<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 MARCH 31, 1996
ended ---------------------------------------------------
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 0-14551
-------
CORPORATE PROPERTY ASSOCIATES 6
-------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 13-3247122
---------- -----------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
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.
[X] Yes [_] No
<PAGE>
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
INDEX
PART I
- ------
Item 1.-Financial Information*
Consolidated Balance Sheets, December 31, 1995
and March 31, 1996 2
Consolidated Statements of Income for the three
months ended March 31, 1995 and 1996 3
Consolidated Statements of Cash Flows for the three
months ended March 31, 1995 and 1996 4-5
Notes to Consolidated Financial Statements 6-7
Item 2.- Management's Discussion of Operations 8
PART II
- -------
Item 6.- Exhibits and Reports on Form 8-K 9
Signatures 10
*The summarized financial information contained herein is unaudited;
however in the opinion of management, all adjustments necessary for a fair
presentation of such financial information have been included.
-1-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
PART I
------
Item 1. - FINANCIAL INFORMATION
-------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
------------- ------------
(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Land, buildings and personal property,
net of accumulated depreciation of
$14,930,388 at December 31, 1995 and
$15,320,820 at March 31, 1996 $44,235,351 $49,108,209
Net investment in direct financing leases 36,920,755 32,887,655
Real estate held for sale 306,337
Cash and cash equivalents 3,476,915 3,902,310
Notes receivable from affiliate 1,151,000 1,151,000
Accrued interest and rents receivable 28,251 15,353
Other assets 2,609,407 2,685,313
----------- -----------
Total assets $88,421,679 $90,056,177
=========== ===========
LIABILITIES:
Mortgage notes payable $33,263,097 $34,754,388
Note payable 10,000,000 10,000,000
Accrued interest payable 482,195 475,625
Accounts payable and accrued expenses 353,851 280,535
Accounts payable to affiliates 75,323 84,362
Prepaid rental income and other liabilities 354,235 416,937
Deferred rental income 3,789,785 3,728,495
----------- -----------
Total liabilities 48,318,486 49,740,342
----------- -----------
PARTNERS' CAPITAL:
General Partners (156,867) (138,469)
Limited Partners (47,930 Limited
Partnership Units issued and outstanding
at December 31, 1995 and March 31, 1996) 40,260,060 40,454,304
----------- -----------
Total partners' capital 40,103,193 40,315,835
----------- -----------
Total liabilities and
partners' capital $88,421,679 $90,056,177
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Note: The consolidated balance sheet at December 31, 1994 has been
derived from the audited financial statements at that date.
-2-
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CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------
March 31, 1995 March 31, 1996
---------------------- --------------
<S> <C> <C>
Revenues:
Rental income from operating leases $1,366,233 $1,302,939
Interest from direct financing leases 1,344,269 1,405,710
Other interest income 91,803 89,936
Revenue of hotel operations 1,078,409 1,135,887
Other income 47,956
---------- ----------
3,928,670 3,934,472
---------- ----------
Expenses:
Interest 1,154,198 1,039,515
Depreciation 379,881 390,432
General and administrative 177,476 101,256
Property expense 74,534 46,844
Amortization 41,044 57,559
Operating expenses of
hotel operations 865,697 912,682
---------- ----------
2,692,830 2,548,288
---------- ----------
Income before gain on
sale of real estate 1,235,840 1,386,184
Gain on sale of real estate 31,456
---------- ----------
Net income $1,235,840 $1,417,640
========== ==========
Net income allocated to
General Partners $ 74,150 $ 85,058
========== ==========
Net income allocated to
Limited Partners $1,161,690 $1,332,582
========== ==========
Net imncome per Unit
(47,930 Limted Partnership Units) $24.24 $27.80
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1995 1996
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,235,840 $ 1,417,640
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 420,925 447,991
Amortization of deferred rental income (61,290)
