<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
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Commission file number 0-11982
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CORPORATE PROPERTY ASSOCIATES 4, A CALIFORNIA LIMITED PARTNERSHIP
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 13-3126150
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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)
(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
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
INDEX
Page No.
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PART I
------
Item 1. - Financial Information*
Balance Sheets, December 31, 1995 and
March 31, 1996 2
Statements of Income for the three
months ended March 31, 1995 and 1996 3
Statements of Cash Flows for the three
months ended March 31, 1995 and 1996 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.
- 1 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
PART I
------
Item 1. - FINANCIAL INFORMATION
-------------------------------
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
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(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Land and buildings, net of
accumulated depreciation of
$13,362,508 at December 31, 1995 and
$12,842,758 at March 31, 1996 $21,472,233 $14,222,203
Net investment in direct
financing leases 18,224,428 18,217,194
Real estate held for sale 6,976,809
Cash and cash equivalents 7,579,071 7,808,057
Accrued interest and rents receivable 203,651 248,461
Other assets 1,028,692 1,048,827
----------- -----------
Total assets $48,508,075 $48,521,551
=========== ===========
LIABILITIES:
Mortgage notes payable $19,486,882 $19,256,266
Accrued interest payable 136,087 132,873
Accounts payable and accrued expenses 435,977 448,105
Accounts payable to affiliates 87,461 90,780
Prepaid rental income 45,600
----------- -----------
Total liabilities 20,146,407 19,973,624
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PARTNERS' CAPITAL:
General Partners 62,061 74,177
Limited Partners (85,568 Limited
Partnership Units issued and
outstanding) 28,299,607 28,473,750
----------- -----------
Total partners' capital 28,361,668 28,547,927
----------- -----------
Total liabilities and
partners' capital $48,508,075 $48,521,551
=========== ===========
</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.
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<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1995 March 31, 1996
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<S> <C> <C>
Revenues:
Rental income from operating leases $ 808,127 $ 835,341
Interest income from direct financing leases 1,353,017 828,134
Other interest income 26,658 95,356
Other income 42,792
---------- ----------
2,230,594 1,758,831
---------- ----------
Expenses:
Interest on mortgages 594,519 435,472
Depreciation 289,009 276,615
General and administrative 140,263 90,888
Property expenses 93,130 67,060
Amortization 31,150 25,767
---------- ----------
1,148,071 895,802
---------- ----------
Income from continuing operations 1,082,523 863,029
Earnings from discontinued operations 407,425 432,793
---------- ----------
Net income $1,489,948 $1,295,822
========== ==========
Net income allocated to
General Partners $ 89,397 $ 77,749
========== ==========
Net income allocated to
Limited Partners $1,400,551 $1,218,073
========== ==========
Net income per Unit
(85,568 Limited
Partnership Units)
Income from continuing operations $11.89 $9.48
Earnings from discontinued operations 4.48 4.76
------ ------
$16.37 $14.24
====== ======
</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>
Three Months Ended
March 31,
------------
1995 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,489,948 $ 1,295,822
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 320,159 302,382
Other noncash items 3,152 2,803
Net change in operating assets and liabilities (245,542) (28,448)
----------- -----------
Net cash provided by operating activities 1,567,717 1,572,559
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Cash flows from investing activities:
Additional capitalized costs (15,936) (3,394)
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Net cash used in investing activities (15,936) (3,394)
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Cash flows from financing activities:
Distributions to partners (1,222,530) (1,109,563)
Payments on mortgage principal (332,794) (230,616)
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Net cash used in financing activities (1,555,324) (1,340,179)
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Net (decrease) increase in cash and cash equivalents (3,543) 228,986
Cash and cash equivalents, beginning of period 2,509,451 7,579,071
----------- -----------
Cash and cash equivalents, end of period $ 2,505,908 $ 7,808,057
=========== ===========
Supplemental disclosure of cash flows information:
Interest paid $ 599,340 $ 438,686
=========== ===========
</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,
1995.
Note 2. Distributions to Partners:
-------------------------
Distributions declared and paid to partners during the three months ended
March 31, 1996 are summarized as follows:
Quarter Ended General Partners Limited Partners Per Limited Partner
---------------- ---------------- ---------------- -------------------
Unit
----
December 31, 1995 $65,633 $1,043,930 $12.20
======= ========== ======
A distribution of $12.22 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 $27,003 and $22,024, respectively, and general
and administrative expense reimbursements of $32,340 and $22,941,
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 $44,386 and $18,412,
respectively.
