<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended JUNE 30, 2000
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 August 8, 2000.
7,621,686 shares of common stock, $.001 Par Value outstanding at
August 8, 2000.
<PAGE> 2
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I
------
Item 1. - Financial Information*
Condensed Consolidated Balance Sheets, as of December 31, 1999
and June 30, 2000 2
Condensed Consolidated Statements of Income for the three and
six months ended June 30, 1999 and 2000 3
Condensed Consolidated Statements of Comprehensive Income
for the three and six months ended June 30, 1999 and 2000 4
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 1999 and 2000 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - Other Information
-------
Item 3. - Quantitative and Qualitative Disclosures About Market Risk 9
Item 4. - Submission of Matters to a Vote of Security Holders 9
Item 6. - Exhibits and Reports on Form 8-K 9
Signatures 10
</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.
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<PAGE> 3
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
AND SUBSIDIARIES
PART I
Item 1. - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1999 June 30, 2000
---------------------- -----------------------
(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Land and buildings,
net of accumulated depreciation of
$15,453,482 at December 31, 1999 and
$16,624,773 at June 30, 2000 $ 83,093,967 $81,941,363
Net investment in direct financing leases 16,758,447 16,758,447
Equity investment 13,195,370 13,654,120
Cash and cash equivalents 3,293,827 3,039,946
Other assets 242,561 618,315
---------------------- -----------------------
Total assets $116,584,172 $116,012,191
====================== =======================
LIABILITIES:
Mortgage notes payable $ 56,040,773 $55,357,824
Accrued interest 346,858 441,756
Accounts payable and accrued expenses 373,139 326,313
Accounts payable to affiliates 2,809,276 3,162,002
Dividends payable 1,354,369 1,357,417
Prepaid rental income 59,301 32,403
---------------------- -----------------------
Total liabilities 60,983,716 60,677,715
---------------------- -----------------------
Minority interest 3,517,296 3,418,560
---------------------- -----------------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; 40,000,000
shares authorized; 7,633,558 shares issued and
outstanding at December 31, 1999 and June 30, 2000 7,633 7,633
Additional paid-in capital 66,530,408 66,530,408
Dividends in excess of accumulated earnings (14,357,101) (14,524,345)
---------------------- -----------------------
52,180,940 52,013,696
Less, common stock in treasury, at cost, 11,902
shares at December 31, 1999 and June 30, 2000 (97,780) (97,780)
---------------------- -----------------------
Total shareholders' equity 52,083,160 51,915,916
---------------------- -----------------------
Total liabilities and shareholders' equity $116,584,172 $116,012,191
====================== =======================
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Note: The condensed consolidated balance sheet at December 31, 1999 has been
derived from the audited financial statements at that date.
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<PAGE> 4
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1999 June 30, 2000 June 30, 1999 June 30, 2000
------------------ ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $2,898,537 $2,963,443 $6,256,984 $6,212,930
Interest from direct
financing leases 547,258 562,529 1,094,778 1,120,275
Other interest and
miscellaneous income 35,429 45,508 57,921 88,843
------------------ ------------------- ------------------- ------------------
3,481,224 3,571,480 7,409,683 7,422,048
------------------ ------------------- ------------------- ------------------
Expenses:
Interest 1,447,975 1,386,722 2,901,468 2,781,286
Depreciation and amortization 519,341 596,217 1,041,453 1,188,113
General and administrative 416,127 453,485 791,850 835,406
Property expenses 558,305 423,570 1,115,380 946,701
Writedown to fair value 146,249 - 494,965 -
------------------ ------------------- ------------------- ------------------
3,087,997 2,859,994 6,345,116 5,751,506
------------------ ------------------- ------------------- ------------------
Income before minority
interest, income from equity
investment and gain on sale 393,227 711,486 1,064,567 1,670,542
Minority interest in income (161,937) (166,311) (324,267) (331,924)
------------------ ------------------- ------------------- ------------------
Income before income from
equity investment and
gain on sale 231,290 545,175 740,300 1,338,618
Income from equity investment 446,088 452,897 1,138,347 1,185,324
------------------ ------------------- ------------------- ------------------
Income before gain on sale 677,378 998,072 1,878,647 2,523,942
Gain on sale 223,272 (1,500) 223,272 22,750
------------------ ------------------- ------------------- ------------------
Net income $ 900,650 $ 996,572 $2,101,919 $2,546,692
================== =================== =================== ==================
Basic earnings per common share
(7,621,686 weighted average shares
outstanding, basic and diluted) $.12 $.13 $.28 $.33
================== =================== =================== ==================
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<PAGE> 5
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1999 June 30, 2000 June 30, 1999 June 30, 2000
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Net income $ 900,650 $ 996,572 $2,101,919 $2,546,692
Other comprehensive income:
Change in unrealized gains on
securities during the period 457,041 - 427,868 -
------------------- ------------------- ------------------- -------------------
