<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 JUNE 30, 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 0-11982
__________________________________________________________
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, 1995 and
June 30, 1996 2
Statements of Income for the three and six
months ended June 30, 1995 and 1996 3
Statements of Cash Flows for the six
months ended June 30, 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, June 30,
1995 1996
------------- ------------
(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Land and buildings, net of
accumulated depreciation of
$13,362,508 at December 31, 1995 and
$13,058,958 at June 30, 1996 $21,472,233 $14,006,003
Net investment in direct
financing leases 18,224,428 18,209,646
Real estate held for sale 6,981,065
Cash and cash equivalents 7,579,071 7,991,659
Accrued interest and rents receivable 203,651 300,955
Other assets 1,028,692 1,450,458
----------- -----------
Total assets $48,508,075 $48,939,786
=========== ===========
LIABILITIES:
Mortgage notes payable $19,486,882 $19,022,525
Accrued interest payable 136,087 126,149
Accounts payable and accrued expenses 435,977 475,610
Accounts payable to affiliates 87,461 159,403
----------- -----------
Total liabilities 20,146,407 19,783,687
----------- -----------
PARTNERS' CAPITAL:
General Partners 62,061 111,606
Limited Partners (85,568 Limited
Partnership Units issued and
outstanding) 28,299,607 29,044,493
----------- -----------
Total partners' capital 28,361,668 29,156,099
----------- -----------
Total liabilities and
partners' capital $48,508,075 $48,939,786
=========== ===========
</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 4,
a California limited partnership
STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1995 June 30, 1996 June 30, 1995 June 30, 1996
------------------ ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income from
operating leases $ 812,363 $1,387,643 $1,620,490 $2,222,984
Interest from direct
financing leases 1,352,754 827,821 2,705,771 1,655,955
Other interest income 24,866 95,010 51,524 190,366
Other income 1,972 44,764
---------- ---------- ---------- ----------
2,191,955 2,310,474 4,422,549 4,069,305
---------- ---------- ---------- ----------
Expenses:
Interest on mortgages 605,848 428,939 1,200,367 864,411
Depreciation 292,142 216,199 581,151 492,814
General and administrative 103,723 160,088 243,986 250,976
Property expense 79,866 134,275 172,996 201,335
Amortization 31,150 25,767 62,300 51,534
---------- ---------- ---------- ----------
1,112,729 965,268 2,260,800 1,861,070
---------- ---------- ---------- ----------
Income before gain on
sale of real estate and
earnings from discontinued
operations 1,079,226 1,345,206 2,161,749 2,208,235
Gain on sale of real
estate 3,497,872 3,497,872
---------- ---------- ---------- ----------
Income from continuing
operations 4,577,098 1,345,206 5,659,621 2,208,235
Earnings from discontinued
operations 358,864 374,352 766,289 807,145
---------- ---------- ---------- ----------
Net income $4,935,962 $1,719,558 $6,425,910 $3,015,380
========== ========== ========== ==========
Net income allocated
to General Partners $ 616,832 $ 103,173 $ 706,229 $ 180,923
========== ========== ========== ==========
Net income allocated
to Limited Partners $4,319,130 $1,616,385 $5,719,681 $2,834,457
========== ========== ========== ==========
Net income per Unit
(85,568 Limited
Partnership Units)
Income from continuing
operations $46.53 $14.78 $ 58.42 $24.26
Discontinued operations 3.94 4.11 8.42 8.87
---------- ---------- ---------- ----------
$50.47 $18.89 $ 66.84 $33.13
========== ========== ========== ==========
</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,
----------------
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,425,910 $ 3,015,380
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 643,451 544,348
Amortization of unearned income on direct
financing leases and straight-line rents on
operating leases less (greater) than scheduled
rents 12,476 (236,864)
Gain on sale of real estate (3,497,872)
Net change in operating assets and liabilities (450,309) (217,321)
----------- -----------
Net cash provided by operating activities 3,133,656 3,105,543
----------- -----------
Cash flows from investing activities:
Proceeds from sale of real estate 15,200,000
Additional capitalized costs (91,009) (7,649)
----------- -----------
Net cash provided by (used in) investing activities 15,108,991 (7,649)
----------- -----------
Cash flows from financing activities:
Distributions to partners (2,445,970) (2,220,949)
Payments on mortgage principal (712,143) (464,357)
Prepayment of mortgage payable (5,722,508)
----------- ----------
Net cash used in financing activities (8,880,621) (2,685,306)
----------- -----------
Net increase in cash and cash equivalents 9,362,026 412,588
Cash and cash equivalents, beginning of period 2,509,451 7,579,071
----------- -----------
Cash and cash equivalents, end of period $11,871,477 $ 7,991,659
=========== ===========
Supplemental disclosure of cash flows information:
Interest paid $ 1,249,530 $ 874,349
=========== ============
</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 six months ended
June 30, 1996 are summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended General Partners Limited Partners Per Limited Partner Unit
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
December 31, 1995 $65,633 $1,043,930 $12.20
======= ========== ======
March 31, 1996 $65,745 $1,045,641 $12.22
======= ========== ======
</TABLE>
A distribution of $12.24 per Limited Partner Unit for the quarter ended
June 30, 1996 was declared and paid in July 1996.
