<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 MARCH 31, 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 0-19156
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED, A MARYLAND CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 13-3559213
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
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
7,206,642 shares of common stock; $.001 Par Value
outstanding at May 16, 1997
<PAGE> 2
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
INDEX
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<CAPTION>
Page No.
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PART I
Item 1. - Financial Information*
Consolidated Balance Sheets, December 31, 1996 and
March 31, 1997 2
Consolidated Statements of Income for the three
months ended March 31, 1996 and 1997 3
Consolidated Statements of Cash Flows for the three
months ended March 31, 1996 and 1997 4
Notes to Consolidated Financial Statements 5-7
Item 2. - Management's Discussion of Operations 8-9
PART II
Item 4. - Submission of Matters to a Vote of Security Holders 10
Item 6. - Exhibits and Reports on Form 8-K 10
Signatures 11
</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 10 INCORPORATED
PART I
Item 1. - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31
1996 1997
------------- -------------
(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Land and buildings ,
net of accumulated depreciation of
$9,484,029 at December 31, 1996 and
$9,968,107 at March 31, 1997 $ 85,939,167 $ 92,065,687
Net investment in direct financing leases 23,563,052 16,886,552
Equity investment 11,016,708 11,164,439
Cash and cash equivalents 6,452,554 6,566,763
Other assets 783,245 1,070,177
------------- -------------
Total assets $ 127,754,726 $ 127,753,618
============= =============
LIABILITIES:
Limited recourse mortgage notes payable $ 68,586,254 $ 66,688,350
Note payable 1,600,000
Accrued interest payable 553,985 596,385
Accounts payable and accrued expenses 231,555 266,231
Accounts payable to affiliates 3,974,450 4,184,294
Deferred gain 3,423,043 3,423,043
Prepaid rental income 42,682 13,117
------------- -------------
Total liabilities 76,811,969 76,771,420
------------- -------------
Minority interest 4,048,527 3,998,262
------------- -------------
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 (15,184,953) (15,095,247)
------------- -------------
46,982,322 47,072,028
Less common stock in treasury at cost,
10,652 shares at December 31, 1996 and (88,092) (88,092)
------------- -------------
March 31, 1997
Total shareholders' equity 46,894,230 46,983,936
------------- -------------
Total liabilities and shareholders' equity $ 127,754,726 $ 127,753,618
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Note: The balance sheet at December 31, 1996 has been derived from the audited
consolidated financial statements at that date.
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<PAGE> 4
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1996 March 31, 1997
---------- ----------
<S> <C> <C>
Revenues:
Rental income from operating leases $3,189,152 $3,255,359
Interest income from direct financing leases 938,884 749,952
Other interest income 52,554 86,139
---------- ----------
4,180,590 4,091,450
---------- ----------
Expenses:
Interest on mortgages 2,100,524 1,710,961
Depreciation 502,333 484,078
General and administrative 219,621 329,601
Property expense 414,892 405,062
Amortization 14,551 19,203
---------- ----------
3,251,921 2,948,905
---------- ----------
Income before minority interest,
income from equity investment
and net gain on sales of real estate 928,669 1,142,545
Minority interest in income 88,127 148,726
---------- ----------
Income before equity investment and net
gain on sales of real estate 840,542 993,819
Income from equity investment 522,092 591,265
---------- ----------
Income before net gain on sales of
real estate 1,362,634 1,585,084
Net gain on sales of real estate 656,379
---------- ----------
Net income $2,019,013 $1,585,084
========== ==========
Net income per share (7,206,642 shares) $ .28 $ .22
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE> 5
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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<CAPTION>
Three Months Ended
March 31,
-----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,019,013 $ 1,585,084
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 516,884 503,281
Income from equity investment
in excess of dividends received (137,874) (147,731)
Other noncash items 7,016 66,054
Net gain on sales of real estate (656,379)
Net change in operating assets and liabilities (366,115) (159,682)
------------ ------------
Net cash provided by operating activities 1,382,545 1,847,006
------------ ------------
Cash flows from investing activities:
Proceeds from repayment of note receivable 110,750
Proceeds from sale of real estate 10,739,627
------------ ------------
Net cash provided by investing activities 10,739,627 110,750
------------ ------------
Cash flows from financing activities:
Dividends paid (1,495,378) (1,495,378)
Proceeds from note payable 2,480,000 1,600,000
Repayment of note payable (2,480,000)
Payments of mortgage payable (6,872,872) (1,600,000)
Payments of mortgage principal (287,367) (297,904)
Distributions to minority interest in excess of
minority interest in income (111,012) (50,265)
------------ ------------
Net cash used in financing activities (8,766,629) (1,843,547)
------------ ------------
Net increase in cash and cash equivalents 3,355,543 114,209
Cash and cash equivalents, beginning of period 2,249,315 6,452,554
------------ ------------
Cash and cash equivalents, end of period $ 5,604,858 $ 6,566,763
============ ============
Supplemental disclosure of cash flows information:
Interest paid $ 2,032,544 $ 1,668,561
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE> 6
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, 1996.
