<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 MARCH 31, 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 0-19156
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CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED, A MARYLAND CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 13-3559213
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
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(Address of principal executive offices) (Zip Code)
(212) 492-1100
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(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
7,206,642 shares of common stock; $.001 Par Value
outstanding at May 14, 1996
<PAGE>
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
INDEX
Page No.
--------
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 nine
months ended March 31, 1995 and 1996 4
Notes to Consolidated Financial Statements 5-7
Item 2. - Management's Discussion of Operations 8
PART II
- -------
Item 4. - Submission of Matters to a Vote of Security Holders 9
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 10 INCORPORATED
PART I
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Item 1. - FINANCIAL INFORMATION
-------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31
1995 1996
------------- -------------
(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Land and buildings, net of
accumulated depreciation of
$8,686,779 at December 31, 1995 and
$9,189,112 at March 31, 1996 $ 91,413,487 $ 90,911,154
Net investment in direct financing leases 26,526,818 26,513,836
Investment in real estate trust 10,432,181 10,570,055
Real estate held for sale 10,079,819
Cash and cash equivalents 2,249,315 5,604,858
Accrued interest and rents receivable 47,431 265,068
Other assets 689,358 1,228,135
------------ ------------
Total assets $141,438,409 $135,093,106
============ ============
LIABILITIES:
Limited recourse mortgage notes payable $ 84,384,583 $ 77,224,344
Accrued interest payable 850,986 918,966
Accounts payable and accrued expenses 240,505 186,728
Accounts payable to affiliates 3,044,843 3,416,359
Prepaid rental income 44,337 60,931
------------ ------------
Total liabilities 88,565,254 81,807,328
------------ ------------
Minority interest 2,987,811 2,876,799
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value;
authorized,7,217,294 shares;
issued and outstanding 7,217 7,217
Additional paid-in capital 62,160,058 62,160,058
Dividends in excess of accumulated
earnings (12,193,839) (11,670,204)
------------ ------------
49,973,436 50,497,071
Less treasury stock, 10,652 shares (88,092) (88,092)
------------ ------------
Total shareholders' equity 49,885,344 50,408,979
------------ ------------
Total liabilities and shareholders' equity $141,438,409 $135,093,106
============ ============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the audited
consolidated financial statements at that date.
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<PAGE>
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
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 $3,168,266 $3,189,152
Interest income from direct financing leases 959,530 938,884
Other interest income 81,627 52,554
---------- ----------
4,209,423 4,180,590
---------- ----------
Expenses:
Interest on mortgages 2,017,465 2,100,524
Depreciation 482,578 502,333
General and administrative 205,762 219,621
Property expense 399,272 414,892
Amortization 24,108 14,551
---------- ----------
3,129,185 3,251,921
---------- ----------
Income before minority interest in
income, equity income and net gain
on sales of real estate 1,080,238 928,669
Minority interest in income 156,605 88,127
---------- ----------
Income before equity income and net
gain on sales of real estate 923,633 840,542
Income from equity investment 493,552 522,092
---------- ----------
Income before net gain on sales of
real estate 1,417,185 1,362,634
Net gain on sales of real estate 656,379
---------- ----------
Net income $1,417,185 $2,019,013
========== ==========
Net income per share $.20 $.28
==== ====
Shares outstanding 7,217,294 7,206,642
========= =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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<PAGE>
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
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 $ 1,417,185 $ 2,019,013
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 506,686 516,884
Minority interest in income 156,605 88,127
Distributions to minority interest (230,226) (199,139)
Equity income in excess of distributions received (137,874)
Other noncash items 10,851 7,016
Net gain on sales of real estate (656,379)
Net change in operating assets and liabilities (194,902) (366,115)
----------- -----------
Net cash provided by operating activities 1,666,199 1,271,533
----------- -----------
Cash flows from investing activities:
Distributions received in excess of equity income 21,289
Net proceeds from sales of real estate 10,739,627
Purchases of real estate and other capitalized costs (8,081,914)
Funds released from escrow in connection with
investing activities 5,122,501
----------- -----------
Net cash (used in) provided by investing activities (2,938,124) 10,739,627
----------- -----------
Cash flows from financing activities:
Proceeds from mortgages 2,587,084
Proceeds from note payable 2,480,000
Payment of note payable (2,480,000)
Dividends paid (1,492,184) (1,495,378)
Payments of mortgage principal (220,924) (287,367)
Prepayments of mortgage payable (6,872,872)
----------- -----------
Net cash provided by (used in) financing activities 873,976 (8,655,617)
----------- -----------
Net (decrease) increase in cash and cash equivalents (397,949) 3,355,543
Cash and cash equivalents, beginning of period 3,367,392 2,249,315
----------- -----------
Cash and cash equivalents, end of period $ 2,969,443 $ 5,604,858
=========== ===========
Supplemental disclosure of cash flows information:
Interest paid $ 1,996,564 $ 2,032,544
=========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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<PAGE>
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
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 Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
Note 2. Transactions with Related Parties:
----------------------------------
For the three-month periods ended March 31, 1995 and 1996, the Company incurred
asset management fees of $388,504 and $453,927 respectively and general and
administrative expense reimbursements of $75,339 and $79,621, respectively.
