<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
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Commission file number 0-11948
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CORPORATE PROPERTY ASSOCIATES 5
-------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 13-3164925
---------- ----------
(State or other jurisdiction of incorporation (I.R.S. Employer
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
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<PAGE>
CORPORATE PROPERTY ASSOCIATES 5
(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 Operations 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 5-8
Item 2. - Management's Discussion of Operations 9-10
PART II
- - -------
Item 6. - Exhibits and Reports on Form 8-K 11
Signatures 12
*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 5
(a California limited partnership)
PART I
------
Item 1. - FINANCIAL INFORMATION
-------------------------------
BALANCE SHEETS
December 31, SEPTEMBER 30,
1994 1995
------------- --------------
(Note) (UNAUDITED)
ASSETS:
Land, buildings and personal property,
net of accumulated depreciation of
$20,576,121 at December 31, 1994 and
$22,122,864 at September 30, 1995 $46,733,863 $44,951,471
Net investment in direct
financing leases 25,925,844 19,365,702
Real estate held for sale 7,006,938 7,006,938
Cash and cash equivalents 7,926,845 3,103,194
Restricted cash 600,000
Escrow funds 2,665,179 3,034,039
Accrued interest and rents receivable 267,515 136,443
Other assets 1,839,711 1,362,190
Investment in limited partnership 1,750,175
----------- -----------
Total assets $92,365,895 $81,310,152
=========== ===========
LIABILITIES:
Mortgage notes payable $39,449,033 $36,156,470
Note payable to affiliate 1,295,000 1,151,000
Accrued interest payable 184,349 146,199
Accounts payable and accrued expenses 617,812 585,042
Accounts payable to affiliates 113,928 85,204
Prepaid rental income 119,601 103,451
Deferred gains and other liabilities 3,338,825 2,778,495
Deposit on real estate held for sale 9,359,000 9,359,000
----------- -----------
Total liabilities 54,477,548 50,364,861
----------- -----------
PARTNERS' CAPITAL:
General Partners (94,987) (397,227)
Limited Partners (113,200 Limited
Partnership Units outstanding) 37,983,334 31,342,518
----------- -----------
Total partners' capital 37,888,347 30,945,291
----------- -----------
Total liabilities and
partners' capital $92,365,895 $81,310,152
=========== ===========
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 5
(a California limited partnership)
STATEMENTS OF OPERATIONS (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 $1,452,634 $ 1,161,275 $ 4,357,809 $ 3,473,206
Interest from direct
financing leases 1,279,317 821,538 4,326,565 3,055,846
Other interest income 28,142 60,851 72,914 274,551
Revenue of hotel
operations 2,481,219 2,516,094 5,344,693 5,431,224
Other income 47,483
---------- ----------- ----------- -----------
5,241,312 4,559,758 14,101,981 12,282,310
---------- ----------- ----------- -----------
Expenses:
Interest on mortgages
and note payable 1,127,724 854,055 3,421,821 2,647,539
Depreciation 544,350 459,423 1,653,062 1,546,743
General and
administrative 102,505 125,121 390,049 640,106
Property expenses 393,476 88,216 999,468 328,337
Amortization 16,529 8,501 49,211 24,876
Operating expenses of
hotel operations 1,480,395 1,519,800 3,876,546 3,986,045
Writedowns to net
realizable value 1,691,640 1,691,640
---------- ----------- ----------- -----------
3,664,979 4,746,756 10,390,157 10,865,286
---------- ----------- ----------- -----------
Income (loss) before loss
on sale of real estate 1,576,333 (186,998) 3,711,824 1,417,024
Loss on sale of real estate (1,719,828) (1,719,828)
---------- ----------- ----------- -----------
Net income (loss) $1,576,333 $(1,906,826) $ 3,711,824 $ (302,804)
========== =========== =========== ===========
Net income allocated
to General Partners $ 94,579 $ (114,409) $ 222,709 $ (18,168)
========== =========== =========== ===========
Net income (loss) allocated
to Limited Partners $1,481,754 $(1,792,417) $ 3,489,115 $ (284,636)
========== =========== =========== ===========
Net income (loss) per Unit
(113,200 Limited
Partnership Units) $13.09 $(15.83) $30.82 $(2.51)
====== ======= ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
- 3 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 5
(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 (loss) $ 3,711,824 $ (302,804)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 1,702,273 1,571,619