Note 2. Transactions with Related Parties:
For the three-month periods ended March 31, 1996 and 1997, the Company incurred
asset management fees of $226,963 and $186,950, respectively, performance fees
in like amount and general and administrative expense reimbursements of $79,621
and $162,916 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,
1996 and 1997 were $35,430 and $38,166, respectively.
Note 3. Dividends:
Dividends declared and paid to shareholders during the three months ended March
31, 1997 are summarized as follows:
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<CAPTION>
Quarter Ended Paid Per Share
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<S> <C> <C>
December 31, 1996 $1,495,378 $ 0.20750
========== ==========
</TABLE>
A dividend of $0.1755 per share ($1,264,766) was declared and paid in April 1997
for the quarter ended March 31, 1997.
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<PAGE> 7
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, 1996 and
1997 are as follows:
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<CAPTION>
1996 1997
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Per Statements of Income:
Rental income from operating leases $ 3,189,152 $ 3,255,359
Interest from direct financing leases 938,884 749,952
Adjustments:
Rental income attributable to
minority interests (479,329) (479,329)
Share of interest income from equity
investment's direct financing lease 1,197,752 1,243,574
----------- -----------
$ 4,846,459 $ 4,769,556
=========== ===========
</TABLE>
For the three-month periods ended March 31, 1996 and 1997, the Company earned
its proportionate net lease revenues from its investments from the following
lease obligors:
<TABLE>
<CAPTION>
1996 % 1997 %
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Marriott International, Inc. (a) $1,197,752 25% $1,243,574 26%
Information Resources Incorporated (b) 729,003 15 729,003 15
The Titan Corporation (b) 504,758 10 504,758 11
Wal-Mart Stores, Inc. 407,619 8 419,432 9
New WAI, L.P./Warehouse Associates 361,079 8 362,629 8
Kmart Corporation 197,423 4 351,359 7
EnviroWorks, Inc. 346,939 7 346,939 7
Harvest Foods, Inc. 309,743 6 258,200 6
Childtime Childcare Inc. 185,614 4 196,114 4
Neodata Corporation 138,957 3 146,932 3
CalComp Technology, Inc. 83,442 2 110,077 2
US West Communications, Inc. 55,650 1 55,650 1
Safeway Stores Incorporated 60,900 1 35,438 1
The Kroger Co. 9,451
Empire of America Realty Credit Corp. 188,322 4
Best Buy Co., Inc. 79,258 2
---------- ---------- ---------- ----------
$4,846,459 100% $4,769,556 100%
========== ========== ========== ==========
</TABLE>
(a) Represents the Company's proportionate share of lease revenues from an
equity investment.
(b) Net of Corporate Property Associates 9's minority interest.
