<PAGE>
OMB APPROVAL
----------------------------------
OMB NUMBER 3235-0070
EXPIRES OCTOBER 31, 1995
ESTIMATED AVERAGE BURDEN
HOURS PER RESPONSE 190.00
----------------------------------
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, 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 0-11948
----------------------------------------------------------
CORPORATE PROPERTY ASSOCIATES 5
- - - - - - - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 13-3164925
- - - - - - - --------------------------------------------------------------------------------
(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 5
(a California limited partnership)
INDEX
Page No.
--------
PART I
------
Item 1. - Financial Information*
Balance Sheets, December 31, 1994 and
March 31, 1995 2
Statements of Income for the three
months ended March 31, 1994 and 1995 3
Statements of Cash Flows for the three
months ended March 31, 1994 and 1995 4
Notes to Financial Statements 5-8
Item 2. - Management's Discussion of Operations 9
PART II
-------
Item 6. - Exhibits and Reports on Form 8-K 10
Signatures 11
*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
<TABLE>
<CAPTION>
December 31, March 31,
1994 1995
------------- ------------
(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Land, buildings and personal property,
net of accumulated depreciation of
$20,576,121 at December 31, 1994 and
$21,118,799 at March 31, 1995 $46,733,863 $46,345,150
Net investment in direct
financing leases 25,925,844 25,914,061
Real estate held for sale 7,006,938 7,006,938
Cash and cash equivalents 7,926,845 7,900,230
Escrow funds 2,665,179 2,925,094
Accrued interest and rents receivable 267,515 256,046
Other assets 1,839,711 713,068
----------- -----------
Total assets $92,365,895 $91,060,587
=========== ===========
LIABILITIES:
Mortgage notes payable $39,449,033 $39,335,993
Note payable to affiliate 1,295,000 1,295,000
Accrued interest payable 184,349 236,056
Accounts payable and accrued expenses 617,812 659,028
Accounts payable to affiliates 113,928 30,969
Prepaid rental income 119,601 230,105
Deferred gains and other liabilities 3,338,825 2,832,234
Deposit 9,359,000 9,359,000
----------- -----------
Total liabilities 54,477,548 53,978,385
----------- -----------
PARTNERS' CAPITAL:
General Partners (94,987) (143,355)
Limited Partners (113,200 Limited
Partnership Units outstanding) 37,983,334 37,225,557
----------- -----------
Total partners' capital 37,888,347 37,082,202
----------- -----------
Total liabilities and
partners' capital $92,365,895 $91,060,587
=========== ===========
</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 5
(a California limited partnership)
STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1994 March 31, 1995
-------------- --------------
<S> <C> <C>
Revenues:
Rental income from operating leases $1,452,820 $1,155,805
Interest income from direct financing leases 1,520,537 1,116,416
Other interest income 22,887 130,467
Revenue of hotel operations 1,266,036 1,270,930
Other income 44,299
---------- ----------
4,262,280 3,717,917
---------- ----------
Expenses:
Interest on mortgages 1,143,581 905,147
Depreciation 553,962 542,678
General and administrative 123,620 318,388
Property expenses 193,082 112,141
Amortization 16,341 7,875
Operating expenses of
hotel operations 1,184,230 1,168,642
---------- ----------
3,214,816 3,054,871
---------- ----------
Net income $1,047,464 $ 663,046
========== ==========
Net income allocated to
General Partners $ 62,848 $ 39,783
========== ==========
Net income allocated to
Limited Partners $ 984,616 $ 623,263
========== ==========
Net income per Unit
(113,200 Limited
Partnership Units) $8.70 $5.51
===== =====
</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>
Three Months Ended
March 31,
-------------------------
1994 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,047,464 $ 663,046
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 570,303 550,553
Other noncash items (16,223) (15,085)
Net change in operating assets and liabilities (292,445) 511,067
----------- -----------
Net cash provided by operating activities 1,309,099 1,709,581
----------- -----------
Cash flows from investing activities:
Additional capitalized costs (43,744) (153,965)
----------- -----------
Net cash used by investing activities (43,744) (153,965)
----------- -----------
Cash flows from financing activities:
Distributions to partners (1,463,170) (1,469,191)
Payments on mortgage principal (202,602) (113,040)
----------- -----------
Net cash used by financing activities (1,665,772) (1,582,231)
----------- -----------
Net decrease in cash and cash equivalents (400,417) (26,615)
Cash and cash equivalents, beginning of period 2,294,245 7,926,845
----------- -----------
Cash and cash equivalents, end of period $ 1,893,828 $ 7,900,230
=========== ===========
Supplemental disclosure of cash flows
information:
Interest paid $ 1,158,385 $ 842,173
=========== ===========
</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 three months ended
March 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
Per Limited Partner
Quarter Ended General Partners Limited Partners Unit
---------------- ---------------- ---------------- -------------------
<S> <C> <C> <C>
December 31, 1994 $88,151 $1,381,040 $12.20
======= ========== ======
</TABLE>
A distribution of $12.21 per Limited Partner Unit for the quarter ended
March 31, 1995 was declared and paid in April 1995.