The Company, in conjunction with certain affiliates, is a participant in a cost
sharing agreement for the purpose of renting and occupying office space. Under
the agreement, the Company pays its proportionate share of rent and other costs
of occupancy. Net expenses incurred for the three-month periods ended March 31,
1995 and 1996 were $62,963 and $35,430, respectively.
Note 3. Dividends:
----------
Dividends declared and paid to shareholders during the three months ended March
31, 1996 are summarized as follows:
Quarter Ended Paid Per Share
------------------- ----------------- ---------
December 31, 1995 $1,495,378 $0.2075
A dividend of $.2075 per share ($1,495,378) was declared and paid in April 1996
for the quarter ended March 31, 1996.
- 5 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 4. Industry Segment Information:
-----------------------------
The Company's operations consist of the direct and indirect investment in and
leasing of industrial and commercial real estate. The financial reporting
sources of leasing revenues for the three-month periods ended March 31, 1995 and
1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
------------ -----------
<S> <C> <C>
Per Statements of Income:
Rental income from operating leases $3,168,266 $3,189,152
Interest from direct financing leases 959,530 938,884
Adjustments:
Rental income attributable to
minority interests (561,435) (479,329)
Share of interest income from equity
investment's direct financing lease 1,182,902 1,197,752
---------- ----------
$4,749,263 $4,846,459
========== ==========
</TABLE>
For the three-month periods ended March 31, 1995 and 1996, the Company earned
its proportionate net lease revenues from its investments from the following
lease obligors:
<TABLE>
<CAPTION>
1995 % 1996 %
---------- ---- ---------- ----
<S> <C> <C> <C> <C>
Marriott International, Inc. (a) $1,182,902 25% $1,197,752 25%
Information Resources Incorporated (b) 685,763 14 729,003 15
The Titan Corporation (b) 504,758 10 504,758 10
Wal-Mart Stores, Inc. 407,123 9 407,619 8
New WAI, L.P./Warehouse Associates 359,569 8 361,079 8
EnviroWorks, Inc. 346,939 7
Harvest Foods, Inc. 309,520 7 309,743 6
Kmart Corporation 185,148 4 197,423 4
Empire of America Realty Credit Corp. 226,014 5 188,322 4
Child Time Childcare Inc. 185,614 4 185,614 4
Neodata Corporation 138,957 3 138,957 3
Summagraphics Corporation 110,069 2 83,442 2
Best Buy Co., Inc. 78,463 1 79,258 2
Safeway Stores Incorporated 98,437 2 60,900 1
US West Communications, Inc. 55,650 1 55,650 1
Xerox Corporation (b) 221,276 5
---------- --- ---------- ---
$4,749,263 100% $4,846,459 100%
========== === ========== ===
</TABLE>
(a) Represents the Company's proportionate share of lease revenues from an
equity investment.