Other noncash items (47,841) 9,365
Writedown to net realizable value 1,691,640
Loss on sale of real estate 1,719,828
Net change in operating assets and liabilities (176,073) (424,721)
----------- -----------
Net cash provided by operating activities 5,190,183 4,264,927
----------- -----------
Cash flows from investing activities:
Additional capitalized costs (367,518) (764,351)
Purchase of certificate of deposit (600,000)
Proceeds from sale of real estate 3,387,362
Purchase of limited partnership interests (1,750,175)
----------- -----------
Net cash (used in) provided by investing activities (367,518) 272,836
----------- -----------
Cash flows from financing activities:
Distributions to partners (4,394,327) (6,640,252)
Payments on mortgage principal (546,419) (372,162)
Prepayment of mortgage payable (2,200,000)
Partial prepayment of note payable to affiliate (144,000)
Deferred financing costs (1,248) (5,000)
----------- -----------
Net cash used in financing activities (4,941,994) (9,361,414)
----------- -----------
Net (decrease) in cash and cash equivalents (119,329) (4,823,651)
Cash and cash equivalents, beginning of period 2,294,245 7,926,845
----------- -----------
Cash and cash equivalents, end of period $ 2,174,916 $ 3,103,194
=========== ===========
Supplemental disclosure of cash flows information:
A. Interest paid $ 3,452,476 $ 2,777,678
=========== ===========
B. In connection with the sale of a property, the purchaser assumed a mortgage loan principal obligation of $720,401 and
accrued interest thereon of $5,780.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- 4 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 5
(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:
Quarter Ended General Partners Limited Partners Per Limited Partner Unit
- - ----------------- ---------------- ---------------- ------------------------
December 31, 1994 $88,151 $1,381,040 $12.20
======= ========== ======
March 31, 1995 $88,224 $1,382,172 $12.21
======= ========== ======
June 30, 1995 $84,828 $1,328,968 $11.74
======= ========== ======
Special distribution -
paid April 1995 $22,869 $2,264,000 $20.00
======= ========== ======
A distribution of $11.75 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 $34,559 and $117,711 respectively, and
general and administrative expense reimbursements of $36,293 and $127,399,
respectively. For the three-month and nine-month periods ended September 30,
1995, the Partnership incurred management fees of $27,694 and $88,104,
respectively, and general and administrative expense reimbursements of $35,865
and $76,641, respectively.
The Partnership, in conjunction with certain affiliates, is a participant in an
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 $48,335 and $141,946, respectively .
The Amended Agreement of Limited Partnership provides that any losses from sales
are allocated 1% to the Individual Partner and 99% to the Limited Partners for
financial reporting and tax purposes. As more fully described in Note 7, the
Partnership incurred a loss on the sale of properties in 1995. Allocation of
cash distributions from operations are not affected by the aforementioned
allocation.
- 5 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 4. Industry Segment Information:
----------------------------
The Partnership's operations consist primarily of the investment in and the
leasing of industrial and commercial real estate and the operation of three
hotel properties. 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:
1994 % 1995 %
---------- ---- ---------- ----
GATX Logistics, Inc. $1,441,125 17% $1,048,950 16%
Gould, Inc. 843,750 10 843,750 13
Spreckels Industries, Inc. 625,085 7 765,538 12
Industrial General Corporation 1,039,232 12 637,322 10
DeVlieg Bullard, Inc. 623,238 7 623,238 9
Arley Merchandise Corporation 450,000 5 450,000 7
Exide Electronics Corporation 364,291 4 385,893 6
Penn Virginia Corporation 374,063 4 374,063 6
Stoody Deloro Stellite, Inc. 282,929 3 304,307 5
IBM Corporation 238,573 3 238,573 4
Harcourt General Corporation 175,312 2 175,312 3
Other 106,986 1 156,103 2
Rochester Button Company 159,568 2 150,483 2
Winn-Dixie Stores, Inc. 143,650 2 143,650 2
Penberthy Products, Inc. 136,897 2 136,897 2
FMP/Rauma Company 93,322 1 94,973 1
Liberty Fabrics of New York, Inc. 1,044,807 12
Pace Membership Warehouse, Inc. 541,546 6
---------- --- ----------
$8,684,374 100% $6,529,052 100%
========== === ========== ===
Operating results of the three hotel properties for the nine-month periods