A special distribution of $20 per Limited Partner Unit ($2,264,000) was
declared and paid in April 1995.
Note 3. Transactions with Related Parties:
---------------------------------
For the three-month periods ended March 31, 1994 and 1995, the Partnership
incurred property management fees of $38,968 and $31,988, respectively, and
general and administrative expense reimbursements of $52,255 and $37,413,
respectively, payable to an affiliate.
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 three months
ended March 31, 1994 and 1995 were $16,626 and $59,276, respectively.
- 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 three-month periods ended March 31, 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>
GATX Logistics, Inc. $ 480,375 16% $ 349,650 16%
Industrial General Corporation 346,411 12 318,661 14
Gould, Inc. 281,250 9 281,250 12
Spreckels Industries, Inc. 290,293 10 255,179 12
DeVlieg Bullard, Inc. 207,746 7 207,746 9
Arley Merchandise Corporation 150,000 5 150,000 7
Penn Virginia Corporation 124,688 4 124,688 5
Exide Electronics Corporation 121,430 4 121,430 5
Stoody Deloro Stellite, Inc. 92,313 3 100,461 5
IBM Corporation 79,524 3 79,524 3
Harcourt General Corporation 58,438 2 58,438 3
Rochester Button Company 51,603 2 50,466 2
Other 35,878 1 50,104 2
Winn-Dixie Stores, Inc. 47,884 2 47,884 2
Penberthy Products, Inc. 45,632 1 45,632 2
FMP/Rauma Company 31,108 1 31,108 1
Liberty Fabrics of New York, Inc. 348,269 12
Pace Membership Warehouse, Inc. 180,515 6
---------- --- ---------- ---
$2,973,357 100% $2,272,221 100%
========== === ========== ===
</TABLE>
Operating results of the three hotel properties for the three-month periods
ended March 31 are summarized as follows:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Revenues $ 1,266,036 $ 1,270,930
Fees paid to hotel management company (25,303) (28,529)
Other operating expenses (1,158,927) (1,140,113)
----------- -----------
Hotel operating income $ 81,806 $ 102,288
=========== ===========
</TABLE>
- 6 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
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:
<TABLE>
<CAPTION>
December 31, March 31,
1994 1995
------------ ----------
<S> <C> <C>
Security reserve $1,650,000 $1,840,000
Debt service escrow account 412,100 412,100
Furniture, fixture and equipment reserves 203,079 272,994
Other escrow accounts 400,000 400,000
---------- ----------
$2,665,179 $2,925,094
========== ==========
</TABLE>
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 purchase price at a higher value.
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.
Note 7. Extension of Letter of Credit:
-----------------------------
On April 24, 1985, the Partnership purchased a hotel property in Rapid
City, South Dakota for $9,900,000. $6,800,000 of the purchase price was
funded by the issuance of variable rate tax-exempt bonds which are
scheduled to mature in May 2015. Issuance of the bonds was supported by a
10 year irrevocable letter of
- 7 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
credit which is scheduled to mature May 15, 1995. If the letter of credit
is not extended or replaced by another letter of credit, the bonds would be
subject to mandatory redemption in which event the bond trustee would
redeem the bonds by a draw against the letter of credit. If the bond
trustee redeemed the bonds, the bank which issued the letter of credit
would have recourse solely to the hotel property and certain escrow
balances which currently aggregate $2,240,000.
