<PAGE> 1
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, 1997
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> 2
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
INDEX
<TABLE>
<CAPTION>
Page No.
PART I
<S> <C>
Item 1. - Financial Information*
Balance Sheets, December 31, 1996 and
June 30, 1997 2
Statements of Operations for the three and six
months ended June 30, 1996 and 1997 3
Statements of Cash Flows for the six
months ended June 30, 1996 and 1997 4
Notes to Financial Statements 5-6
Item 2. - Management's Discussion of Operations 7
PART II
Item 6. - Exhibits and Reports on Form 8-K 8
Signatures 9
</TABLE>
*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> 3
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
PART I
Item 1. - FINANCIAL INFORMATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
----------- ----------
(Note) (Unaudited)
ASSETS:
<S> <C> <C>
Land and buildings, net of accumulated
depreciation of $13,749,248 at
December 31, 1996 and
$14,347,833 at June 30, 1997 $25,065,648 $23,301,410
Net investment in direct
financing leases 19,298,726 19,278,575
Cash and cash equivalents 5,237,995 4,091,246
Escrow funds 575,051 687,974
Other assets 2,474,117 2,772,715
----------- -----------
Total assets $52,651,537 $50,131,920
=========== ===========
LIABILITIES:
Mortgage notes payable $14,283,940 $14,283,940
Note payable to affiliate 1,151,000 1,151,000
Accrued interest payable 45,707 45,707
Accounts payable and accrued expenses 433,842 277,063
Accounts payable to affiliates 111,526 102,914
Deferred gains 901,390 878,855
Other liabilities 658,542 674,503
----------- -----------
Total liabilities 17,585,947 17,413,982
----------- -----------
PARTNERS' CAPITAL:
General Partners (67,666) (160,981)
Limited Partners (113,200 Limited
Partnership Units outstanding) 35,133,256 32,878,919
----------- -----------
Total partners' capital 35,065,590 32,717,938
----------- -----------
Total liabilities and
partners' capital $52,651,537 $50,131,920
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date.
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<PAGE> 4
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1997 June 30, 1996 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income from
operating leases $ 730,107 $ 714,027 $ 1,802,076 $ 1,428,053
Interest from direct
financing leases 847,016 886,683 1,670,174 1,759,316
Other interest income 60,990 33,309 89,501 67,228
Revenue of hotel
operations 1,644,627 831,975 2,938,233 1,706,403
Other income 4,750 10,000 4,750 10,000
----------- ---------- ----------- -----------
3,287,490 2,475,994 6,504,734 4,971,000
----------- ---------- ----------- -----------
Expenses:
Interest 494,182 351,627 1,253,353 692,864
Depreciation 300,990 321,514 755,224 598,585
General and
administrative 99,059 260,665 241,944 376,081
Property expenses 210,482 56,176 327,616 92,676
Amortization 2,218 12,010
Operating expenses of
hotel operations 1,231,749 683,763 2,461,793 1,394,101
Writedown to net realizable
value 1,300,000 1,350,000 1,300,000 1,350,000
----------- ---------- ----------- -----------
3,638,680 3,023,745 6,351,940 4,504,307
----------- ---------- ----------- -----------
Income (loss) before gain
on sales of real estate (351,190) (547,751) 152,794 466,693
Gain on sales of
real estate 4,408,467 4,498,823
----------- ---------- ----------- ----------
Net income (loss) $ 4,057,277 $ (547,751) $ 4,651,617 $ 466,693
=========== ========== =========== ===========
Net income (loss) allocated
to General Partners $ 193,893 $ (32,865) $ 314,488 $ 28,002
=========== ========== =========== ===========
Net income (loss) allocated
to Limited Partners $ 3,863,384 $ (514,886) $ 4,337,129 $ 438,691
=========== ========== =========== ===========
Net income (loss) per Unit
(113,200 Limited
Partnership Units)
$34.12 $(4.55) $38.31 $3.87
====== ====== ====== =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE> 5
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------------
1996 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,651,617 $ 466,693
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 767,234 598,585
Other noncash items (9,385) (2,384)
Gain on sale of real estate (4,498,823)
Writedown to net realizable value 1,300,000 1,350,000
Net change in operating assets and liabilities (168,730) (560,951)
------------ -----------
Net cash provided by operating activities 2,041,913 1,851,943
------------ -----------
Cash flows from investing activities:
Additional capitalized costs (101,665) (184,347)
Proceeds from sale of real estate 14,378,057
------------ -----------
Net cash provided by (used in) investing activities 14,276,392 (184,347)
------------ -----------
Cash flows from financing activities:
Distributions to partners (2,426,575) (2,814,345)
Payments on mortgage principal (117,618)
Payments of mortgages payable (10,685,612)
------------ -----------
Net cash used in financing activities (13,229,805) (2,814,345)
------------ -----------
Net increase (decrease) in cash and cash equivalents 3,088,500 (1,146,749)
Cash and cash equivalents, beginning of period 2,300,682 5,237,995
------------ -----------
Cash and cash equivalents, end of period $ 5,389,182 $ 4,091,246
============ ===========
Supplemental disclosure of cash flows information:
Interest paid $ 1,374,757 $ 715,399
============ ===========
</TABLE>
Supplemental schedule of noncash investing and financing activities:
In connection with the January 1996 sale of a Partnership property, the
purchaser assumed 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> 6
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, 1996.
