<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended SEPTEMBER 30, 1999
of
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
CPA(R):10
A MARYLAND Corporation
IRS Employer Identification No. 13-3559213
SEC File Number 0-19156
50 ROCKEFELLER PLAZA,
NEW YORK, NEW YORK 10020
(212) 492-1100
CPA(R):10 has SHARES OF COMMON STOCK registered pursuant to Section 12(g) of the
Act.
CPA(R):10 is not registered on any exchanges.
CPA(R):10 does not have any Securities registered pursuant to Section 12(b) of
the Act.
CPA(R):10 is unaware of any delinquent filers pursuant to Item 405 of Regulation
S-K.
CPA(R):10 (1) has filed all reports required by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for 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.
CPA(R):10 has no active market for common stock at November 9, 1999. 7,621,686
shares of common stock, $.001 Par Value outstanding at November 9, 1999.
<PAGE> 2
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
PART I
<S> <C>
Item 1. - Financial Information*
Condensed Consolidated Balance Sheets, as of December 31, 1998
and September 30, 1999 2
Condensed Consolidated Statements of Income for the three and
nine months ended September 30, 1998 and 1999 3
Condensed Consolidated Statements of Comprehensive Income
for the three and nine months ended September 30, 1998 and 1999 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 1998 and 1999 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
Item 3. - Quantitative and Qualitative Disclosures About Market Risk 12
PART II - Other Information
Item 4. - Submission of Matters to a Vote of Security Holders 13
Item 6. - Exhibits and Reports on Form 8-K 13
Signatures 14
</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
AND SUBSIDIARIES
PART I
Item 1. - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
(Note) (Unaudited)
ASSETS:
<S> <C> <C>
Land and buildings,
net of accumulated depreciation of
$13,541,345 at December 31, 1998 and
$14,974,962 at September 30, 1999 $ 87,557,617 $ 84,006,872
Net investment in direct financing leases 16,758,447 16,758,447
Equity investment 12,382,287 12,985,258
Assets held for sale 909,375
Cash and cash equivalents 1,770,478 3,086,936
Other assets 787,077 1,419,303
------------ ------------
Total assets $119,255,906 $119,166,191
============ ============
LIABILITIES:
Mortgage notes payable $ 58,748,585 $ 57,701,090
Accrued interest 472,220 460,594
Accounts payable and accrued expenses 479,388 452,277
Accounts payable to affiliates 1,912,233 2,594,863
Dividends payable 1,348,268 1,352,849
Prepaid rental income 27,365 22,065
------------ ------------
Total liabilities 62,988,059 62,583,738
------------ ------------
Minority interest 3,665,708 3,537,805
------------ ------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; 40,000,000
shares authorized; 7,633,588 shares, issued and
outstanding at December 31, 1998 and September 30, 1999 7,633 7,633
Additional paid-in capital 66,530,408 66,530,408
Dividends in excess of accumulated earnings (13,993,711) (14,241,626)
Accumulated other comprehensive income 155,589 846,013
------------ ------------
52,699,919 53,142,428
Less, common stock in treasury, at cost, 11,902
shares at December 31, 1998 and September 30, 1999 (97,780) (97,780)
------------ ------------
Total shareholders' equity 52,602,139 53,044,648
------------ ------------
Total liabilities and shareholders' equity $119,255,906 $119,166,191
============ ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Note: The condensed consolidated balance sheet at December 31, 1998 has been
derived from the audited financial statements at that date.