(b) Net of the minority interest of Corporate Property Associates 9.
- 6 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 5. Equity Investment:
------------------
The Company owns an approximate 23.7% interest in Marcourt Investments
Incorporated ("Marcourt") which net leases 13 hotel properties to a wholly-owned
subsidiary of Marriott International, Inc. Summarized financial information of
Marcourt is as follows:
<TABLE>
<CAPTION>
(in thousands)
December 31, 1995 March 31, 1996
------------------ --------------
<S> <C> <C>
Assets $149,910 $149,874
Liabilities 108,876 108,211
Shareholders' equity 41,034 41,663
Three Months Ended
March 31, 1995 March 31, 1996
-------------- --------------
Revenue $ 4,999 $ 5,062
Interest and other expense 2,866 2,808
-------- --------
Net income $ 2,133 $ 2,254
======== ========
</TABLE>
Note 6. Sales of Real Estate:
---------------------
A. In December 1991, the Company and Carey Institutional Properties
Incorporated (CIP(TM)), an affiliate, purchased three supermarkets leased
to Safeway Stores Incorporated (Safeway) as tenants in-common, each with
50% ownership interests.
During the quarter ended March 31, 1996, the Company and CIP(TM) sold two
of the Safeway properties. On January 26, 1996, the Glendale, Arizona
property was sold for $1,950,000, and on February 15, 1996, the
Escondido, California property was sold for $3,450,000. Net of the costs
of sale, the Companys share of net proceeds from the sales was
$2,605,010, including a promissory note for $560,750. A net loss of
$11,017 was recognized on the sales.
The promissory note is collateralized by a first mortgage on the Glendale
property and provides for monthly payments of interest only at the rate
of 8% per annum through January 24, 1997 at which time the entire unpaid
principal balance will be due.
Annual rentals and cash flow from the two properties was $252,000.
B. In June 1991, the Company purchased land and an office building occupied
by Empire of America Realty Credit Corp. (Empire) located in Buffalo, New
York for $7,330,000 with $4,500,000 provided by limited recourse
financing.
On November 29, 1995, the Company notified Empire that it was in default
under the lease as Empire had previously notified the Company of its
intention to vacate the property and liquidate its business. Under the
terms of the lease, Empire was required to provide the Company with an
irrevocable offer to purchase the property in the event of a default.
Accordingly, in February 1996, the Company received and accepted Empires
offer to purchase the property for $8,500,000. The property was sold on
March 15, 1996. After paying certain costs of the sales transaction and
a prepayment charge of $261,196 satisfying the mortgage loan
collateralized by the Empire property, the Company realized net cash
proceeds of approximately $3,675,000. A gain of $667,396, net of costs
of sale and the prepayment charge, was recognized on the sale. As a
result of the sale of the Empire property, annual cash flow (rents less
mortgage debt service) will decrease by approximately $415,000.
- 7 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
-----------------------------------------------
Results of Operations:
- ----------------------
The increase in net income of $602,000 for the three-month period ended March
31, 1996 as compared with the period ended March 31, 1995 was due to net gain on
sales of real estate of $656,000. Excluding the effect of the sales, income
would have decreased by $54,000 (3%). The decrease in income before sales was
due to an increase in interest expense and a decrease in other interest income.
This was partially offset by an increase in income from the Companys equity
investment in properties leased to Marriott International, Inc. (Marriott). The
decrease in other interest income was due to escrow deposits relating to
property sales in the fourth quarter of 1994 which were released to the Company
in the first quarter of 1995. Interest expense increased as a result of
obtaining a mortgage loan on the EnviroWorks, Inc. (EnviroWorks) property upon
completion of construction in September 1995 and, to a lesser extent, higher
interest rates on certain of the Companys mortgage loans with variable rates.
Although lease revenues were unchanged, the Companys lease revenues benefitted
from a rent increase effective October 1995 on the lease with Information
Resources Incorporated and lease revenues from EnviroWorks subsequent to the
completion of construction. These increases fully offset the loss of rents
resulting from the termination of the Xerox Corporation (Xerox) lease in August
1995. Equity income from the Marriott investment increased due to the
commencement of principal payments on a limited recourse mortgage loan
collateralized by thirteen Courtyard by Marriott hotels in May 1995. Such loan
is scheduled to fully amortize over the next 16 years.