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<PAGE> 8
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 5. Property Leased to Harvest Foods, Inc.:
In February 1992, the Company and Carey Institutional Properties Incorporated
(CIP(TM)), an affiliate, purchased, as tenants-in-common, each with 50%
ownership interests, 13 supermarkets and two office buildings and entered into a
master lease with Harvest Foods, Inc.
("Harvest"), as lessee.
In June 1996, Harvest filed a voluntary bankruptcy petition and, in March 1997,
the Bankruptcy Court approved Harvest's motion to disaffirm the master lease.
Under its ruling, the Bankruptcy Court allowed the Company and CIP(TM) to
establish their unsecured claim for lease rejection damages at $10,000,000 and
ordered Harvest to pay $150,000 in full satisfaction and settlement of any
post-petition obligation for real estate taxes. Except as described, Harvest may
remain in possession of any of the properties until May 15, 1997.
On March 15, 1997, the Company and CIP(TM) entered into a net lease with The
Kroger Co. for two supermarkets in Conway and North Little Rock, Arkansas. The
lease has an initial term of 20 years at an annual rent of $413,612 and grants
the lessee options for four five-year renewal terms. The Company and CIP(TM)
have also entered into net leases with Affiliated Foods Southwest, Inc.
("Affiliated") for two stores in Hope and Little Rock, Arkansas at annual
rentals of $107,352 and $31,188, respectively. The lease for the Hope store also
provides for additional rent of 1% of weekly sales in excess of $175,000. The
Affiliated leases have initial terms through March 31, 2002 and provide four
five-year renewal options.
The former Harvest properties are subject to two limited recourse mortgage loans
of which the Company's share of the outstanding balances was $4,267,387 and
$1,497,590, respectively, as of March 31, 1997. The Company and CIP(TM) have
entered into negotiations with the lenders and are seeking to restructure the
loans or reach settlements with the lenders. The Company and CIP(TM) are
actively seeking to remarket the remaining properties.
Note 6. Equity Investment:
The Company owns an approximate 23.7% interest in Marcourt Investments
Incorporated ("Marcourt") which net leases 13 Courtyard by Marriott hotels to a
wholly-owned subsidiary of Marriott International, Inc. Summarized financial
information of Marcourt is as follows:
(in thousands)
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<CAPTION>
December 31, 1996 March 31, 1997
----------------- --------------
<S> <C> <C>
Assets $149,694 $149,572
Liabilities 106,002 105,210
Shareholders' equity 43,692 44,362
<CAPTION>
Three Months Ended
March 31, 1996 March 31, 1997
-------------- --------------
<S> <C> <C>
Revenue $5,062 $5,256
Interest and other expense 2,808 2,712
------ ------
Net income $2,254 $2,544
====== ======
</TABLE>
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<PAGE> 9
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
Results of Operations:
Net income for the three-month period ended March 31, 1997 decreased by
$434,000, as compared with net income for the three-month period ended March 31,
1996. The Company realized $656,000 of gains on the sale of real estate in the
prior year; accordingly, income before gains reflected an increase of $222,000.
The increase in income before gains was primarily due to a decrease in interest
expense, and, to a lesser extent, increases in equity income and other interest
income. This was partially offset by a decrease in lease revenues and an
increase in general and administrative expenses.
Of the $390,000 decrease in interest expense, $283,000, was attributable
to the disposition of properties in 1996 resulting from the sale of Empire of
America Realty Credit Corporation and Best Buy Co., Inc. properties and the
transfer of the Company's interest in the Stamford, Connecticut Hope Street
property. The remaining decrease in interest expense was due to continuing
amortization of the Company's limited recourse mortgage debt and the benefit of
an interest rate reset on the Warehouse Associates mortgage loans which was
negotiated by the Company in 1996. The increase in equity income from the
Company's interest in a real estate investment trust which net leases 13
Courtyard by Marriott hotels was due to an increase in percentage rents and a
decrease in interest expense as the mortgage loan on the hotels is amortizing
over 16 3/4 years. The increase in other interest income was due to increases in
the Company's cash balances. As described below, the Company intends to use a
substantial portion of its cash for an additional real estate investment. The
increase in general and administrative expenses was due to certain nonrecurring
administrative reimbursements. The decrease in lease revenues was due to the
sale of the Empire, Best Buy and two Safeway Stores Incorporated properties in
1996 and the termination of the Harvest Foods, Inc. lease for 13 supermarkets
and two office buildings in March 1997.