ended September 30, 1994 and 1995 are summarized as follows:
1994 1995
------------ ------------
Revenues $ 5,344,693 $ 5,431,224
Fees paid to hotel management company (106,894) (113,871)
Other operating expenses (3,769,652) (3,872,174)
----------- -----------
Hotel operating income $ 1,468,147 $ 1,445,179
=========== ===========
Note 5. Escrow and Other Funds:
----------------------
Funds in escrow consisting of reserves and escrow funds on the hotel
properties and mortgage debt thereon are as follows:
December 31, SEPTEMBER 30,
1994 1995
------------ -------------
Security reserve $1,650,000 $1,840,000
Debt service escrow account 412,100 412,100
Furniture, fixture and
equipment reserves 203,079 381,939
Other escrow accounts 400,000 400,000
---------- ----------
$2,665,179 $3,034,039
========== ==========
- 6 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 6. Real Estate Held for Sale:
-------------------------
In January 1984, the Partnership purchased properties in Gordonsville,
Virginia and in North Bergen, New Jersey for $7,000,000 and entered into a
net lease with Liberty Fabrics of New York ("Liberty"). In December 1993,
Liberty notified the Partnership of its intention to exercise its purchase
option on the properties. Pursuant to the lease, the purchase price would
be the greater of $7,000,000 or fair market value as encumbered by the
lease.
On October 18, 1994, Liberty filed suit to compel the Partnership to
transfer title of the properties to Liberty for $9,359,000, the fair market
value which had been determined pursuant to the purchase option appraisal
process. Because the Partnership believes fair market value of the
properties exceeds $9,359,000, Management challenged the Liberty suit and
is seeking a higher purchase price.
On December 29, 1994, the Partnership and Liberty terminated the lease and
agreed that the properties would be transferred to Liberty for $9,359,000
with the following conditions: Liberty would deposit $750,000 into an
escrow account, and subject to the determination by the Supreme Court of
the State of New York (the "Court"), if the report by an independent third
appraiser was deemed to be final, and the fair market value of the property
was determined to be equal to or less than $9,359,000, the escrow funds
would be released to Liberty and the Partnership would be obligated to
reimburse Liberty for any difference between the final fair market value
and $9,359,000. If the Court determined the fair market value to be
greater than $9,359,000, the Partnership would receive any difference
between the final fair market value and the $9,359,000 from the escrow
funds with any excess to be paid by Liberty to the Partnership. However,
Liberty would have the right within 30 days of the determination to rescind
the transfer, in which case all proceeds would be returned to Liberty,
title of the properties transferred back to the Partnership and Liberty
would pay all rents in arrears for the period from the initial transfer of
title to Liberty. The Court has not yet made a determination on the suit.
Note 7. Properties Leased to Industrial General Corporation:
---------------------------------------------------
In August 1985, the Partnership purchased from and net leased to Industrial
General Corporation ("IGC") and certain of its wholly-owned subsidiaries,
seven properties located in Elyria and Bellville, Ohio, Forest City and
Bald Knob, Arkansas, Carthage, New York and Newburyport, Massachusetts for
$9,100,000. Subsequent to the purchase, the Partnership agreed to exchange
the Saginaw property for an expansion of the Newburyport facility, severed
the Carthage property from the lease and entered into a lease with
FMP/Rauma Company ("FMP") and sold the Forest City property.
On July 28, 1995, IGC filed a voluntary petition of bankruptcy under
Chapter 11 of the United States Bankruptcy Code. In connection with an
asset acquisition of the plastics division of IGC, on September 14, 1995,
the Partnership entered into a series of transactions which resulted in the
termination of the IGC lease, the sale of the Bald Knob, Bellville and
Newburyport properties and the full satisfaction of the mortgage loan
obligation collateralized by all of the IGC properties and the FMP property
which had been scheduled to mature on September 1, 1995. In connection
with the sale of the Bald Knob property to IGC, the Partnership received
cash of $987,362 and IGC, with the consent of the mortgage lender, assumed
a mortgage obligation of $720,401 and accrued interest of $5,780.