Note 2. Distributions to Partners:
Distributions declared and paid to partners during the six months ended June 30,
1997 are summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended General Partners Limited Partners Per Limited Partner Unit
- ----------------- ---------------- ---------------- ------------------------
<S> <C> <C> <C>
December 31, 1996 $61,057 $ 956,540 $8.45
======= ========== =====
March 31, 1997 $60,260 $ 944,088 $8.34
======= ========== =====
</TABLE>
A special distribution of $7 per Limited Partner Unit ($792,400) was declared
and paid in January 1997.
A distribution of $8.34 per Limited Partner Unit for the quarter ended June 30,
1997 was declared and paid in July 1997.
Note 3. Transactions with Related Parties:
For the three-month and six-month periods ended June 30, 1996, the Partnership
incurred property management fees of $17,999 and $47,363, respectively, and
general and administrative expense reimbursements of $40,624 and $70,545,
respectively. For the three-month and six-month periods ended June 30, 1997, the
Partnership incurred property management fees of $16,396 and $31,517,
respectively, and general and administrative expense reimbursements of $72,472
and $92,759, 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 1996 and
1997 were $48,587 and $36,571, respectively.
- 5 -
<PAGE> 7
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 two hotel
properties. For the six-month periods ended June 30, 1996 and 1997, the
Partnership earned its total lease revenues (rental income plus interest income
from financing leases) from the following lease obligors:
<TABLE>
<CAPTION>
1996 % 1997 %
---- --- ---- ---
<S> <C> <C> <C> <C>
Gould, Inc. $ 607,500 17% $ 607,500 19%
Spreckels Industries, Inc. 510,359 15 510,359 16
DeVlieg Bullard, Inc. 435,962 12 476,902 15
Arley Merchandise Corporation 300,000 9 300,000 10
Exide Electronics Corporation 286,065 8 286,065 9
Stoody Deloro Stellite, Inc. 200,363 6 267,804 8
Penn Virginia Corporation 249,375 7 249,375 8
Harcourt General Corporation 116,875 3 116,875 4
Penberthy Products, Inc. 95,761 3 104,753 3
Winn-Dixie Stores, Inc. 95,767 3 95,767 3
Sunds Defibrator Woodhandling, Inc. 72,120 2 72,120 2
Rochester Button Company 98,082 3 69,849 2
Other 23,291 1 30,000 1
GATX Logistics, Inc. 380,730 11
---------- --- ---------- ----
$3,472,250 100% $3,187,369 100%
========== ==== ========== ====
</TABLE>
Operating results of the three hotel properties for the six-month periods ended
June 30, 1996 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Revenues $ 2,938,233 $ 1,706,403
Fees paid to hotel management company (62,084) (43,919)
Other operating expenses (2,399,709) (1,350,182)
----------- -----------
Hotel operating income $ 476,440 $ 312,302
=========== ===========
</TABLE>
Note 5. Properties Leased to Arley Merchandise Corporation:
The Partnership owns two properties in Sumter and Columbia, South Carolina
leased to Arley Merchandise Corporation ("Arley"). A limited recourse mortgage
loan of $4,764,500, collateralized by the properties and an assignment of the
Arley lease, matured in January 1993. The Partnership and the lender entered
into a forbearance agreement at that time and attempted to reach an agreement to
restructure the loan. Such agreement was not reached and the forbearance
agreement expired on July 1, 1995.
On May 15, 1997, the lender made a demand for payment of the entire outstanding
principal balance of the loan. Although the Partnership made certain offers to
the lender, the lender rejected such offers and, on June 18, 1997, the lender
initiated a lawsuit for the purpose of foreclosing on the Arley properties. The
Partnership is evaluating whether it will contest the foreclosure action. In
connection with such foreclosure the Partnership has estimated that the fair
value of the Arley properties is approximately $3,940,000 and has recorded a
writedown of $1,350,000, representing the excess of the properties' carrying
value over their estimated fair value. As the loan is limited recourse, the
lender's sole recourse is to the Arley properties.
- 6 -
<PAGE> 8
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
Results of Operations:
As a result of the sales of the property leased to GATX Logistics, Inc. and
the hotel property in Rapid City, South Dakota in the second and fourth quarters
of 1996, respectively, the results of operations for the three-month and
six-month periods ended June 30, 1997 are not fully comparable with the results
for the three-month and six-month periods ended June 30, 1996. For the last full
fiscal year that the Partnership owned the GATX and Rapid City properties, the
GATX lease represented 16% of annual lease revenues and the Rapid City hotel
represented 51% of annual hotel revenues as well as 70% of the Partnership's
hotel operating income. In addition, earnings for the prior-year three-month and
six-month periods include the benefit of a $4,408,000 gain on the sale of the
GATX property.