-2-
<PAGE> 4
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1999 September 30, 1998 September 30, 1999
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 2,986,162 $ 2,811,810 $ 9,234,678 $ 9,068,794
Interest from direct
financing leases 549,253 547,720 1,648,021 1,642,498
Interest and other income 25,612 27,258 87,529 85,179
Lease termination income 1,250,000 1,250,000
----------- ----------- ----------- -----------
3,561,027 4,636,788 10,970,228 12,046,471
----------- ----------- ----------- -----------
Expenses:
Interest 1,533,356 1,447,127 4,609,546 4,348,595
Depreciation and amortization 522,114 514,693 1,566,340 1,556,146
General and administrative 291,107 289,646 923,704 1,081,496
Property expenses 600,943 554,338 1,686,823 1,669,718
Writedown to fair value 404,625 899,590
----------- ----------- ----------- -----------
2,947,520 3,210,429 8,786,413 9,555,545
----------- ----------- ----------- -----------
Income before minority
interest, income from
equity investment and
gain on sale 613,507 1,426,359 2,183,815 2,490,926
Minority interest in income (159,884) (163,253) (476,368) (487,520)
----------- ----------- ----------- -----------
Income before income from
equity investment and
gain on sale 453,623 1,263,106 1,707,447 2,003,406
Income from equity investment 424,684 439,695 1,484,988 1,578,042
----------- ----------- ----------- -----------
Income before gain on sale 878,307 1,702,801 3,192,435 3,581,448
Gain on sale of securities 223,272
----------- ----------- ----------- -----------
Net income $ 878,307 $ 1,702,801 $ 3,192,435 $ 3,804,720
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic and diluted earnings per share $.12 $ .22 $.43 $.50
==== ===== ==== ====
Weighted average shares outstanding
- basic and diluted 7,633,558 7,621,686 7,378,452 7,621,686
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-3-
<PAGE> 5
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1999 September 30, 1998 September 30, 1999
<S> <C> <C> <C> <C>
Net income $878,307 $1,702,801 $3,192,435 $3,804,720
Other comprehensive income:
Change in unrealized gains on
securities during the period (53,484) 262,556 136,140 690,424
-------- ---------- ---------- ----------
Comprehensive income $824,823 $1,965,357 $3,328,575 $4,495,144
======== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-4-
<PAGE> 6
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,192,435 $ 3,804,720
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,566,340 1,556,146
Income from equity investment
in excess of dividends received (538,853) (602,971)
Minority interest in income 476,368 487,520
Straight-line rent adjustments 5,744 3,928
Gain on sale of securities (223,272)
Provision for uncollected rents 81,620 80,336
Writedown to fair value 899,590
Net change in operating assets and liabilities 699,201 581,439
----------- -----------
Net cash provided by operating activities 5,482,855 6,587,436
----------- -----------
Cash flows from investing activities:
Purchase of marketable securities (285,110)
Proceeds from sales of real estate and securities 441,522
----------- -----------
Net cash (used in) provided by investing activities (285,110) 441,522
----------- -----------
Cash flows from financing activities:
Dividends paid (3,884,346) (4,049,582)
Purchases of treasury stock (9,688)
Distributions paid to minority partner (635,804) (615,423)
Payments of mortgage principal (953,721) (1,047,495)
----------- -----------
Net cash used in financing activities (5,483,559) (5,712,500)
----------- -----------
Net (decrease) increase in cash and cash equivalents (285,814) 1,316,458
Cash and cash equivalents, beginning of period 2,608,523 1,770,478
----------- -----------
Cash and cash equivalents, end of period $ 2,322,709 $ 3,086,936
=========== ===========
Supplemental disclosure of cash flows information:
Interest paid $ 4,474,146 $ 4,360,221
=========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-5-
<PAGE> 7
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Presentation:
The accompanying unaudited condensed 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 Article 10 of
Regulation S-X of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. All significant
intercompany balances and transactions have been eliminated. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of the results of the interim periods
presented have been included. The results of operations for the interim periods
are not necessarily indicative of results for the full year. 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, 1998.
Assets held for sale are accounted for at the lower of carrying value or fair
value, less costs to dispose.
Note 2. Transactions with Related Parties:
The Company incurred asset management fees of $201,763 and $198,354 for the
three-months ended September 30, 1998 and 1999, respectively, and $605,288 and
$599,479 for the nine months ended September 30, 1998 and 1999, respectively,
with performance fees in like amount. General and administrative expense
reimbursements were $159,537 and $126,422 for the three months ended September
30, 1998 and 1999, respectively, and $424,125 and $443,779 for the nine months
ended September 30, 1998 and 1999, respectively.
Note 3. Lease Revenues:
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 nine-month periods ended September 30, 1998
and 1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Per Statements of Income:
Rental income from operating leases $ 9,234,678 $ 9,068,794
Interest from direct financing leases 1,648,021 1,642,498
Adjustments:
Rental income attributable to
minority interests (1,457,154) (1,457,154)
Share of interest income from equity
investment's direct financing lease 3,387,233 3,413,630
------------ ------------
$12,812,778 $ 12,667,768
============ ============
</TABLE>
For the nine-month periods ended September 30, 1998 and 1999, the Company earned
its proportionate net lease revenues from its investments as follows:
<TABLE>
<CAPTION>
1998 % 1999 %
---- --- ---- ---
<S> <C> <C> <C> <C>
Marriott International, Inc. (a) $ 3,387,233 26% $ 3,413,630 27%
Information Resources Incorporated (b) 2,187,010 17 2,187,010 17
The Titan Corporation (b) 1,598,502 13 1,598,502 13
EnviroWorks, Inc. 1,070,084 8 1,084,717 9
New WAI, L.P./Warehouse Associates 1,089,799 9 1,084,277 9
Wal-Mart Stores, Inc. 823,668 6 880,511 7
Kmart Corporation 746,757 6 775,978 6
Childtime Childcare Inc. 604,091 5 604,091 5
Neodata Corporation 440,796 3 442,299 3
CalComp Technology, Inc. 334,530 3
Other 530,308 4 596,753 4
------------ ---- ----------- ----
$12,812,778 100% $12,667,768 100%
============ ==== =========== ====
</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.
