,722,508)
----------- ------------
Net cash used in financing activities (4,499,240) (14,651,663)
----------- ------------
Net (decrease) increase in cash and cash equivalents (906,318) 4,817,372
Cash and cash equivalents, beginning of period 3,629,949 2,509,451
----------- ------------
Cash and cash equivalents, end of period $ 2,723,631 $ 7,326,823
=========== ============
Supplemental disclosure of cash flows information:
Interest paid $ 1,807,741 $ 1,710,263
=========== ============
</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 nine months ended
September 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
======= ========== ======
June 30, 1995 $73,734 $1,155,168 $13.50
======= ========== ======
Special distribution -
paid July 1995 $43,216 $4,278,400 $50.00
======= ========== ======
</TABLE>
A distribution of $12.15 per Limited Partner Unit for the quarter ended
September 30, 1995 was declared and paid in October 1995.
Note 3. Transactions with Related Parties:
---------------------------------
For the three-month and nine-month periods ended September 30, 1994, the
Partnership incurred management fees of $23,277 and $75,556, respectively,
and general and administrative expense reimbursements of $34,450 and
$112,453, respectively. For the three-month and nine-month periods ended
September 30, 1995, the Partnership incurred management fees of $19,642 and
$73,136, respectively, and general and administrative expense
reimbursements of $28,450 and $71,180, 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 nine
months ended September 30, 1994 and 1995 were $36,173 and $101,250,
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 leased by Genesco, Inc. described in Quarterly
Report on Form 10-Q for the period ended June 30, 1995 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. The allocation of 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 nine-month periods ended September 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>
Simplicity Manufacturing, Inc. $1,497,533 24% $1,497,533 25%
Hughes Markets, Inc. 1,072,065 17 1,072,065 18
Genesco, Inc. 1,571,265 25 1,047,510 18
Brodart Co. 992,431 16 989,451 17
Continental Casualty Company 531,770 8 565,652 9
Family Dollar Stores, Inc. 280,800 4 410,400 7
Petrocon Engineering, Inc. 268,102 4 276,201 4
Winn-Dixie Stores, Inc. 108,534 2 108,534 2
---------- --- ---------- ---
$6,322,500 100% $5,967,346 100%
========== === ========== ===
</TABLE>
Operating results of the hotel for the nine-month periods ended September
30, 1994 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Revenues $ 2,281,993 $ 2,867,234
Fees paid to hotel management
company (53,626) (95,033)
Other operating expenses (1,484,448) (1,696,642)
----------- -----------
Hotel operating income $ 743,919 $ 1,075,559
=========== ===========
</TABLE>
-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 nine-month periods ended September
30, 1995 increased by $28,000 and $4,053,000, respectively, as compared
with net income for the three-month and nine-month periods ended September
30, 1994. A substantial portion of the increase for the nine-month period
ended September 30, 1995 was due to the gain of $3,330,000 on the sale of
Genesco, Inc. ("Genesco") property in June 1995. Net of the effect of the
sale, income for the comparable three-month and nine-month periods would
have still reflected increases of $196,000 and $722,000, respectively. For
both the three-month and nine-month periods, the increase in income before
the gain on sale was primarily attributable to an increase in earnings from
the hotel operation, a decrease in property expense and, to a lesser
extent, an increase in other interest income. The increase in other
interest income was due to an increase in average cash balances subsequent
to the Genesco sale. This was partially offset by lower operating revenues
(lease revenue less related mortgage interest) for both the three-month and
nine-month periods as a result of the Genesco property sale.
Earnings from the hotel operations have continued to benefit from a
sustained increase in the average daily room rate in 1995. The occupancy
rate of approximately 82% reflected an increase for the nine-month period
ended September 30, 1995 as compared with the similar period in 1994 while
the occupancy rates for the comparable three-month periods were
approximately 79%. The current occupancy rate approximates historical
levels. Due to renovation work performed in 1994, there were fewer rooms
available which negatively impacted the hotel's results of operations. The
decrease in property expense was due to costs incurred in 1994 related to
the Partnership's assessment of liquidity alternatives. Other interest
income increased due to higher cash balances due to the sale of the Genesco
property. As described below, future results of operations and cash flow
will be significantly affected by the sale of the Genesco property as
revenues from the Genesco lease represented 24% and 18% of the
Partnership's lease revenues and gross investment in real estate assets,
respectively.
Financial Condition:
-------------------
There has been no material change in the Partnership's financial
condition since December 31, 1994. Cash balances increased to $7,327,000
primarily as the result of the receipt of proceeds from the sale of the
Genesco property, net of the payment made to satisfy the related mortgage
loan obligation. In July 1995, the Partnership paid a special distribution
of $4,322,000 from the Genesco sale proceeds. Cash flow from operating
activities for the nine-month period ended September 30, 1995 was
sufficient to pay quarterly distributions from operations to partners and a
substantial portion of principal payment installments on the Partnership's
mortgage loans. Management is currently evaluating 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
mortgage debt or maintaining higher cash reserves.
As a result of the sale of the Genesco property, the Partnership's cash
flow will decrease by $1,082,000 (lease revenues, net of mortgage
installment payments). Although future cash flow will decrease as a result
of the sale and the dollar amount of quarterly distributions are not
expected to match the level achieved prior to the sale of the property, the
distribution rate as adjusted for return of capital as defined, is expected
to continue to increase as the distribution rate takes into account capital
returned to limited partners through special distributions. The special
distribution paid in July 1995 of $50 per Limited Partnership Unit
represents a return of 10% of the original capital of $500 per Limited
Partnership Unit. Limited partners have received returns of capital of $70
per Limited Partner Unit as special distributions since the inception of
the Partnership.
-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. 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. Although there is a possibility that
the Partnership may need to incur carrying costs at the termination of the
lease, there is a reasonable probability that the lease will be extended
until late 1997, which would give the Partnership the opportunity to
minimize any period of vacancy which might occur after the extension term.
The Partnership maintains a reserve account to replace furniture, fixtures
and equipment at its hotel operations which is funded by allocating 5% of
hotel revenues to the reserve account. The Partnership does not anticipate
utilizing any funds in excess of the reserve amount to fund any
replacements of furniture, fixtures and equipment within the next year.
The furniture, fixture and equipment reserve account for the hotel of
$391,000 is included in other assets on the accompanying balance sheet at
September 30, 1995.
-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 September 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.
11/09/95 By: /s/ Claude Fernandez
-------------- ------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
11/09/95 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 nine months ended September 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 7,326,823
<SECURITIES> 0
<RECEIVABLES> 201,888
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,036,803
<PP&E> 53,030,363
<DEPRECIATION> 13,082,961
<TOTAL-ASSETS> 48,512,916
<CURRENT-LIABILITIES> 631,953
<BONDS> 19,712,408
<COMMON> 0
0
0
<OTHER-SE> 28,168,555
<TOTAL-LIABILITY-AND-EQUITY> 48,512,916
<SALES> 0
<TOTAL-REVENUES> 9,033,917
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,372,306
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,654,203
<INCOME-PRETAX> 7,379,460
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,379,460
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,379,460
<EPS-PRIMARY> 77.22
<EPS-DILUTED> 77.22
</TABLE>