Comprehensive income $1,357,691 $ 996,572 $2,529,787 $2,546,692
=================== =================== =================== ===================
</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>
Six Months Ended June 30,
1999 2000
------------------- ---------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,101,919 $ 2,546,692
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,041,453 1,188,113
Income from equity investment
in excess of dividends received (398,549) (458,750)
Minority interest in income 324,267 331,924
Straight-line rent adjustments 2,619 5,307
Writedown to fair value 494,965
Provision for uncollected rents 55,138
Gain on sale of securities and real estate (223,272) (22,750)
Net change in operating assets and liabilities 341,689 (23,983)
------------------- ---------------------
Net cash provided by operating activities 3,740,229 3,566,553
------------------- ---------------------
Cash flows from investing activities:
Proceeds from sale of securities and real estate 223,272 22,750
Additional capital costs (18,687)
------------------- ---------------------
Net cash provided by investing activities 223,272 4,063
------------------- ---------------------
Cash flows from financing activities:
Dividends paid (2,694,439) (2,710,888)
Distributions paid to minority partner (409,986) (430,660)
Payments of mortgage principal (691,900) (682,949)
------------------- ---------------------
Net cash used in financing activities (3,796,325) (3,824,497)
------------------- ---------------------
Net increase (decrease) in cash and cash equivalents 167,176 (253,881)
Cash and cash equivalents, beginning of period 1,770,478 3,293,827
------------------- ---------------------
Cash and cash equivalents, end of period $ 1,937,654 $ 3,039,946
=================== =====================
</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 accounting principles generally accepted in the
United States 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 accounting principles generally accepted in the United
States 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, 1999.
Note 2. Transactions with Related Parties:
The Company incurred asset management fees of $200,562 and $193,150 for the
three months ended June 30, 1999 and 2000, respectively, and $401,125 and
$386,325 for the six months ended June 30, 1999 and 2000, respectively, with
performance fees in like amount. General and administrative expense
reimbursements were $172,608 and $216,222 for the three months ended June 30,
1999 and 2000, respectively, and $317,357 and $390,769 for the six months ended
June 30, 1999 and 2000, respectively. Effective commencing June 29, 2000, W.P.
Carey & Co. LLC ("WPC"), an affiliate of the Company, acquired the business
operations of the Advisor, Carey Property Advisors, pursuant to a merger. In
connection with the merger, Carey Asset Management Corp., a wholly-owned
subsidiary of WPC, became the Advisor of the Company. All officers of Carey
Property Advisors serve in the same capacity for the new advisor.
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 six-month periods ended June 30, 1999 and
2000 are as follows:
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Per Statements of Income:
Rental income from operating leases $6,256,984 $6,212,930
Interest from direct financing leases 1,094,778 1,120,275
Adjustments:
Rental income attributable to minority
interests (971,436) (971,436)
Share of interest income from equity
investment direct financing lease 2,368,914 2,376,464
---------------- ---------------
$8,749,240 $8,738,233
================ ===============
</TABLE>
For the six-month periods ended June 30, 1999 and 2000, the Company earned its
proportionate net lease revenues from its investments as follows:
<TABLE>
<CAPTION>
1999 % 2000 %
---- ----
<S> <C> <C> <C> <C>
Marriott International, Inc. (a) $2,368,914 27% $2,376,464 27%
Information Resources Incorporated (b) 1,458,007 17 1,458,007 17
The Titan Corporation (b) 1,065,668 12 1,065,668 12
EnviroWorks, Inc. 723,145 8 736,405 8
New WAI, L.P./Warehouse Associates 722,630 8 727,544 8
Wal-Mart Stores, Inc. 690,789 8 659,821 8
Kmart Corporation 624,659 7 585,499 7
Childtime Childcare Inc. 402,727 5 423,311 5
Centrobe, Inc. (formerly Neodata Corporation) 294,866 3 294,866 3
Other 397,835 5 410,648 5
-------------- ------ -------------- ------
$8,749,240 100% $8,738,233 100%
============== ====== ============== ======
</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
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:
(in thousands)
<TABLE>
<CAPTION>
December 31, 1999 June 30, 2000
------------------ ---------------
<S> <C> <C>
Assets (primarily net investment in
direct financing lease) $148,905 $148,791
Liabilities (primarily mortgage notes
payable) 95,451 93,393
Shareholders' equity 53,454 55,398
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1999 June 30, 2000
---------------- ---------------
<S> <C> <C>
Revenue (primarily interest from $ 10,006 $ 10,042
direct financing lease)
Expenses (5,105) (4,942)
---------------- ---------------
Net income $ 4,901 $ 5,100
================ ===============
</TABLE>
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<PAGE> 9
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 Corporate
Property Associates 10 Incorporated's ("CPA(R):10") condensed consolidated
financial statements and notes thereto as of June 30, 2000, included in this
quarterly report, and CPA(R):10's Annual Report on Form 10-K for the year ended
December 31, 1999. 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
CPA(R):10 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 CPA(R):10 that the
results or conditions described in such statements or the objectives and plans
of CPA(R):10 will be achieved.