Additionally, the Partnership is scheduled to receive an additional
$200,000 from IGC over an eight month period. The Bellville and
Newburyport properties were sold for $2,400,000 in cash to G.I. Plastek
Industrial Properties Limited Partnership ("Plastek Properties"), an
affiliate of G.I. Plastek Limited Partnership ("Plastek") which acquired
the assets of the IGC plastics division. The Partnership used $2,200,000
of the proceeds to pay off the remaining balance on the matured mortgage
loan obligation. In connection with the sale of the three properties, the
Partnership realized a loss of $1,719,828.
- 7 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
The Partnership also purchased limited partnership interests in Plastek.
The Partnership's made capital contributions of $175 and $1,750,000 for
Class A and Class B limited partnership interests, respectively. The Class
A interest provides for a 17.5% participation in the profits and losses of
Plastek after payment of preferred returns to Class B interests. Class B
interests are entitled to a cumulative preferred return of 10% on their
contributions; however, it does not participate in nor receive other
allocations of any gains or losses of Plastek. The Class B interest is
redeemable on September 8, 2000.
The Partnership pledged a $600,000 certificate of deposit to support a
credit facility to Plastek. In exchange for the pledge of the $600,000,
the Partnership received warrants to purchase, for nominal consideration,
42.6% of the equity in Plastek Properties which is only exercisable if the
certificate of deposit is not released to the Partnership by March 1996.
Plastek Properties has entered into a net lease agreement with Plastek for
the two properties purchased from the Partnership and a third property in
Marysville, Ohio for an annual rent of $563,000 plus mortgage debt service
on the properties.
The Partnership retains ownership of the Elyria property. Although the
Partnership is attempting to sell the property, it has initiated a plan to
mothball the property. Plastek has agreed to contribute up to $100,000
toward mothballing the Elyria property and has committed to pay real estate
taxes and insurance on the Elyria property for up to three years. Based on
the appraised value of the property and the costs that would need to be
incurred to prepare the property for sale or lease, the Partnership has
written off the value of the property and recognized a charge of $691,640.
Note 8. Hotel Property in Rapid City, South Dakota:
------------------------------------------
The Partnership owns a hotel property in Rapid City, South Dakota which it
currently operates as a Holiday Inn. In September 1994, the Partnership
was advised by Holiday Inn that the Rapid City hotel would have to make
significant capital improvements to the hotel by January 1997 pursuant to
Holiday Inn's core modernization plan or surrender its license to operate
as a Holiday Inn by that time. As the estimated costs of complying with
the core modernization plan were estimated to be $1,925,000, the
Partnership has concluded that it will be too costly to comply with the
plan and is currently planning to seek an affiliation with another national
hotel chain. In order to obtain such affiliation, the Partnership
estimates that the hotel will need approximately $500,000 in capital
improvements. As it is expected that the average room rate will be lower
as the result of any change in affiliation, the Partnership's cash flow
from the Rapid City property is expected to decrease. Accordingly, the
Partnership has reevaluated the net realizable value of the property and
has recognized a noncash charge of $1,000,000 on the writedown.
The hotel was purchased in 1985 with $6,800,000 of tax-exempt bonds which
are supported by a letter of credit issued by a third party. The letter of
credit which originally expired in May 1995 was extended until May 1996.
In its effort to negotiate an additional extension of the letter of credit
and seek certain concessions from the issuer, the Partnership has withheld
payment of October and November 1995 interest on the bonds. In response,
the trustee of the bonds made draws on the letter of credit in an amount
sufficient to pay interest to the bondholders. As a result of the
Partnership's nonpayment, the issuer of the letter of credit may declare a
default, in which event the trustee has the right to redeem the $6,800,000
of bonds by drawing the full amount from the letter of credit. In the
event the bonds were redeemed due to a declaration of default, the issuer
of the letter of credit would have recourse solely to the hotel property
and the Partnership's escrow and security reserves accounts of $400,000 and
$1,840,000, respectively.
