<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended MARCH 31, 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 May 15, 2000.
7,621,656 shares of common stock, $.001 Par Value outstanding at May 15, 2000.
<PAGE> 2
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I
Item 1. - Financial Information*
Condensed Consolidated Balance Sheets, as of December 31, 1999
and March 31, 2000 2
Condensed Consolidated Statements of Income for the three
months ended March 31, 1999 and 2000 3
Condensed Consolidated Statements of Comprehensive Income
for the three months ended March 31, 1999 and 2000. 3
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1999 and 2000 4
Notes to Condensed Consolidated Financial Statements 5-6
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - Other Information
Item 3A.- Quantitative and Qualitative Disclosures About Market Risk 8
Item 4. - Submission of Matters to a Vote of Security Holders 8
Item 6. - Exhibits and Reports on Form 8-K 8
Signatures 9
</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
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
------------- -------------
(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Real estate leased to others:
Accounted for under the
Operating method
Land $ 18,741,001 $ 18,741,001
Buildings 79,806,448 79,806,448
------------- -------------
98,547,449 98,547,449
Accumulated depreciation 15,453,482 16,039,127
------------- -------------
83,093,967 82,508,322
Net inventment in direct financing leases 16,758,447 16,758,447
------------- -------------
Real estate leased to others 99,852,414 99,266,769
Equity investment 13,195,370 13,405,418
Cash and cash equivalents 3,293,827 3,317,796
Other assets 242,561 585,105
------------- -------------
Total assets $ 116,584,172 $ 116,575,088
============= =============
LIABILITIES:
Limited recourse mortgage notes payable $ 56,040,773 $ 55,726,589
Accrued interest 346,858 447,670
Accounts payable and accrued expenses 373,139 283,390
Accounts payable to affiliates 2,809,276 2,983,144
Dividends payable 1,354,369 1,355,894
Prepaid rental income 59,301 43,730
------------- -------------
Total liabilities 60,983,716 60,840,417
------------- -------------
Minority interest 3,517,296 3,457,910
------------- -------------
Commitment and contingencies
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; 7,633,558 shares
authorized; 40,000,000 shares issued and outstanding
at December 31, 1999 and March 31, 2000 7,633 7,633
Additional paid-in capital 66,530,408 66,530,408
Dividends in excess of accumulated earnings (14,357,101) (14,163,500)
------------- -------------
52,180,940 52,374,541
Less: common stock in treasury at cost, 11,902 shares
at December 31, 1999 and March 31, 2000 (97,780) (97,780)
------------- -------------
Total shareholders' equity 52,083,160 52,276,761
------------- -------------
Total liabilities and shareholders' equity $ 116,584,172 $ 116,575,088
============= =============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Note: The balance sheet at December 31, 1999 has been derived from the audited
consolidated financial statements at that date.
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<PAGE> 4
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999 March 31, 2000
-------------- --------------
<S> <C> <C>
Revenues:
Rental income from operating leases $ 3,358,447 $ 3,249,487
Interest income from direct financing leases 547,520 557,746
Other interest income 22,492 43,335
----------- -----------
3,928,459 3,850,568
----------- -----------
Expenses:
Interest on mortgages 1,453,493 1,394,564
Depreciation and amortization 522,112 591,896
General and administrative 375,723 381,921
Property expense 557,075 523,131
Writedown to fair value 348,716
----------- -----------
3,257,119 2,891,512
----------- -----------
Income before minority interest,
income from equity investment
and gain on sale 671,340 959,056
Minority interest in income (162,330) (165,613)
----------- -----------
Income before equity investment 509,010 793,443
Income from equity investment 692,259 732,427
----------- -----------
Income before gain on sale 1,201,269 1,525,870
Gain on sale of real estate 24,250
----------- -----------
Net income $ 1,201,269 $ 1,550,120
=========== ===========
Basic income per share (7,621,656 shares
outstanding at March 31, 1999 and 2000): $ .16 $ .20
=========== ===========
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999 March 31, 2000
-------------- --------------
<S> <C> <C>
Net income $ 1,201,269 $ 1,550,120
Other comprehensive income:
Change in unrealized gain in securities during
the period (29,173)
-----------
Other comprehensive income (29,173)
----------- -----------
$ 1,172,096 $ 1,550,120
=========== ===========
</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
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------------------
1999 2000
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,201,269 $ 1,550,120
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 522,112 591,896
Income from equity investment
in excess of dividends received (194,049) (210,048)
Minority interest in income 162,330 165,613
Straight-line rent adjustments 1,310 1,981
Provision for uncollected rents 28,095 28,554
Writedown to fair value 348,716
Gain on sale of real estate (24,250)
Net change in operating assets and liabilities 7,286 (209,970)
----------- -----------
Net cash provided by operating activities 2,077,069 1,893,896
----------- -----------
Cash flows from investing activities
Proceeds from sale of real estate 24,250
-----------
Net cash provided from investing activities 24,250
-----------
Cash flows from financing activities:
Dividends paid (1,347,300) (1,354,994)
Distributions paid to minority interest (205,546) (224,999)
Payments of mortgage principal (339,975) (314,184)
----------- -----------
Net cash used in financing activities (1,892,821) (1,894,177)
----------- -----------
Net increase in cash and cash equivalents 184,248 23,969
Cash and cash equivalents, beginning of period 1,770,478 3,293,827
----------- -----------
Cash and cash equivalents, end of period $ 1,954,726 $ 3,317,796
=========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<PAGE> 6
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
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 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:
For the three-month periods ended March 31, 1999 and 2000, the Company incurred
asset management fees of $200,563 and $193,175, respectively, performance fees
in like amount and general and administrative expense reimbursements of $144,749
and $174,547, respectively, payable to an affiliate.