RESULTS OF OPERATIONS:
Net income for the three-month and six-month periods ended June 30, 2000
reflected increases of $96,000 and $445,000, respectively, as compared with the
three-month and six-month periods ended June 30, 1999. Excluding the effects of
noncash writedowns on properties in 1999 and gains in 1999 and 2000 on the sales
of securities and real estate, respectively, income for the comparable
three-month and six-month periods would have reflected increases of $175,000 and
$150,000, respectively.
The increase in income was primarily due to decreases in interest and
property expenses and was partially offset by modest increases in general and
administrative expense and depreciation and amortization. Lease revenues (rental
income and interest from direct financing leases) increased approximately 3% for
the comparable three-month periods but were substantially unchanged for the
comparable six months. The decrease in interest expense was due to the paydown
of the mortgage loan on the former Calcomp Technology, Inc. property in Austin,
Texas in August 1999, as well as the continuing amortization of CPA(R):10's
other mortgage debt. The decrease in property expenses was due to lower asset
management fees and lower property carrying costs, resulting from the sale of
three former Harvest Foods, Inc. properties. As the three properties had been
vacant prior to sale, CPA(R):10 absorbed costs for maintenance, insurance and
taxes. The increase in general and administrative expenses was due to moderate
increases in a number of expense categories rather than any single substantial
increase. Lease revenues were stable because lower percentage of sales rents on
CPA(R):10's leases with K-Mart Corporation and Wal-Mart Stores, Inc. offset the
effect of rent increases on other leases.
FINANCIAL CONDITION:
Cash flow from operations of $3,567,000 was used along with cash reserves of
$258,000 to fund CPA(R):10's financing activities, which consisted of dividends
to shareholders of $2,711,000, distributions to the minority interests in the
two properties based on the cash flow from these properties of $431,000, and
payment of scheduled mortgage principal payments of $683,000. CPA(R):10 is
continuing its efforts to remarket three vacant properties, two in Arkansas and
one in Austin, Texas. To the extent that any of these properties can be
re-leased, operating cash flow will benefit.
CPA(R):10 investing activities included the sale of a property in
Clarksdale, Mississippi for $24,000. The property was written off in 1999.
CPA(R):10 will fund any necessary tenant improvements at any of its three vacant
properties.
CPA(R):10 has continued negotiations in an effort to restructure and extend
the maturity of a limited recourse mortgage loan collateralized by six Wal-Mart
Stores, Inc. properties. Although the loan matured in 1999, CPA(R):10 has
continued to pay monthly debt service installments. As of June 30, 2000, the
outstanding loan balance was approximately $6,700,000. Based on its current cash
balances, CPA(R):10 does not have the resources to pay off the balance if a
restructuring agreement is not reached and the lender demands payment for the
full amount of the outstanding balance. Because the loan is limited recourse,
the lender's sole recourse would be to the Wal-Mart properties and not to any of
the other assets of CPA(R):10. A balloon payment of $21,618,000 on the limited
recourse mortgage loan collateralized by the properties leased to Information
Resources, Inc. is scheduled for October 2000. CPA(R):10 expects to refinance
the loan. In August 2000, CPA(R):10 made a balloon payment of $310,000 to
satisfy the mortgage loan on the former Calcomp property.
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<PAGE> 10
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
AND SUBSIDIARIES
PART II
Item 3. - Quantitative and Qualitative Disclosures about Market Risk
Approximately $54,220,000 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 June 30, 2000
ranged from the lender's prime rate plus 1% to LIBOR plus 4%. There has been no
material change since December 31, 1999.
(in thousands)
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate debt $28,911 $7,356 $996 $8,829 $2,589 $5,539 $54,220 $54,964
Weighted average
interest rate 8,20% 8.89% 9.89% 9.77% 10.01% 9.91%
Variable rate debt $332 $805 $1,137 $1,137
</TABLE>
As of June 30, 2000, the Company had no other material exposure to market risk.
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual Shareholders meeting was held on June 15, 2000, at which time a
vote was taken to elect the Company's directors through the solicitation of
proxies. The following directors were elected for a one-year term:
<TABLE>
<CAPTION>
Total Shares Shares
Name Of Director Shares Voting Voting Yes Voting No
---------------- ------------- ---------- ---------
<S> <C> <C> <C>
William P. Carey 3,983,011 3,900,611 82,400
Ralph G. Coburn 3,983,011 3,900,611 82,400
George E. Stoddard 3,983,011 3,900,611 82,400
William Ruder 3,983,011 3,900,611 82,400
Warren G. Wintrub 3,983,011 3,900,611 82,400
</TABLE>
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
During the quarter ended June 30, 2000 the Company was not
required to file any reports on Form 8-K.
- 9 -
<PAGE> 11
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
<TABLE>
<S> <C>
8/8/00 By: /s/ John J. Park
--------- ---------------------------------
Date John J. Park
Executive Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
8/8/00 By: /s/ Claude Fernandez
--------- ----------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
</TABLE>
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