Financial Condition:
- --------------------
There has been no material change in the Companys financial condition since
December 31, 1995. The Companys cash position has significantly improved as the
result of selling two properties which were leased to Safeway Supermarkets
Incorporated (Safeway) and a property leased to Empire of America Realty Credit
Corp. (Empire). With net proceeds from these sales of $10,740,000, the Company
satisfied the mortgage loan on the Empire property of $4,443,000 and paid off a
loan of $2,480,000 which had been drawn on the Companys line of credit, as
described below, thereby contributing $3,817,000 to the Companys cash reserves.
As a result of selling the Safeway and Empire properties and the repayment of
the Empire loan and line of credit, annual cash flow (rents less mortgage debt
service) will decrease by $667,000.
Cash from operating activities of $1,272,000 was not sufficient to pay
dividends of $1,495,000 and $287,000 of scheduled principal payment
installments. Accordingly, the Company used $510,000 of cash reserves to fund
the difference. The Company is evaluating reinvestment opportunities and the
need to maintain appropriate levels of cash reserves to meet its current and
expected obligations. The Company is also evaluating its ability to maintain
the current dividend rate. Expected cash from operations, taking into account
the reinvestment of funds from property sales, may not be sufficient to fully
fund future dividends at the current levels and scheduled mortgage principal
payments for approximately two years. Management may consider utilizing its
cash reserves to fund any shortfalls during this period or reduce the dividend
rate to a level that could be sustained solely from current cash flow from
operations. In addition, the Companys cash balances have continued to benefit
from the Advisors voluntary deferral of a portion of asset management and
performance fees. The Company is currently committed to repairing and/or
replacing the roof at a property in Drayton Plains, Michigan leased to Kmart
Corporation (Kmart) at a cost estimated to be $375,000. The Company is also
evaluating whether the Kmart property in Denton, Texas will require a similar
commitment.
In January 1996, the Company drew an advance of $2,480,000 on its line of
credit in order to satisfy a mortgage loan which had matured on two Kmart
properties. As stated above, the advance was subsequently repaid. The Company
is currently monitoring the credit rating of Kmart, and, to the extent that the
credit rating improves, the Company will pursue placing new limited recourse
mortgage debt on the properties. A mortgage loan on the Companys property
leased to Warehouse Associates which had been scheduled to mature in April 1996
has been extended an additional five years pursuant to an extension option which
was available to the Company. If the Company had not exercised the option, a
balloon payment of $977,000 would have been due. The Company has a tentative
agreement to sell the Stamford, Connecticut property formerly leased to Xerox to
the mortgage lender for $10,000 and full satisfaction of the $6,300,000 limited
recourse mortgage loan which matured in September 1995. Although the lender has
no recourse to any Company assets other than the property, the lender has not
yet acted to complete the transaction.
- 8 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
PART II
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Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
During the quarter ended March 31, 1996 no matters were submitted to
a vote of Security Holders.
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 Company was not required
to file any reports on Form 8-K.
- 9 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
5/17/96 By: /s/ Claude Fernandez
-------------- --- ------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
5/17/96 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 10Q FOR
THE THREE MONTHS 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> 5,604,858
<SECURITIES> 0
<RECEIVABLES> 265,068
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,098,061
<PP&E> 137,184,157
<DEPRECIATION> 9,189,112
<TOTAL-ASSETS> 135,093,106
<CURRENT-LIABILITIES> 4,582,984
<BONDS> 77,224,344
0
0
<COMMON> 7,217
<OTHER-SE> 50,401,762
<TOTAL-LIABILITY-AND-EQUITY> 135,093,106
<SALES> 0
<TOTAL-REVENUES> 4,180,590
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 634,513
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,100,524
<INCOME-PRETAX> 2,019,013
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,019,013
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,019,013
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