On March 27, 1995, the Partnership and the issuer of the letter of credit
agreed to extend the existing letter of credit for a period of one year
through May 15, 1996. In connection with granting the extension, the
Partnership agreed to accelerate a security reserve deposit of $75,000 and
make an unscheduled deposit of $40,000 to the security reserve. Such
amounts were deposited prior to March 31, 1995 and are included in the
aforementioned $2,240,000 balance. In addition, the Partnership agreed to
make additional security reserve deposits of up to $110,000 with the amount
of such deposits based on the 1995 operating results of the Rapid City
hotel operation. Under the letter of credit extension agreement, the
Partnership has agreed to present the issuer with a business plan which
details the steps that the Partnership would propose to ensure the ongoing
economic viability of the hotel's operations. The Partnership intends to
either further extend or replace the letter of credit or seek refinancing
of the bonds.
- 8 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
-----------------------------------------------
Net income for the three-month period ended March 31, 1995 decreased by
$384,000 as compared with net income for the comparable three-month period
ended March 31, 1994. The decrease in net income is due to a decrease in
lease revenues and an increase in general and administrative expense. The
effect of these decreases on net income was partially offset by an increase
in other interest income and decreases in interest expense and property
expenses. Lease revenues decreased as a result of the sale in November
1994 of the Pace Membership Warehouse, Inc. ("Pace") property, the
conditional sale in December 1994 of the Liberty Fabrics of New York
("Liberty") properties and the lease extension agreement in October 1994
with GATX Logistics, Inc. ("GATX"). Although annual rentals decreased by
$523,000 under the GATX lease, the Partnership replaced a cancellable
short-term lease with a noncancellable five-year lease. The increase in
general and administrative expense was due to the significant increase in
partnership level taxes in three of the states in which the Partnership
owns property and the higher costs incurred under the office space cost
sharing agreement. Such higher costs under the cost sharing agreement are
expected to be of a short-term nature and are expected to moderate in the
future. The increase in other interest income was due to higher average
cash balances. The decrease in interest expense was due to the payoff of
the Pace and Liberty mortgage loans and the $650,000 partial prepayment of
mortgage loan collateralized by the Industrial General Corporation and
FMP/Rauma Company properties, all of which occurred in the fourth quarter
of 1994. The decrease in property expenses was due to costs incurred in
connection with the assessment of liquidity alternatives in 1994 that were
not incurred in 1995. Hotel operating results reflected a slight increase.
Although occupancy rates decreased slightly, revenues increased due to
increases in average daily room rates. Operations of the three hotels are
seasonal in nature, with their highest level of activity occurring during
the third fiscal quarter. Accordingly, results during the first quarter
represent significantly less than their annualized contribution to
Partnership's earnings.
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 replacements of furniture, fixtures and equipment in
the ordinary course of operating the hotel business. Since March 31, 1995,
when the Partnership's cash balance was $7,900,000, the Partnership has
used a portion of such balance to pay a special distribution of $20 per
Limited Partnership Unit ($2,264,000) and partially prepay a note payable
to an affiliate ($144,000). Under its Amended Agreement of Limited
Partnership, the $20 distribution is a return of capital distribution. The
Partnership has been successful in extending the letter of credit
supporting the tax-exempt bonds collateralized by the Rapid City hotel
property. There is a balloon payment of $4,755,000 on the Arley
Merchandise Corporation properties due in July 1995 and the IGC mortgage
loan, which has a balance of $2,993,000, remains subject to acceleration.
In addition the Partnership will need to commit approximately $1,990,000 to
upgrade its three hotel properties over the next several years, even in the
event a decision is made not to retain an affiliation with Holiday Inn.
Until these uncertainties are resolved, the Partnership intends to maintain
its level of cash balances.
- 9 -
<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 March 31, 1995, the Partnership was not
required to file any reports on Form 8-K.
- 10 -
<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.
05/12/95 By: /s/ Claude Fernandez
-------------- ------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
05/12/95 By: /s/ Michael D. Roberts
-------------- -------------------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
- 11 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 7,900,230
<SECURITIES> 0
<RECEIVABLES> 256,046
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 713,068
<PP&E> 100,384,948
<DEPRECIATION> 21,118,799
<TOTAL-ASSETS> 91,060,587
<CURRENT-LIABILITIES> 1,156,158
<BONDS> 40,630,993
<COMMON> 0
0
0
<OTHER-SE> 37,082,202
<TOTAL-LIABILITY-AND-EQUITY> 91,060,587
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 3,717,917
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 981,082
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 905,147
<INCOME-TAX> 663,046
<INCOME-CONTINUING> 0
<DISCONTINUED> 663,046
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 5.51
<EPS-DILUTED> 5.51
</TABLE>
