<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 0-11948
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, 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 8-9
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, June 30,
1995 1996
------------- -----------
(Note) (Unaudited)
ASSETS:
<S> <C> <C>
Land, buildings and personal property,
net of accumulated depreciation of
$16,636,945 at December 31, 1995 and
$13,213,733 at June 30, 1996 $34,358,635 $25,540,928
Net investment in direct
financing leases 19,352,938 19,326,519
Real estate held for sale 10,388,398 4,292,451
Cash and cash equivalents 2,300,682 5,389,182
Escrow funds 2,977,622 3,192,717
Accrued interest and rents receivable 9,634 27,425
Other assets 2,880,493 2,673,791
----------- -----------
Total assets $72,268,402 $60,443,013
=========== ===========
LIABILITIES:
Mortgage notes payable $36,065,145 $22,407,640
Note payable to affiliate 1,151,000 1,151,000
Accrued interest payable 170,877 72,008
Accounts payable and accrued expenses 572,267 512,900
Accounts payable to affiliates 144,553 117,003
Prepaid rental income 3,051 94,761
Deferred gains and other liabilities 2,415,446 2,116,596
----------- -----------
Total liabilities 40,522,339 26,471,908
----------- -----------
PARTNERS' CAPITAL:
General Partners (262,961) (94,068)
Limited Partners (113,200 Limited
Partnership Units outstanding) 32,009,024 34,065,173
----------- -----------
Total partners' capital 31,746,063 33,971,105
----------- -----------
Total liabilities and
partners' capital $72,268,402 $60,443,013
=========== ===========
</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 5
(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 $1,156,126 $ 730,107 $2,311,931 $1,802,076
Interest from direct
financing leases 1,117,892 847,016 2,234,308 1,670,174
Other interest income 83,233 60,990 213,700 89,501
Revenue of hotel
operations 1,644,200 1,644,627 2,915,130 2,938,233
Other income 3,184 4,750 47,483 4,750
---------- ----------- ---------- ----------
4,004,635 3,287,490 7,722,552 6,504,734
---------- ----------- ---------- ----------
Expenses:
Interest 888,337 494,182 1,793,484 1,253,353
Depreciation 544,642 300,990 1,087,320 755,224
General and
administrative 196,597 99,059 514,985 241,944
Property expenses 127,980 210,482 240,121 327,616
Amortization 8,500 2,218 16,375 12,010
Operating expenses of
hotel operations 1,297,603 1,231,749 2,466,245 2,461,793
Writedown to net realizable
value 1,300,000 1,300,000
---------- ----------- ---------- ----------
3,063,659 3,638,680 6,118,530 6,351,940
---------- ----------- ---------- ----------
Income (loss) before gain
on sales of real estate 940,976 (351,190) 1,604,022 152,794
Gain on sales of
real estate 4,408,467 4,498,823
---------- ----------- ---------- ----------
Net income $ 940,976 $ 4,057,277 $1,604,022 $4,651,617
========== =========== ========== ==========
Net income allocated
to General Partners $ 56,458 $ 193,893 $ 96,241 $ 314,488
========== =========== ========== ==========
Net income allocated
to Limited Partners $ 884,518 $ 3,863,384 $1,507,781 $4,337,129
========== =========== ========== ==========
Net income per Unit
(113,200 Limited
Partnership Units)
$ 7.81 $ 34.12 $ 13.32 $ 38.31
========== =========== ========== ==========
</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>
Six Months Ended
June 30,
--------------------------------
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,604,022 $ 4,651,617
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,103,695 767,234
Other noncash items 5,935 (9,385)
Gain on sales of real estate (4,498,823)
Writedown to net realizable value 1,300,000
Net change in operating assets and liabilities 181,549 (168,730)
------------ ------------
Net cash provided by operating activities 2,895,201 2,041,913
------------ ------------
Cash flows from investing activities:
Additional capitalized costs (231,727) (101,665)
Proceeds from sales of real estate 14,378,057
------------ ------------
Net cash (used in) provided by investing activities (231,727) 14,276,392
------------ ------------
Cash flows from financing activities:
Distributions to partners (5,226,456) (2,426,575)
Partial prepayment of note payable to affiliate (144,000)
Payments on mortgage principal (246,003) (117,618)
Payments of mortgages payable (10,685,612)
------------ ------------
Net cash used in financing activities (5,616,459) (13,229,805)
------------ ------------
Net (decrease) increase in cash and cash equivalents (2,952,985) 3,088,500
Cash and cash equivalents, beginning of period 7,926,845 2,300,682
------------ ------------
Cash and cash equivalents, end of period $ 4,973,860 $ 5,389,182
============ ============
Supplemental disclosure of cash flows information:
Interest paid $ 1,833,435 $ 1,374,757
============ ============
</TABLE>
Supplemental schedule of noncash investing and financing activity:
In connection with the January 1996 sale of a Partnership property, the
purchaser asssumed a mortgage obligation of $2,854,275 and accrued interest
thereon of $12,049 from the Partnership.