-6-
<PAGE> 8
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 4. 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:
<TABLE>
<CAPTION>
(in thousands)
December 31, 1998 September 30, 1999
----------------- ------------------
<S> <C> <C>
Assets (primarily real estate) $149,150 $148,968
Liabilities (primarily mortgage notes payable) 99,315 96,448
Shareholders' equity 49,835 52,520
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1998 September 30, 1999
------------------ ------------------
<S> <C> <C>
Revenue (primarily interest from
direct financing lease) $ 14,321 $ 14,425
Expenses (primarily interest expense) (7,909) (7,620)
-------- --------
Net income $ 6,412 $ 6,805
======== ========
</TABLE>
Note 5. Assets Held for Sale
The Company and Carey Institutional Properties Incorporated ("CIP(R)"), an
affiliate, are owners as tenants-in-common of properties in Little Rock and
Jonesboro, Arkansas. The Company and CIP(R) have entered into agreements to sell
the Little Rock and Jonesboro properties for $775,000 and $1,100,000,
respectively. The properties have been vacant since the termination of the
Harvest Foods, Inc. ("Harvest") lease in March 1997. Based on the proposed sales
prices less estimated transaction costs, the Company's 50% interest in the
properties has been written down to $909,375, an amount equal to the Company's
share of anticipated net proceeds from sale, and an impairment loss on the
properties of $550,874, including $404,625 in the current quarter, has been
recognized. The Jonesboro property is subject to a ground lease. The ground
rental obligation, currently $113,450 per year, and will be assumed by the
purchaser upon completion of the sale. The Company and CIP(R) also sold a
property formerly leased to Harvest in Ruston, Louisiana on July 27, 1999. In
connection with the sale, the Company received net proceeds of $218,250. Prior
to the sale of the Ruston property, the Company recognized an impairment loss of
$348,716 in the first quarter of 1999.
Note 6. Lease Termination Settlement:
In January 1999, CalComp Technology, Inc. ("CalComp"), the lessee of a property
in Austin, Texas in which the Company and CIP(R) hold 50% ownership interests as
tenants-in-common, announced its intention to liquidate and stopped paying its
rent. In response to CalComp's action, the Company and CIP(R) initiated
litigation against CalComp seeking judgement for all unpaid and future rents
plus associated costs. The Company and CIP(R) also entered into discussions with
CalComp in order to negotiate a settlement in recognition of the fact that it
could take an extended period to obtain a resolution to the litigation.
-7-
<PAGE> 9
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
On August 5, 1999, the Company, CIP(R) and CalComp agreed to a settlement. Under
the terms of the agreement, the Company and CIP(R) agreed to withdraw its
lawsuits with prejudice and to terminate the CalComp lease in consideration for
a lump sum payment from CalComp of $2,500,000 (of which the Company's share was
$1,250,000). The Company's share of annual cash flow (rent less mortgage debt
service) from the CalComp lease was approximately $225,000.
The limited recourse mortgage loan collateralized by the Austin property matured
in August 1999 at which time a scheduled balloon payment was due. In October
1999, the Company used the lease termination proceeds to reduce the outstanding
balance on the loan from $1,569,153 to $319,153 and is in the process of
negotiating an agreement to extend the maturity of the loan until August 2000.
-8-
<PAGE> 10
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the Company's
condensed consolidated financial statements and notes thereto as of September
30, 1999 included in this quarterly report and the Company's Annual Report on
Form 10-K for the year ended December 31, 1998. This quarterly report contains
forward looking statements. Such statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievement of the Company to be materially different from the results of
operations or plan expressed or implied by such forward looking statements.
Accordingly, such information should not be regarded as representations by the
Company that the results or conditions described in such statements or the
objectives and plans of the Company will be achieved.
RESULTS OF OPERATIONS:
Net income for three-month and nine-month periods ended September 30, 1999
reflected increases of $824,000 and $612,000, respectively, as compared with the
three-month and nine-month periods ended September 30, 1998. Excluding the
effects of noncash writedowns on properties held for sale, a gain on the sale of
securities and $1,250,000 realized in connection with a lease termination
settlement, income for the comparable three-month and nine-month periods would
have been substantially unchanged.