- 8 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
-----------------------------------------------
Results of Operations:
---------------------
The results of operations for the three-month and nine-month periods
ended September 30, 1995 are not directly comparable, as described below,
with the results of operations for the three-month and nine-month periods
ended September 30, 1994. The Partnership incurred losses of $1,907,000
and $303,000 for the three-month and nine-month periods in 1995,
respectively, compared with net income of $1,576,000 and $3,712,000 for the
three-month and nine-month periods in 1994, respectively. Both the three-
month and nine-month periods ended September 30, 1995 reflected the effects
of nonrecurring, noncash charges for the $1,692,000 of writedowns on
Partnership properties and the realized loss of $1,720,000 on the sale of
three properties. Net of the effect of these items, the Partnership would
have reflected only a decrease in earnings of $71,000 and $603,000 for the
three-month and nine-month periods ended September 30, 1995. During the
fourth quarter of 1994, the Partnership sold its property leased to Pace
Membership Warehouse, Inc. ("Pace") and transferred title to its properties
leased to Liberty Fabrics of New York, Inc. ("Liberty"). As more fully
described in Note 6 to the financial statements, the gain on the Liberty
sale has continued to be deferred. Solely as a result of the Pace and
Liberty transactions, operating income (lease revenues less interest
expense and depreciation) decreased by $351,000 and $1,052,000 for the
three-month and nine-month periods ended September 30, 1995. In addition,
the Partnership did not recognize any rental revenues from the Industrial
General Corporation ("IGC") lease during the current three-month period
even though such lease did not actually terminate until September 1995.
.
In addition to the aforementioned writedowns and loss on sale incurred
during the nine-month period ended September 30, 1995, the decrease in
earnings was due to decreases in lease revenues and an increase in general
and administrative costs. The effect of these items was partially offset
by an increase in other interest income and decreases in interest, property
and depreciation expenses. The decrease in lease revenues was due to the
termination of the Pace and Liberty leases and the nonrecognition of rent
prior to the termination of the IGC lease as described above. In addition,
the new lease agreement effective November 1994 with GATX Logistics, Inc.
("GATX") resulted in a reduction of rent. The GATX lease, which expires in
four years, replaced an expiring short-term lease. The increase in general
and administrative costs reflects certain nonrecurring costs incurred
during the first fiscal quarter of 1995 in connection with the
Partnership's cost sharing agreement for office space and related
relocation costs and an increase in partnership level state income and
franchise taxes. The tax expense for 1995 reflects the difference between
the estimate for taxes due at the end of 1994 and the actual amounts paid
in 1995 as well as an increased accrual for 1995 partnership taxes.
Decreases in depreciation and interest are primarily due to the disposition
of the Pace and Liberty properties and the payoff of the related mortgages.
The decrease in property expenses was due to the costs incurred in 1994 in
connection with the Partnership's assessment of liquidity alternatives.
Other interest income increased due to higher cash balances held in 1995 as
compared with 1994, primarily as a result of the Liberty and Pace
transactions. The differences in the results of operations for the three-
month period ended September 30, 1995 as compared with the three-month
period ended September 30, 1994 are primarily for the reasons described
above, however; the rate of increase of general and administrative expenses
has significantly decreased since the first quarter of the year. There has
been an increase in general and administrative expenses for the comparable
three-month periods due to the aforementioned effect of providing for an
increase in state income and franchise taxes at the partnership level.
Solely as a result of the termination of the IGC lease, annual cash flow
(lease revenues less mortgage debt service) will decrease by $778,000. In
connection with the Partnership's purchase of limited partnership interests
in G.I. Plastek Limited Partnership ("Plastek") , the Partnership will
receive a cumulative annual preferred return of $175,000 on an investment
of $1,750,000 and 17.5% of all cash distributed after payment of the
preferred return. Actual receipt of distributions from this investment is
conditioned on the ability of Plastek to generate sufficient earnings to
meet its distribution objectives.
- 9 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS, Continued
----------------------------------------------------------
Hotel operating results for the three hotel properties were stable for
the comparable nine-month periods. Room revenues of the Rapid City and
Alpena hotels increased by 4% and 5%, respectively, while there was a 9%
decrease in room revenues as well as decreases in the food and beverage
revenues at the Petoskey hotel. The increase in room revenues for Rapid
City and Alpena was due to increases in the average daily room rates at
these hotels rather than increases in occupancy rates. The business at the
three hotels is seasonal with the most significant share of annual
operating earnings and revenues realized during the third quarter.