- 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. For the three-month periods
ended March 31, 1995 and 1996, the Partnership earned its total lease
revenues (rental income plus interest income from financing leases) from
the following lease obligors:
<TABLE>
<CAPTION>
1995 % 1996 %
---------- ---- ---------- ----
<S> <C> <C> <C> <C>
Simplicity Manufacturing, Inc. $ 499,178 23% $ 499,178 30%
Hughes Markets, Inc. 357,355 17 378,797 23
Brodart Co. 330,085 15 328,956 20
Continental Casualty Company 185,727 9 189,962 11
Family Dollar Stores, Inc. 136,800 6 136,800 8
Petrocon Engineering, Inc. 92,066 4 93,604 6
Winn-Dixie Stores, Inc. 36,178 2 36,178 2
Genesco, Inc. 523,755 24
---------- --- ---------- ---
$2,161,144 100% $1,663,475 100%
========== === ========== ===
</TABLE>
Note 5. Discontinued Operations:
-----------------------
The Partnership and Corporate Property Associates 8 ("CPA(R):8"), an
affiliate, own a hotel property in Kenner, Louisiana as tenants-in-common
with 46.383% and 53.617% interests, respectively. On April 17, 1996, the
Investment Committee of the Corporate General Partners of the Partnership
and CPA(R):8 approved a proposal to transfer ownership of the hotel
property to the operating partnership of a newly-formed real estate
investment trust formed by an affiliate of American General Hospitality
Corp. ("AGH"), the hotel management company which is currently engaged by
the Partnership and CPA(R):8, to manage the hotel property. In exchange
for the contribution of the hotel to the operating partnership, the
Partnership and CPA(R):8 will receive an equity interest in the operating
partnership with an expected initial value of approximately $18,000,000, of
which the Partnership's share would be approximately $8,350,000. In
addition, the operating partnership will assume the existing loan
obligation on the property of approximately $7,365,000, of which the
Partnership's share is currently approximately $3,415,000. The value of
the consideration received by the Partnership and CPA(R):8 will be
dependent upon the price of the stock issued by AGH in its initial public
offering. The Partnership and CPA(R):8 purchased the property in June 1988
(of which the Partnership contributed equity of approximately $3,480,000)
including $10,000,000 of mortgage financing, and assumed operating control
of the hotel in 1992 when they evicted the lessee due to its financial
difficulties.
The exchange transaction is subject to the ability of AGH to complete an
initial public offering for the newly-formed real estate investment trust.
It is intended that the exchange of the hotel property for securities
initially be treated as a noncash exchange for tax and financial reporting
purposes and that the Partnership retain the funds included in the hotel
furniture, fixture and equipment reserves. After one year, the Partnership
will have the right to convert its equity interest in the operating
partnership to shares of the publicly-traded real estate investment trust.
The Partnership does not anticipate incurring any significant costs in
connection with completing the proposed exchange. In connection with the
proposed transaction, the $6,976,809 carrying value of the hotel property
has been reclassified as real estate held for sale.
- 6 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Operating results of the hotel for the three-month periods ended March 31,
1995 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
Revenues $ 996,893 $1,024,083
Fees paid to hotel management
company ( 36,425) (39,005)
Other operating expenses (553,043) (552,285)
--------- ----------
Hotel operating income $ 407,425 $ 432,793
========= ==========
</TABLE>
Note 6. Property Leased to Hughes Markets, Inc.:
---------------------------------------
The Partnership and Corporate Property Associates 3 ("CPA(R):3"), an
affiliate, own a dairy processing facility in Los Angeles, California as
tenants-in-common with 16.76% and 83.24% ownership interests, respectively.
On May 1, 1996, the Partnership and CPA(R):3 entered into a lease amendment
agreement with the lessee, Hughes Markets, Inc. ("Hughes"), to extend the
lease term from April 30, 1996 to April 30, 1998. Under the extension
agreement, monthly rent will increase to $336,166 (of which the
Partnership's share will be $279,824) from $151,686 (of which the
Partnership's share was $126,266). At the end of the two-year period,
Hughes will make a lump sum payment of $3,500,000 (of which the
Partnership's share will be approximately $2,910,000). Hughes is obligated
to provide the Partnership and CPA(R):3 a letter of credit, cash deposit or
other form of security acceptable at the Partnership and CPA(R):3's sole
discretion to ensure payment of the $3,500,000. Hughes may extend the
lease on a month-to-month basis for up to six months at a rental of
$500,000 per month.