Income before gain on the sales of real estate increased by $314,000 for
the comparable six-month periods and decreased by $196,000 for the comparable
three-month periods. For the comparable six-month periods, the increase in
income before gain was due to decreases in interest, depreciation and property
expenses. Of the decrease of $560,000 in interest expense from 1996, $243,000 of
such decrease was due to interest expense incurred on the GATX and Rapid City
mortgage loans, which loans were retired in connection with the sale of the
properties. The remaining decrease was due to the Partnership's paying off other
mortgage loans on properties which are leased to Gould, Inc., Exide Electronics
Corporation and Stoody Deloro Stellite, Inc. The decrease in depreciation
expense was due solely to the disposition of properties in 1996. The decrease in
property expenses was due to the writeoff of certain property-related
receivables in 1996. The decrease in hotel operating income was due solely to
the sale of the Rapid City hotel. For the comparable six-month periods, revenues
for the Alpena and Petoskey hotels increased by 8% while expenses were
substantially unchanged. For the comparable six-month periods, hotel operating
earnings from the remaining two hotels increased by $92,000. The occupancy rate
of the Alpena and Petoskey hotels increased by approximately 1% and 5% to 58%
and 47%, respectively. The average room rates of Alpena and Petoskey increased
by 5% and 2%, respectively. Historically, the earnings of the Alpena and
Petoskey hotels are seasonal in nature with occupancy rates higher in the third
quarter than in the other periods. Accordingly, hotel earnings for the six-month
period are not necessarily indicative of a full year's operating cycle. Lease
revenues decreased solely as a result of the GATX property sale. This was
partially offset by rent increases in 1996 on the Partnership's leases with
DeVlieg Bullard, Inc. and Penberthy Products, Inc. and in 1997 on the
Partnership's lease with Stoody Deloro Stellite. The Partnership also incurred
noncash charges in both 1996 and 1997 in connection with the writedown of
properties to estimated net realizable value. The results for the current
three-month period also reflect the aforementioned benefits of decreases in
interest, depreciation and property expenses; however, such benefits were offset
by an increase in general and administrative expenses. The increase was
primarily due to higher partnership-level state taxes primarily as a result of
projected increases in taxable income.
Financial Condition:
There has been no material change in the Partnership's condition since
December 31, 1996. Cash flow from operations of $1,852,000 was not sufficient to
fully fund quarterly distributions of $2,022,000 and a special distribution of
$792,000, paid in January 1997. Accordingly, the General Partners will continue
to monitor the Partnership's cash flows in order to determine whether the
current distribution rate can be sustained.
The limited recourse mortgage lender on the Arley Merchandise Corporation
property has initiated foreclosure proceedings as such loan has matured. The
General Partners have concluded that the estimated fair value on the properties
is less than the outstanding mortgage balance on the mortgage loan and are
evaluating whether to continue their efforts to reach a restructuring agreement
with the lender. If no restructuring agreement is reached, the lender's sole
recourse is to the mortgaged properties. As the Arley properties lender had
previously exercised its right of assignment to collect Arley rents, there will
be no effect on the Partnership's annual cash flow if the ownership of the
properties is transferred to the lender to satisfy the mortgage debt. Prior to
such exercise, annual cash flow from the Arley properties (rent less mortgage
debt service) was $60,000.
The General Partners are currently investigating ways to provide liquidity
for limited partners on a tax-effective basis.
- 7 -
<PAGE> 9
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, 1997, the Partnership was
not required to file any reports on Form 8-K.
- 8 -
<PAGE> 10
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.
08/11/97 By: /s/ Steven M. Berzin
-------- ---------------------------------------
Date Steven M. Berzin
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
08/11/97 By: /s/ Claude Fernandez
-------- ---------------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
08/11/97 By: /s/ Michael D. Roberts
-------- ---------------------------------------
Date Michael D. Roberts
First Vice President and Controller
- 9 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE SIX-MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,091,246
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,091,246
<PP&E> 56,927,818
<DEPRECIATION> 14,347,833
<TOTAL-ASSETS> 50,131,920
<CURRENT-LIABILITIES> 1,100,187
<BONDS> 15,434,940
0
0
<COMMON> 0
<OTHER-SE> 32,717,938
<TOTAL-LIABILITY-AND-EQUITY> 50,131,920
<SALES> 0
<TOTAL-REVENUES> 4,971,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,461,443
<LOSS-PROVISION> 1,350,000
<INTEREST-EXPENSE> 692,864
<INCOME-PRETAX> 466,693
<INCOME-TAX> 0
<INCOME-CONTINUING> 466,693
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 466,693
<EPS-PRIMARY> 3.87
<EPS-DILUTED> 3.87
</TABLE>