Financial Condition:
-------------------
There has been no material change in the Partnership's financial
condition since December 31, 1994 and Management believes that current cash
balances and cash from operating activities will be sufficient to pay
quarterly distributions, meet scheduled debt service installment
obligations and fund necessary replacements of furniture, fixtures and
equipment in the ordinary course of operating the hotel business. For the
nine-month period ended September 30, 1995, cash flow from operating
activities of $4,265,000 was not fully sufficient to pay quarterly
distributions of $4,354,000. In April 1995, the Partnership used a portion
of its cash generated from the Pace sale to pay a special distribution of
$2,287,000 ($20 per Limited Partnership Unit, representing a return of 4%
of the original capital per $500 Limited Partnership Unit) and made a
$144,000 partial prepayment of a note payable to an affiliate. Although
future cash flow from operations will decrease as a result of the Pace
Liberty and IGC sales, and the dollar amount of quarterly distributions may
not match the levels achieved prior to these sales, the distribution rate
is expected to continue to increase as the distribution rate is calculated
on the basis of capital invested in a Limited Partnership Unit less any
capital distributions.
The Partnership is currently committed to meeting the requirements of
the Holiday Inn core modernization plan for the Partnership's hotel
properties in Alpena and Petoskey, Michigan. The Partnership's share of
costs necessary to meet the requirements of the plan are approximately
$735,000 and have been approved by Holiday Inn. The Partnership does not
intend to meet the requirements of the plan for the Rapid City property and
is in the process of seeking an affiliation with another national hotel
chain. It is expected that the Partnership will need to fund approximately
$500,000 in renovations at the Rapid City property over the next twelve to
eighteen months in order to comply with the standards of other national
hotel chains as compared with the $1,925,000 that was estimated as being
required to comply with the Holiday Inn core modernization plan. It is
also expected that the average daily room rate would be lower at the Rapid
City property after any change in affiliation. The General Partners have
concluded that the return on investment from making the additional
$1,425,000 under the Holiday Inn plan currently does not justify attempting
to comply with the Holiday Inn plan. As a result of the Partnership's
withholding payment of debt service on the $6,800,000 of tax-exempt bonds
on the Rapid City property, October and November interest was paid by
drawing on the letter of credit supporting the bonds. Accordingly, the
issuer of the letter of credit supporting the bonds has the right to
declare a default. If such default were declared, the trustee of the bonds
would have the right to redeem the bonds by drawing on the letter of
credit. In the event of a redemption, the issuer of the letter of credit
would have recourse solely to the Rapid City property and escrow and
security reserves of $2,240,000. The Partnership is in the process of
negotiating an extension of its nonrecourse mortgage loan on the Arley
Merchandise Corporation ("Arley") properties which had a balloon payment of
$4,775,000 due in July 1995. The Partnership continues to pay monthly debt
service to the lender and no demand has yet been made for the entire
balance. In the event that the lender demands payment of the entire
balance due rather than agree to an extension of modification, there is no
assurance that the Partnership will be able to pay the mortgage obligation;
however, the mortgage loan is a nonrecourse obligation so the lender would
only have recourse to the Arley properties.
- 10 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 5
(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
filed a report on Form 8-K dated September 29, 1995 for Item 2.,
Acquisition or Disposition of Assets.
- 11 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 5
(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 5
(a California limited partnership)
By: CAREY CORPORATE PROPERTY, INC.
11/16/95 By: /s/ Claude Fernandez
-------------- ------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
11/16/95 By: /s/ Michael D. Roberts
-------------- -------------------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
- 12 -
<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> 3,103,194
<SECURITIES> 1,750,175
<RECEIVABLES> 136,443
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,362,190
<PP&E> 93,446,975
<DEPRECIATION> 22,122,864
<TOTAL-ASSETS> 81,310,152
<CURRENT-LIABILITIES> 3,698,391
<BONDS> 37,307,470
<COMMON> 0
0
0
<OTHER-SE> 30,945,291
<TOTAL-LIABILITY-AND-EQUITY> 81,310,152
<SALES> 0
<TOTAL-REVENUES> 14,101,981
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,954,488
<LOSS-PROVISION> 1,691,640
<INTEREST-EXPENSE> 2,647,539
<INCOME-PRETAX> (302,804)
<INCOME-TAX> 0
<INCOME-CONTINUING> (302,804)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (302,804)
<EPS-PRIMARY> (2.51)
<EPS-DILUTED> (2.51)
</TABLE>