Note 3. Transactions with Related Parties:
---------------------------------
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. For the three-month and six-month periods ended
June 30, 1996, the Partnership incurred management fees of $59,049 and
$81,073, respectively, and general and administrative expense
reimbursements of $56,390 and $79,331, 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, 1995 and 1996 were $77,092 and $35,508, 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 six-month periods ended
June 30, 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>
Hughes Markets, Inc. $ 714,710 17 $1,307,494 34
Simplicity Manufacturing, Inc. 998,356 23 998,356 25
Brodart Co. 659,906 15 657,600 17
Continental Casualty Company 375,689 9 379,924 10
Family Dollar Stores, Inc. 273,600 6 276,000 7
Petrocon Engineering, Inc. 184,134 4 187,209 5
Winn-Dixie Stores, Inc. 72,356 2 72,356 2
Genesco, Inc. 1,047,510 24
---------- --- ---------- ---
$4,326,261 100% $3,878,939 100%
========== === ========== ===
</TABLE>
Note 5. Discontinued Operations:
-----------------------
The Partnership and Corporate Property Asociates 8 ("CPA(R):8"), an
afilliate, purchased a hotel property in Kenner, Louisiana, in June 1988 as
tenants-in-common with 46.383% and 53.617% interests, respectively. The
Partnership contributed $3,479,000 in the form of an exchange of another
property owned by the Partnership and CPA(R):8 contributed $4,021,000 of
equity and $10,000,000 was supplied by mortgage financing. The Partnership
and CPA(R):8 assumed operating control of the hotel in 1992 after evicting
the lessee due to its financial difficulties. On July 30, 1996, the
Partnership and CPA(R):8 entered into a transaction with American General
Hospitality Operating Partnership L.P. (the "Operating Partnership"), the
operating partnership of a newly-formed real estate investment trust,
American General Hospitality, Inc. ("AGH") in which the Partnership and
CPA(R):8 received 920,672 limited partnership units (of which the
Partnership's share is 427,008 units) in exchange for their ownership
interests in the hotel property, a cash contribution of $388,331 (of which
the Partnership's share is $180,120) and the Operating Partnership's
assumption of the Partnership's and CPA(R):8's mortgage loan obligation
collateralized by the hotel property (of which the Partnerhip's share was
approximately $3,389,000).
The exchange of the hotel property for limited partnership units will
initially be treated as a noncash exchange for tax and financial reporting
purposes. After one year, the Partnership will have the right to convert
its equity interest in the operating partnership to shares of common stock
in AGH, which recently completed an initial public offering, with such
shares registered with the Securities and Exchange Commission. In
connection with the transaction, the $6,981,065 carrying value of the hotel
property was classified as real estate held for sale as of June 30, 1996.
The Partnership's and CPA(R):8's limited partnership units had a fair value
of approximately $16,342,000 (of which the Partnership's share is
$7,579,000) at the date of the exchange.
-6-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Operating results of the hotel for the six-month periods ended June 30,
1995 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Revenues $ 1,948,846 $ 2,003,001
Fees paid to hotel management
company (69,605) (78,545)
Other operating expenses (1,112,952) (1,117,311)
----------- -----------
Hotel operating income $ 766,289 $ 807,145
=========== ===========
</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 83.24% and 16.76% 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 which initial term had expired on April 30, 1996 to April 30,
1998. Under the extension agreement, Hughes' monthly rent increased to
$336,166 (of which the Partnership's share is $279,825) from $151,686 (of
which the Partnership's share was $126,266). At the end of the lease term,
Hughes is obligated to pay a lump sum rental payment of $3,500,000 (of
which the Partnership's share will be approximately $2,913,000). Hughes
has an option to extend the lease on a month-to-month basis for up to six
months at a rental of $500,000 per month.