Income as adjusted for nonrecurring items was stable as the benefits from a
decrease in interest expense and an increase in income from an equity investment
was offset by a decrease in lease revenues (rental income and interest from
direct financing leases) and an increase in general and administrative expense.
The decrease in interest expense was due to the satisfaction of a $1,500,000
mortgage loan in December 1998 as well as the continuing principal amortization
of the Company's limited recourse mortgage loans. The increase in equity income
from the Company's investment in a net lease of thirteen Courtyard by Marriott
hotels was due to decreasing interest expense on the limited recourse mortgage
loans collateralized by the hotel properties and an increase in percentage
rents. The decrease in lease revenues was due to the termination of CalComp
Technology, Inc. lease in August 1999 and the related decision not to recognize
rental income on the CalComp lease since January 1999 in anticipation of the
termination. The increase in general and administrative expense was due
primarily to costs related to the implementation of the integrated accounting
and asset management software systems. Property expenses were stable for the
comparable periods.
The writedown to fair value of $900,000 is the result of adjusting the carrying
value of properties held for sale to their proposed sale prices, net of costs.
The two properties that are currently held for sale in Little Rock and
Jonesboro, Arkansas were formerly leased to Harvest Foods, Inc. and have been
vacant since the termination of the Harvest lease in March 1997. Because the
properties have been vacant, the Company has had to pay the carrying costs for
the properties, including real estate taxes, insurance as well as ground rent of
$57,000 annually. With the proposed sale of the Little Rock and Jonesboro
properties under contract and the sale of a former Harvest property in Ruston,
Louisiana in July 1999, there will be three vacant former Harvest Foods
properties remaining in the portfolio. The Company is evaluating various
strategies for the remaining properties including but not limited to,
redeveloping or selling such properties. Six former Harvest properties are
currently subject to long-term net leases with the Kroger Co. and Affiliated
Foods Southwest, Inc. and contribute annual lease revenues of approximately
$430,000.
With the termination of the CalComp net lease, the Company expects to incur
annual carrying costs of approximately $75,000 on the property including the
costs of insurance and real estate taxes. The Company is actively seeking a new
tenant for the CalComp property.
-9-
<PAGE> 11
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
FINANCIAL CONDITION:
There has been no material change in the Company's financial condition since
December 31, 1998. Cash flow from operations of $6,587,000 was sufficient to pay
quarterly dividends of $4,050,000, pay mortgage principal installments of
$1,047,000 and distribute $615,000 to an affiliate for its share of the cash
flow relating to its minority ownership interests in the Information Resources,
Inc. and Titan Company net lease investments. Including the $441,000 received in
connection with sales proceeds of securities and real estate, the Company's cash
balances have increased by $1,316,000 since December 31, 1998.
The Company has reached an agreement in principle to extend the maturity of the
limited recourse mortgage loan collateralized by the CalComp property until
August 2000, and, since September 30, 1999, has used the lease termination
proceeds of $1,250,000 received from CalComp to reduce the outstanding loan
balance to $319,000. A mortgage loan on the Company's portfolio of six Wal-Mart
retail properties that had been scheduled to mature on January 1, 1999 had been
extended through October 1, 1999. The Company had been in discussions with the
lender to extend or refinance the Wal-Mart loan, however, no extension agreement
was reached. As of September 30, 1999 the Wal-Mart loan had an outstanding
balance of $6,810,000. The lender has not yet made a demand for payment of the
entire outstanding loan balance, and the Company has continued to pay monthly
debt service installments on a timely basis. The Company does not have
sufficient cash to pay off the loan in full and it is continuing its efforts to
restructure the loan or obtain new financing. Because the mortgage loan is a
limited recourse obligation, the lenders recourse is solely to the Wal-Mart
properties and not to any of the Company's other assets. The Company may also
sell the properties and use such sales proceeds to pay off the loan.
The Company has agreements to sell two properties and anticipates that it will
realize cash proceeds of approximately $909,000 when the sales are completed. In
addition, the Company realized $210,000 of cash proceeds on the sale of a
property in Ruston, Louisiana in July 1999. Since September 30, 1999, the
Company has sold its holding of 81,460 shares of Titan Corporation and received
proceeds of approximately $1,095,000 on the sale.
The Company was formed in 1990 with the expectation that shareholders' interests
would be liquidated beginning eight to twelve years after the net proceeds of
the Company's offering were substantially invested. The Advisor is beginning to
evaluate liquidity alternatives.
YEAR 2000 ISSUES:
The "Year 2000 issue" refers to the series of problems that have resulted or may
result from the inability of certain computer software and embedded processes to
properly process dates. This shortcoming could result in the failure of major
systems or miscalculations causing major disruptions to business operations. The
Company has no information technology systems of its own, but is dependent upon
systems maintained by an affiliate of its Advisor, and certain other third
parties including banks and its transfer agent.