- 7 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
-----------------------------------------------
Results of Operations:
---------------------
Net income and income from continuing operations decreased by $194,000
and $219,000, respectively, for the three-month period ended March 31, 1996
as compared with the same period ended March 31, 1995. The decreases were
due to the sale of a property leased to Genesco, Inc. ("Genesco") in June
1995. Earnings from the Genesco property, consisting of rentals less
interest on the limited recourse loan collateralized by the Genesco
properties and other costs directly attributable to the Genesco property,
contributed approximately $380,000 to the results of operations for the
three-month period ended March 31, 1995. Excluding the earnings from
Genesco and certain nonrecurring other income in 1995 of $42,800, income
from comparable continuing operations would have increased by $203,000, an
increase of approximately 30%. Of such increase, $68,000 was due to an
increase in other interest income reflecting higher average cash balances
and moderate decreases in interest, general and administrative and property
expenses. The decrease in interest expense of $26,000 (net of $133,000 of
interest incurred on the Genesco property mortgage loan in 1995) was due to
the continuing amortization of the Partnership's mortgage loans. General
and administrative expenses benefited, in part, from an expected decrease
in the Partnership's share of office expenses. The decrease in property
expense was due to several factors, none of which were significant.
Excluding the rent from Genesco, lease revenues increased modestly,
primarily due to an increase of the Hughes Markets, Inc. ("Hughes") rent in
the fourth quarter of 1995.
Income from the hotel operation, which the Partnership has made formal
plans to dispose of, increased by 6%. The increase was entirely due to an
increase in revenues as hotel operating expenses were unchanged for the
comparable periods. The hotel realized the revenue increase even though
the occupancy rate for the quarter decreased by 2%. Higher average room
rates were realized as a result of the hotel's ability to increase rates
and changes in usage. In 1996, corporate rates represented 39% of
available rooms versus 34% in 1995, while group business decreased to 11%
from 19% of available rooms. This change in usage was beneficial to
earnings as the average room rate for corporate business is substantially
higher than the rates negotiated by groups and associations.
The Partnership's lease with Hughes for the dairy processing plant in
Los Angeles, California has been extended through April 30, 1998. Annual
cash flow will increase by $1,843,000 during the two-year extension. In
addition, the Partnership will receive a lump sum payment of approximately
$2,910,000 at the end of the two-year period.
Financial Condition:
-------------------
There has been no material change in the Partnership's financial
condition since December 31, 1995. Cash flow from operations was
sufficient to fund payments of distributions to partners and scheduled
principal payments on the Partnership's mortgage debt. If the exchange of
the Kenner, Louisiana hotel property and related assumption of the mortgage
loan obligation for equity interests in the operating partnership of a real
estate investment trust is completed, the Partnership would expect to
receive a relatively stable cash flow from such investment as the objective
of the real estate investment trust and the underlying partnership is to
distribute at least 95% of its taxable income so that it can maintain its
tax status as a real estate investment trust. With this investment, the
Partnership will eliminate the uncertainty related to operating a hotel
business with a single hotel and replace such uncertainty with a stable
cash flow from the operating partnership's distributions which comprise of
the operation of many hotels which are initially estimated to be
approximately $700,000 annually. Although cash flow from the hotel
operations when combined with debt service on the property mortgage was
approximately $1,024,000 in 1995, the Partnership funded improvements of
nearly $1,000,000 in the prior year. Funding major capital improvements at
the hotel property is needed to remain competitive; therefore, if ownership
of the hotel were retained, the Partnership would be required to use funds
for additional improvements in the future. Accordingly, cash flow from the
hotel could vary significantly from year to year. The Partnership had
operated the hotel since 1992, subsequent to evicting the lessee. At that
time, the Partnership's objectives were to generate positive cash flow from
the hotel operation and enhance the underlying property value. If the
proposed transaction is consummated, the Partnership may realize these
objectives.
- 8 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
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:
- 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.
5/10/96 By: /s/ Claude Fernandez
-------------- ------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
5/10/96 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 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> 7,808,057
<SECURITIES> 0
<RECEIVABLES> 248,641
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,048,827
<PP&E> 52,258,964
<DEPRECIATION> 12,842,758
<TOTAL-ASSETS> 48,521,551
<CURRENT-LIABILITIES> 717,358
<BONDS> 19,256,226
0
0
<COMMON> 0
<OTHER-SE> 28,547,927
<TOTAL-LIABILITY-AND-EQUITY> 48,521,551
<SALES> 0
<TOTAL-REVENUES> 1,758,831
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 460,330
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 435,472
<INCOME-PRETAX> 863,029
<INCOME-TAX> 0
<INCOME-CONTINUING> 863,029
<DISCONTINUED> 432,793
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,295,822
<EPS-PRIMARY> 14.24
<EPS-DILUTED> 14.24
</TABLE>