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, 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 $84,900 $1,330,100 $11.75
======= ========== ======
March 31, 1996 $60,695 $ 950,880 $ 8.40
======= ========== ======
</TABLE>
A distribution of $8.42 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 $28,422 and $60,410, respectively, and general and
administrative expense reimbursements of $3,363 and $40,776, respectively. For
the three-month and six-month periods ended June 30, 1996, the Partnership
incurred management fees of $17,999 and $47,363, respectively, and general and
administrative expense reimbursements of $40,624 and $70,545, 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 six months ended June 30 1995 and
1996 were $108,654 and $48,587, 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 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>
Gould, Inc. $ 562,500 12% $ 607,500 17%
Spreckels Industries, Inc. 510,359 11 510,359 15
DeVlieg Bullard, Inc. 415,492 9 435,962 12
GATX Logistics, Inc. 699,300 15 380,730 11
Arley Merchandise Corporation 300,000 7 300,000 9
Exide Electronics Corporation 242,861 5 286,065 8
Penn Virginia Corporation 249,375 6 249,375 7
Stoody Deloro Stellite, Inc. 202,702 5 200,363 6
Harcourt General Corporation 116,875 3 116,875 3
Rochester Button Company 100,529 2 98,082 3
Winn-Dixie Stores, Inc. 95,767 2 95,767 3
Penberthy Products, Inc. 91,265 2 95,761 3
FMP/Rauma Company 62,215 1 72,120 2
Other 259,678 6 23,291 1
Industrial General Corporation 637,321 14
---------- ---- ---------- -----
$4,546,239 100% $3,472,250 100%
========== ==== ========== ====
</TABLE>
Operating results of the three hotel properties for the six-month periods ended
June 30, 1995 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1995 1996
----------- --------
<S> <C> <C>
Revenues $ 2,915,130 $ 2,938,233
Fees paid to hotel management company (61,521) (62,084)
Other operating expenses (2,404,724) (2,399,709)
----------- -----------
Hotel operating income $ 448,885 $ 476,440
=========== ===========
</TABLE>
Note 5. Gain on Sale of Real Estate:
In June 1985, the Partnership purchased a warehouse property in Hodgkins,
Illinois for $12,037,466 which was leased to General Motors Corporation ("GM").
In November 1993, GM terminated its lease and the Partnership entered into a
short-term lease with GATX Logistics, Inc.("GATX"). Subsequently, in November
1994, GATX and the Partnership entered into a new lease which provided for a
five-year term and a renewal term of five years at GATX's option.
-6-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
On April 9, 1996, the Partnership sold the Hodgkins property for $13,200,000 and
assigned the GATX lease, as lessor, to Centerpoint Properties Corporation. Net
of costs and amounts necessary to pay the remaining $3,208,526 balance on the
property's mortgage loan, the Partnership received cash proceeds of $9,661,483
and recognized a gain on sale of $4,408,468. As a result of the sale of the
Hodgkins property, annual cash flow (GATX rent less debt service on the limited
recourse loan on the property) will decrease by approximately $999,000.