The Company is continuing its efforts to resolve the uncertainties related
to the termination of the Harvest Foods lease. As of March 31, 1997, the Company
was able to re-lease four of the supermarket properties at an annual rent of
$552,000 (of which the Company's share is $276,000). The Company is actively
remarketing the remaining properties and is attempting to negotiate settlements
or restructuring agreements with its limited recourse lenders. The level of
future cash flow from these properties will depend on the outcome of these
efforts.
Financial Condition:
There was no material change in the Company's financial condition since
December 31, 1996. Cash flow from operations of $1,847,000 was sufficient to
fund dividends to shareholders of $1,495,000, and scheduled mortgage principal
installments of $298,000. The Company's cash position has been favorably
affected by the Advisor continuing its voluntary, temporary deferral of a
substantial portion of its asset management and performance fees. As of March
31, 1997, such deferrals totaled $3,984,000. During the quarter, the fees
collected by the Advisor represented approximately 50% of the fees incurred by
the Company.
In April 1997, the Company's Board of Directors reduced the Company's
dividend rate. This reduction was based on the Company's evaluation of its
ability to maintain appropriate levels of cash while evaluating reinvestment
opportunities and the uncertainties related to the termination of the Harvest
Foods lease. It is the intent of Management and the Board of Directors that
future dividends more closely match operating cash flow, after payment of
mortgage debt service.
-8-
<PAGE> 10
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS, Continued
Financial Condition (continued):
A mortgage loan of $1,6000,000 on one of the Company's properties leased
to Kmart Corporation with an annual interest rate of 9.55% matured in January
1997. The loan was paid by drawing an advance on the Company's revolving credit
facility. The annual interest rate on the advance is indexed to the London
Inter-Bank Offered Rate and is currently 8%. The credit facility matures in
August 1997 and it is anticipated that the Company will seek to extend the
agreement. As the Company has been able to meet all of the financial covenants
under the agreement, the prospects for an extension, if pursued, appear
favorable. The Company will continue to monitor Kmart's credit rating. If
Kmart's credit prospects improve, the Company could seek to place new limited
recourse mortgage debt on its three Kmart properties with the objective of using
a portion or all of any such funds received for new investments or paying off
the $1,600,000 advance from the credit facility.
The Company is currently performing due diligence on a proposed purchase
transaction of approximately $8,000,000 which would utilize approximately
$3,000,000 of equity and $5,000,000 of limited recourse mortgage financing. As
the transaction is subject to various contingencies including reaching final
agreements with the lessee and mortgage lender, there is no assurance that the
purchase will be completed. The proposed transaction has been approved by the
Investment Committee of the Board of Directors.
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<PAGE> 11
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
PART II
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended March 31, 1997 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, 1997, the Company
was not required to file any reports on Form 8-K.
-10-
<PAGE> 12
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
05/16/97 By: /s/ Claude Fernandez
-------- ---------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
05/16/97 By: /s/ Michael D. Roberts
-------- ---------------------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
-11-
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 6,566,763
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,566,763
<PP&E> 118,920,346
<DEPRECIATION> 9,968,107
<TOTAL-ASSETS> 127,753,618
<CURRENT-LIABILITIES> 5,060,027
<BONDS> 68,288,350
0
0
<COMMON> 7,217
<OTHER-SE> 46,976,719
<TOTAL-LIABILITY-AND-EQUITY> 127,753,618
<SALES> 0
<TOTAL-REVENUES> 4,091,450
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,218,741
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,710,961
<INCOME-PRETAX> 1,585,084
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,585,084
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,585,084
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