In accordance with the lease amendment agreement, Hughes has provided the
Partnership and CPA(R):3 an irrevocable letter of credit of $3,500,000, an
amount equal to Hughes' lump sum payment obligation. For financial
reporting purposes, the $3,500,000 rental payable due at the end of the
lease term is being recognized on a straight-line basis over the term of
the lease extension period.
-7-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
-----------------------------------------------
Results of Operations:
---------------------
Income from continuing operations decreased by $3,232,000 and $3,451,000
for the three-month and six-month periods ended June 30, 1996,
respectively, as compared with the similar periods ended June 30, 1995.
Excluding a gain of $3,498,000 realized in June 1995 on the sale of
property leased to Genesco, Inc. ("Genesco"), income from continuing
operations would have reflected increases of $266,000 and $46,000 for the
three-month and six-month periods, respectively. These increases in income
were realized even though Genesco contributed 24% of the Partnership's
lease revenues prior to the sale and were due to decreases in depreciation
and interest expenses and an increase in other interest income. The effect
of these items was partially offset for the comparable six-month periods by
a decrease in lease revenues.
The decrease in interest expense was due to the continuing amortization
of the Partnership's mortgage loans and the satisfaction of the loan on the
Genesco property at the time of the aforementioned sale. The decrease in
depreciation was due to lower charges as a result of classifying the hotel
property as real estate held for sale. Other interest income increased as
the Partnership had higher average cash balances in 1996 than in 1995. The
decrease in lease revenues for the comparable six-month periods was solely
attributable to the effect of the Genesco transaction. For the comparable
three-month periods, overall lease revenues increased. This increase was
due to the lease extension agreement, effective May 1, 1996, with Hughes
Markets, Inc. ("Hughes") which lease was extended for two years through
April 30, 1988. Annual cash flow will increase by $1,843,000 during the
extension period as a result of the new agreement with Hughes.
Additionally, the Partnership will receive a lump sum payment of
approximately $2,910,000 at the end of this period.
Income from the discontinued hotel segment increased by approximately
5%; however, the Partnership ceased operating the hotel on July 30, 1996
when it exchanged its ownership interest in the hotel property for limited
partnership units in the operating partnership of a newly-formed real
estate investment trust, American General Hospitality, Inc. ("AGH"). The
Partnership's annual cash flow from its interest in the operating
partnership is initially projected to be approximately $700,000
Financial Condition:
-------------------
There has been no material change in the Partnership's financial
condition since December 31, 1995. Cash flow from operations of $3,105,000
was sufficient to fund distributions to partners of $2,221,000 and payments
of scheduled principal payment installments of $464,000. Mortgage debt
service will decrease as the result of the assignment of the mortgage loan
obligation on the hotel property in July 1996. Such assignment will reduce
the Partnership's outstanding mortgage loan balance by 18%.
AGH owns a diversified portfolio of hotel properties, and one of the
requirements for a real estate investment trust is to distribute at least
95% of its taxable income in order to retain its special Federal income tax
status; therefore, cash flow from the interest in the operating partnership
is expected to be relatively stable. The Partnership hopes to eliminate
the uncertainty related to operating a single hotel business. Although the
Partnership's share of cash flow from the hotel operation after debt
service was approximately $1,024,000 in 1995, the Partnership funded
improvements in excess of $750,000 in the prior year. Funding major
capital improvements at the hotel property was needed to remain
competitive. 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 fluctuate significantly from
year to year. With the exchange, the Partnership should achieve less
fluctuation in cash flow and eliminate the need for allocating funds for
capital improvements.
-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, 1996, 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.
8/8/96 By: /s/ Claude Fernandez
-------------- ------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
8/8/96 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 JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 7991659
<SECURITIES> 0
<RECEIVABLES> 300955
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8292614
<PP&E> 45274607
<DEPRECIATION> 13058958
<TOTAL-ASSETS> 48939786
<CURRENT-LIABILITIES> 761162
<BONDS> 19022525
0
0
<COMMON> 0
<OTHER-SE> 29156099
<TOTAL-LIABILITY-AND-EQUITY> 48939786
<SALES> 0
<TOTAL-REVENUES> 4069305
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 945125
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 864411
<INCOME-PRETAX> 2208235
<INCOME-TAX> 0
<INCOME-CONTINUING> 2208235
<DISCONTINUED> 807145
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3015380
<EPS-PRIMARY> 33.13
<EPS-DILUTED> 33.13
</TABLE>