Gain on sale of real estate (31,456)
Net change in operating assets and liabilities (456,705) 142,073
----------- -----------
Net cash provided by operating activities 1,200,060 1,914,958
----------- -----------
Cash flows from investing activities:
Additional capitalized costs (5,017) (1,762,598)
Proceeds from sale of real estate 257,527
----------- -----------
Net cash used in provided by investing activities (5,017) (1,505,071)
----------- -----------
Cash flows from financing activities:
Distributions to partners (1,179,487) (1,204,998)
Repurchase of Limited Partner Units (20,000)
Proceeds from mortgage 6,000,000
Proceeds from note payable 6,000,000
Prepayment of mortgages payable (6,615,148) (4,257,315)
Payments on mortgage principal (338,600) (251,394)
Deferred financing costs (216,171) (270,785)
----------- -----------
Net cash (used in) provided by
financing activities (2,369,406) 15,508
----------- -----------
Net decrease in cash and
cash equivalents (1,174,363) 425,395
Cash and cash equivalents, beginning of period 4,412,869 3,476,915
----------- -----------
Cash and cash equivalents, end of period $ 3,238,506 $ 3,902,310
=========== ===========
Interest paid $ 1,035,341 $ 1,046,085
=========== ===========
</TABLE>
-4-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Presentation:
---------------------
The accompanying unaudited consolidated 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 three months ended
March 31, 1996 are summarized as follows:
Quarter Ended General Partners Limited Partners Per Limited
Partnership Unit
------------- ---------------- ---------------- ----------------
December 31, 1995 $66,660 $1,138,338 $23.75
======= ========== ======
A distribution of $24.00 per Limited Partnership Unit for the quarter ended
March 31, 1996 was declared and paid in April 1996.
Note 3. Transactions with Related Parties:
---------------------------------
For the three-month periods ended March 31, 1995 and 1996, the Partnership
incurred management fees of $23,422 and $27,101, respectively, and general
and administrative expense reimbursements of $37,676 and $26,542,
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 three months
ended March 31, 1995 and 1996 were $46,727 and $36,203, respectively.
-5-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
NOTES TO CONSOLIDATED 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, 1995 and
1996, the Partnership earned its total real estate lease revenues (rental
income plus interest income from financing leases) as follows:
<TABLE>
<CAPTION>
1995 % 1996 %
---------- ---- ---------- ----
<S> <C> <C> <C> <C>
Stoody Deloro Stellite, Inc. $ 471,403 18% $ 558,548 21%
AP Parts Manufacturing, Inc. 381,596 14 421,303 16
Peerless Chain Company 328,904 12 378,653 14
AutoZone, Inc. 337,027 12 342,489 13
Anthony's Manufacturing Company, Inc. 317,363 12 219,000 8
Wal-Mart Stores, Inc. 206,815 8 206,815 8
Kinney Shoe Corporation 168,192 6 168,192 6
Motorola, Inc. 125,000 5 135,000 5
Harcourt General Corporation 116,875 4 116,875 4
Lockheed Martin Corporation 73,250 3 73,250 3
Folger Adam Company 141,477 5 45,924 1
Winn-Dixie Stores, Inc. 42,600 1 42,600 1
---------- --- ---------- ---
$2,710,502 100% $2,708,649 100%
========== === ========== ===
</TABLE>
Operating results of the three hotels for the three-month periods ended
March 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1995 1996
----------- ------------
<S> <C> <C>
Revenue $1,078,409 $1,135,887
Fees paid to hotel management company (16,612) (27,564)
Other operating expenses (849,085) (885,118)
---------- ----------
Hotel operating income $ 212,712 $ 223,205
========== ==========
</TABLE>
Note 5. Properties Leased to AP Parts Manufacturing, Inc.:
-------------------------------------------------
In connection with the Partnership's funding $1,700,000 of improvements to
the AP Parts Manufacturing Company ("AP Parts") property in Toledo, Ohio,
on January 25, 1996, the Partnership and AP Parts agreed to a modification
of the AP Parts lease. Under the agreement, the initial lease term has
been extended from December 31, 2001 to December 31, 2007 with AP Parts'
annual rent increasing by $216,850 to $1,742,966. The modification also
provides for two ten-year renewal terms followed by a five-year renewal
term, all at the option of the lessee.