On April 9, 1996, using the proceeds from the sale of the Hodgkins property, the
Partnership made payments of $6,090,823 and $1,386,263 to satisfy the mortgage
loan obligations on the Partnership's properties leased to Gould, Inc. ("Gould")
and Exide Electronics Corporation ("Exide"), respectively. The Gould and Exide
loans had been scheduled to mature in March 1996 and April 1996, respectively,
at which time balloon payments for the entire outstanding principal balance were
due. As a result of paying off the mortgage loans, the Partnership's annual cash
flow will increase by approximately $1,024,000.
Note 6. 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. The purchase of the hotel in 1985 included
$6,800,000 of tax-exempt bonds which are supported by a letter of credit issued
by a third party. In September 1994, the Partnership was advised by Holiday Inn
that the Partnership 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. The estimated
costs of complying with the core modernization plan were estimated by the
Partnership to be $1,925,000. The Partnership concluded that it would be too
costly to comply with the plan and that it would be appropriate 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. The Partnership is now actively engaged in
seeking such new affiliation.
The letter of credit supporting the tax-exempt lender which originally expired
in May 1995 was extended through October 1997. The extension agreement obligates
the Partnership to use its best efforts to sell the hotel property no later than
the expiration of the extension term. Under the extension agreement, the
Partnership is obligated for each twelve-month period ended October 31 to
deposit 50% of the cash flow from the hotel operation in either the security
reserve deposited with the trustee of the tax-exempt bonds or the special escrow
account deposited with the letter of credit issuer. The initial twelve-month
period commenced on October 1, 1995.
The Partnership is committed to seek a sales price of no less than the
outstanding principal balance less (i) the balances in the security reserve and
escrow balances, (ii) the usual and customary costs of selling the property, and
(iii) any amounts advanced by the Partnership to operate and maintain the hotel
business including amounts used to convert the hotel from a Holiday Inn to the
franchisee of another hotel chain. As of June 30, 1996, the outstanding
principal balance on the mortgage bonds of $6,800,000 was in excess of the funds
held by the trustee and letter of credit issuer by approximately $4,100,000. The
Partnership is actively involved in discussions with a potential purchaser.
Although there is no assurance that these negotiations will result in a sale of
the property, the Partnership has charged $1,300,000 as a writedown to net
realizable value of the Rapid City property to an amount that Management
believes would approximate the sum of (a) potential proceeds from a sale with
this potential purchaser after costs of such sale and (b) the unamortized
portion of the deferred gain that was realized upon acquiring the hotel
operation in 1991 in connection with a settlement from the former lessee. The
Rapid City hotel property is currently classified as real estate held for sale
in the accompanying financial statements.
-7-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
Results of Operations:
Net income for the three-month and six-month periods ended June 30, 1996
increased by $3,116,000 and $3,048,000 compared with the similar periods ended
June 30, 1995. The increase in net income was primarily due to the gains on sale
of real estate recognized by the Partnership in 1996 including a gain of
$4,408,000 on the sale of a warehouse property in Hodgkins, Illinois leased to
GATX Logistics, Inc. ("GATX") in April 1996. This was partially offset by a
noncash charge of $1,300,000 on the writedown to net realizable value of the
hotel property in Rapid City, South Dakota. Excluding the effects of the
aforementioned items, income would have been unchanged for the comparable
three-month periods and reflected a decrease of $150,000 for the comparable
six-month periods. The decrease for the comparable six-month periods was due, in
part, to nonrecurring other income in 1995 as well as decreases in lease
revenues and other interest income, and an increase in property expenses. The
effects of these items were partially offset by decreases in interest,
depreciation and general and administrative expenses.
The decrease in revenues resulted from the sale of the Helena, Montana
office building in the first quarter of 1996, the aforementioned sale of the
GATX property and the sale of properties in September 1995 which had been leased
to Industrial General Corporation ("IGC"). Other interest income was higher
during 1995 as the Partnership's cash balances were higher in the interval
between property dispositions during the fourth quarter of 1994 and the payment
from such funds of a special distribution to partners in April 1995. The
increase in property expenses was due, in part, to costs associated with
reviewing the Partnership's options for the Rapid City property. The decrease in
interest expense was due to the satisfaction of the mortgages on three
properties sold in 1995 and 1996 and the payment in full, using proceeds from
the GATX property sale, of mortgage loans on properties leased to Gould, Inc.