The Company and its affiliates have been evaluating their readiness relating to
Year 2000 issues since 1998. The affiliates' core information technology systems
used in administering the Company's business operations have been upgraded or
replaced, as needed, to become Year 2000 compliant. These systems include
desktop computers, network servers, operating systems and applications software.
A new, compliant, integrated accounting and asset management system is currently
being installed and the accounting component is currently functional. Compliance
of these systems with Year 2000 requirements has been determined through a
combination of internal testing, where feasible, and vendor representations.
Non-core information technology systems have been reviewed for compliance with
Year 2000 requirements. Such systems, although not critical to the Company's
business operations, are expected to be substantially upgraded or replaced
before the end of 1999. Management believes that substantially all costs related
to year 2000 compliance and remediation have been incurred.
-10-
<PAGE> 12
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
The Company has contacted and is evaluating documentation from its critical
third party vendors and suppliers including banks, transfer agents and
telecommunications service providers regarding their Year 2000 compliance. The
responses received have generally been positive although the Company cannot be
assured that such providers have adequately considered the impact of Year 2000
issues on their systems.
The Company has contacted its tenants regarding Year 2000 readiness and
emphasized the need to address Year 2000 issues. Generally, tenants are
contractually required to maintain their leased properties in good working order
and to make necessary alterations, foreseen or unforeseen, to meet their
contractual obligations. Because of those obligations, the Company believes that
the risks and costs of upgrading systems related to operations of the buildings
and that contain technology affected by Year 2000 issues will generally be
absorbed by tenants rather than the Company. The major risk is that Year 2000
issues have such an adverse effect on the financial condition of a tenant that
its ability to meet its lease obligations, including the timely payment of rent,
is impaired. In such an event, the Company may ultimately incur the costs for
Year 2000 readiness at the affected properties. The potential materiality of any
impact is not known at this time.
The Company will continue to monitor critical third party vendors and suppliers
to determine its vulnerability to potential disruptions caused by year 2000
issues. Limited scope contingency plans are currently being developed to address
potential disruptions of a temporary nature that may affect the Company. Because
it is not possible to anticipate all of the possible disruptions that may be
caused by Year 2000 events, there can be no assurance that the Company will not
be adversely affected if such disruptions occur.
-11-
<PAGE> 13
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
AND SUBSIDIARIES
Item 3. - Quantitative and Qualitative Disclosures about Market Risk
Approximately $55,272,000 of the Company's long-term debt bears interest at
fixed rates, and therefore the fair value of these instruments is affected by
changes in the market interest rates. The following table presents principal
cash flows based upon expected maturity dates of the debt obligations and the
related weighted-average interest rates by expected maturity dates for the fixed
rate debt. The interest rate on the variable rate debt as of September 30, 1999
ranged from the lender's prime rate plus 1% to LIBOR plus 4%. There has been no
material change since December 31, 1998.
<TABLE>
<CAPTION>
(in thousands)
1999 2000 2001 2002 2003 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate $7,118 $22,847 $7,356 $996 $8,829 $8,126 $55,272 $58,625
Weighted average
interest rate 9.46% 10.65% 8.89% 9.89% 9.77% 9.94%
Variable rate 1,580 44 805 - - - 2,429 2,429
</TABLE>
As of September 30, 1999, the Company had no other material exposure to market
risk.
-12-
<PAGE> 14
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
AND SUBSIDIARIES
PART II
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended September 30, 1999, no matters where 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 September 30, 1999 the Company was not required to
file any reports on Form 8-K.
-13-
<PAGE> 15
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
AND SUBSIDIARIES
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
11/09/99 By: /s/ John J. Park
Date John J. Park
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
11/09/99 By: /s/ Claude Fernandez
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,086,936
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 909,375
<CURRENT-ASSETS> 3,996,311
<PP&E> 115,740,281
<DEPRECIATION> 14,974,962
<TOTAL-ASSETS> 119,166,191
<CURRENT-LIABILITIES> 4,882,648
<BONDS> 57,701,090
0
0
<COMMON> 7,633
<OTHER-SE> 53,037,015
<TOTAL-LIABILITY-AND-EQUITY> 119,166,191
<SALES> 0
<TOTAL-REVENUES> 12,046,471
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,227,024
<LOSS-PROVISION> 979,926
<INTEREST-EXPENSE> 4,348,595
<INCOME-PRETAX> 3,804,720
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,804,720
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,804,720
<EPS-BASIC> .50
<EPS-DILUTED> .50
</TABLE>