In connection with funding the improvements, the Partnership paid off an
existing mortgage loan of $3,999,788 with a new limited recourse mortgage
loan of $6,000,000. The new loan agreement provides for monthly payments of
principal and interest of $63,120 at an annual interest rate of 7.625% and
matures on February 1, 2001 at which time a balloon payment of $4,124,757
will be due. The retired loan provided for monthly payments of principal
and interest of $73,096 at an annual interest rate of 9.5%.
-6-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 6. Property Formerly Leased to Folger Adam Company:
-----------------------------------------------
On February 8, 1996, Folger Adam Company ("Folger Adam"), the lessee of the
Partnership's property in Lemont, Illinois, filed a petition of voluntary
bankruptcy. In March 1996, Yale Security, Inc. ("Yale") purchased certain
assets of Folger Adam pursuant to an order of the Bankruptcy Court, and on
March 19, 1996 entered into a net lease agreement with the Partnership for
the Lemont property. The lease, which has an initial term of 15 years,
provides for annual rent of $400,000 in the first year, $399,000 in the
second through fifth years, $459,000 in the sixth through tenth years and
$519,000 thereafter. Yale is required to provide as a security deposit an
irrevocable letter of credit in an amount equal to one year of rent during
the first five years of the lease. Annual rent under the Folger Adam lease
was approximately $666,000.
Note 7. Properties Leased to AutoZone, Inc.:
-----------------------------------
The Partnership's master leases with AutoZone, Inc. ("AutoZone") allow
AutoZone to offer to purchase properties which it judges to be unsuitable
for its continued use. On January 26, 1996, AutoZone, citing this lease
provision, purchased the Partnership's property in Dalton, Georgia from the
Partnership for $257,526, net of selling costs. In connection with the
transaction, the Partnership recognized a gain on sale of $31,456.
Pursuant to the AutoZone lease, AutoZone's annual rental obligation will be
reduced by $28,872. The Partnership was required to assign the proceeds of
the sale to its lender as a partial prepayment on the mortgage loan
collateralized by the AutoZone properties. In connection with such
prepayment, the amortization of the loan has been adjusted and annual debt
service will be reduced by $28,592.
On April 26, 1996, AutoZone purchased the Partnership's property in
Birmingham, Alabama for $369,580, net of costs. The Partnership will
recognize a gain on the sale of the Birmingham property of approximately
$63,000 for the quarter ending June 30, 1996. As of March 31, 1996, the
$306,337 carrying value of the Birmingham property has been reclassified as
real estate held for sale in the accompanying financial statements. As a
result of the sale of the Birmingham property, AutoZone's annual rental
obligation will be reduced by $38,763. With the net proceeds from the sale
being applied as a partial prepayment on the AutoZone mortgage loan, annual
debt service will be reduced by an additional $69,605.
-7-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATION
Results of Operations:
---------------------
Net income for the three-month period ended March 31, 1996 reflected an
increase of $182,000 (15%) as compared with the three-month period ended
March 31, 1995. Income for the current period benefited from a $31,500
gain on the sale of a property to a lessee, AutoZone, Inc. ("AutoZone")
while the results for 1995 included nonrecurring other income of $48,000.
The increase in earnings was primarily due to decreases in interest and
general and administrative expenses. The decrease in interest expense was
primarily due to the prepayment of the mortgage loan on the Peerless Chain
Company ("Peerless Chain") property in the fourth quarter of 1995. The
decrease in general and administrative expenses was due to lower legal
costs and office expenses. Leasing revenues remained stable. Since March
31, 1995, the Partnership has had rent increases on its leases with Stoody
Deloro Stellite, Inc., AP Parts Manufacturing ("AP Parts") and Motorola,
Inc.; however, such increases were offset by the termination of the Folger
Adam Company ("Folger Adam") lease in March 1996 and the May 1995 lease
modification agreement with Anthony's Manufacturing Company, Inc.