("Gould") and Exide Electronics Corporation ("Exide"). The decrease in
depreciation is attributable to the sale of the Helena and GATX properties. The
decrease in general and administrative costs was due to higher office and state
tax expenses in 1995. The moderation of such costs in 1996 was anticipated and
the current amounts incurred for such expenses is expected to be more
representative of such costs in the near future. Annual cash flow (rentals, net
of debt service requirements on the mortgage loans) as a result of the Helena
and GATX properties will decrease by $1,190,000; however, $1,024,000 of such
reduction will be offset by the benefit of paying off the Exide and Gould
property loans and thereby further reducing the Partnership's overall debt
service requirements.
Hotel operating income was stable. The Rapid City hotel reflected a slight
increase in revenue but sustained a 2% decrease in its occupancy rate. Earnings
for the Alpena hotel were stable while revenues at the Petoskey hotel decreased
in spite of a 5% increase in the occupancy rate. The hotel operations generally
earn most of their profits in the third quarter; however, earnings may decrease
if the Rapid City hotel is sold before the end of the third quarter.
Financial Condition:
While there has been no material change in the Partnership's financial
condition since December 31, 1995, the Partnership's cash position has improved
and both its asset base and its mortgage debt have decreased substantially as
the result of two property sales and the satisfaction of four mortgage
obligations. Cash flow from operations was not sufficient to fully fund
distributions paid to partners and scheduled principal payment installments. The
distribution rate was reduced in April 1996 to bring distributions to partners
in line with cash flow from operations. The Partnership expects to prudently
increase its distribution rate over the coming quarters while maintaining
adequate cash reserves. In addition, the Partnership should have the necessary
cash reserves to fully fund improvements at the Alpena and Petoskey, Michigan
hotel operations which completion is estimated to amount to $150,000 to comply
with the Holiday Inn core modernization plan.
-8-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS, Continued
A balloon payment of $1,071,000 is scheduled to be paid in January 1997 on
the limited recourse mortgage loan on the Stoody Deloro Stellite ("Stoody")
property. As the Stoody lease has an initial term through 2010, the Partnership
should be able to refinance the loan on or prior to its due date. Based on its
current cash position, the Partnership has the option of using cash reserves to
pay off the Stoody loan. In addition, the Partnership is continuing to attempt
to resolve the uncertainty regarding the matured mortgage loan on the properties
leased to Arley Merchandise Corporation ("Arley") which has a balance of
$4,755,000. Although the loan has matured, the Partnership has continued to pay
monthly debt service installments and has not demanded payment of the entire
outstanding principal balance. To the extent that a demand is made for payment
on the Arley loan, the Partnership could evaluate various alternatives,
including refinancing its properties which are unleveraged.
If the Rapid City property is sold, the Partnership's remaining four
mortgage loans will amount to $15,600,000. The Partnership's cash flow will
decrease if the Rapid City property is sold. Cash flow would also be expected to
decrease if the Partnership retains ownership because upon the expected loss of
the hotel's affiliation with Holiday Inn average room rates would be expected to
decrease.
-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 June 30, 1996, the Partnership filed a
report on Form 8-K dated June 3, 1996 for Item 2, Acquisition or
Disposition of Assets and Item 7b, Pro forma financial information.
-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.
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)
-11-
<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> 5,389,182
<SECURITIES> 0
<RECEIVABLES> 27,425
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,416,607
<PP&E> 58,081,180
<DEPRECIATION> 13,213,733
<TOTAL-ASSETS> 60,443,013
<CURRENT-LIABILITIES> 796,672
<BONDS> 22,407,640
0
0
<COMMON> 0
<OTHER-SE> 33,971,105
<TOTAL-LIABILITY-AND-EQUITY> 60,443,013
<SALES> 0
<TOTAL-REVENUES> 6,504,734
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,798,587
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,253,353
<INCOME-PRETAX> 4,651,617
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,651,617
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,651,617
<EPS-PRIMARY> 38.31
<EPS-DILUTED> 38.31
</TABLE>