Although Folger Adam's lease, which provided annual rentals of
approximately $666,000, was terminated, the Partnership was able to enter
into a new lease with Yale Security, Inc. which will provide a rental of
$400,000 in its first lease year. Management believes that the Partnership
will benefit from this change in lessee as the new lease has an initial
term of 15 years, and a financially weak lessee has been replaced with a
lessee which is judged to be more creditworthy than its predecessor. This
change in lessee should enable the Partnership to refinance the existing
mortgage loan on the property which matures in November 1996, at which time
a balloon payment of $1,889,000 will be due. The Partnership's cash flow
has also benefited from its additional investment in the Toledo property
leased to AP Parts. In connection with amending the lease and refinancing
an existing mortgage loan, annual cash flow will increase by $366,500. AP
Parts also agreed to extend the lease term an additional six years. Cash
flow will also benefit from the use of the sale proceeds of two AutoZone
properties to partially prepay the debt on the AutoZone properties; debt
service will decrease by $98,000, which will offset the $68,000 reduction
in annual rent on the AutoZone properties.
Earnings from the three hotel properties reflected a moderate increase of
approximately 5%. Earnings for the Alpena and Petoskey hotels were
substantially unchanged while the Livonia property reflected an increase of
approximately 17%. The Livonia increase was due to an increase in the
average room rate; however, the occupancy rate for the period decreased
from 78% to 74%. Alpena and Petoskey's business is seasonal with their
earnings concentrated in the third fiscal quarter. Earnings from the
Petoskey hotel have been impacted by increased competition.
Financial Condition:
-------------------
There has been no material change in the Partnership's financial condition
since December 31, 1996. Cash flow from operations of $1,915,000 was
sufficient to fund distributions to partners of $1,205,000 and payments of
scheduled mortgage principal payments of $251,000. In January 1996, the
Partnership funded a $1,700,000 expansion of an AP Parts property in
consideration for amending the lease, as described above, with the source
of such funding obtained from refinancing an existing mortgage loan on the
AP Parts properties. The Partnership also benefited from the mandatory
application of sales proceeds on the sale of AutoZone properties as a
mortgage prepayment which resulted in a reduction in debt service
requirements. Peerless Chain did not exercise its option to reduce future
rental increases. Such exercise would have required paying the Partnership
$1,300,000 by May 1, 1996; however, the Partnership will be entitled to
higher increases from Peerless Chain at each rent adjustment date.
Mortgage balloon payments of $3,720,000, which are collateralized by the
properties leased to Winn-Dixie Stores, Inc. and Motorola, Inc., are due in
September 1996. It is currently anticipated that the loans will be
refinanced.
-8-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 6
- 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, 1996, the Partnership was
not required to file any reports on Form 8-K.
-9-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 6
- 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 6
- a California limited partnership
By: CAREY CORPORATE PROPERTY, INC.
5/13/96 By: /s/ Claude Fernandez
-------------- ------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
5/13/96 By: /s/ Michael D. Roberts
--------------- -------------------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,902,310
<SECURITIES> 0
<RECEIVABLES> 1,166,353
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,685,313
<PP&E> 97,623,021
<DEPRECIATION> 15,320,820
<TOTAL-ASSETS> 90,056,177
<CURRENT-LIABILITIES> 1,257,459
<BONDS> 44,754,388
0
0
<COMMON> 0
<OTHER-SE> 40,315,835
<TOTAL-LIABILITY-AND-EQUITY> 90,056,177
<SALES> 0
<TOTAL-REVENUES> 3,934,472
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,508,773
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,039,515
<INCOME-PRETAX> 1,417,640
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,417,640
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,417,640
<EPS-PRIMARY> 27.80
<EPS-DILUTED> 27.80
</TABLE>