Note 3. Lease Revenues:
The Company's operations consist of 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, 1999 and
2000 are as follows:
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Per Statements of Income:
Rental income from operating leases $ 3,358,447 $ 3,249,487
Interest from direct financing leases 547,520 557,746
Adjustments:
Rental income attributable to
minority interests (485,718) (485,718)
Share of interest income from equity
investment's direct financing lease 1,321,695 1,332,102
----------- -----------
$ 4,741,944 $ 4,653,617
=========== ===========
</TABLE>
For the three-month periods ended March 31, 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) $1,321,695 28% $1,332,102 29%
Information Resources Incorporated (b) 729,003 15 729,003 16
The Titan Corporation (b) 532,834 11 532,834 11
Wal-Mart Stores, Inc. 501,067 11 470,099 10
New WAI, L.P./Warehouse Associates 361,446 8 363,740 8
EnviroWorks, Inc. 361,572 8 361,572 8
Kmart Corporation 386,612 8 306,620 7
Childtime Childcare Inc. 201,364 4 209,295 4
Neodata Corporation 147,433 3 147,433 3
Other 198,918 4 200,919 4
---------- ---------- ---------- ----------
$4,741,944 100% $4,653,617 100%
========== ========== ========== ==========
</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> 7
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
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 March 31, 2000
----------------- --------------
<S> <C> <C>
Assets (primarily real estate) $148,905 $148,802
Liabilities (primarily mortgage notes payable) 95,451 94,415
Shareholders' equity 53,454 54,387
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999 March 31, 2000
-------------- --------------
<S> <C> <C>
Revenue (primarily interest from
direct financing lease) $ 5,536 $ 5,629
Interest and other expenses 2,566 2,488
-------- --------
Net income $ 2,970 $ 3,141
======== ========
</TABLE>
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<PAGE> 8
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
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 March 31, 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 period ended March 31, 2000 increased
$349,000 as compared with the three-month period ended March 31,1999. Excluding
the effect of a writedown of property of $349,000 in 1999 and again on the sale
of a property of $24,000 in 2000, income would have reflected a decrease of
$24,000 or 1.5%.
Lease revenues (rental income and interest income from direct financing
leases) decreased by approximately $100,000. The decrease was due to lower
percentage of sales rents from the Company's leases for rental properties leased
to Wal-Mart Stores, Inc. and Kmart Corporation. In accordance with accounting
principles generally accepted in the United Sates, percentage of sales rents are
recorded only when the required sales level is achieved. Most of CPA(R):10's
percentage of sales rent is recognized during the first quarter because its
retail lessees recognize the highest level of their annual sales during the
fourth quarter and meet the threshold for paying percentage of sales rents and
CPA(R):10 records percentage of sales revenue after the lessee has reported it
to CPA(R):10. The effect of the decrease in lease revenues were offset by a
moderate decrease in interest expense and a moderate increase in income from
CPA(R):10's equity investment.
FINANCIAL CONDITION:
Cash flow from operations of $1,894,000 was sufficient to fund
CPA(R):10's financing activities which consisted of dividends to shareholders of
$1,355,000, distributions to the minority interests in the two properties, based
on the cash flow from these properties of $225,000 and payment of scheduled
mortgage principal payments of $314,000. 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 consisted solely of the sale of a
property in Clarksdale, Mississippi for $24,000. The property was written off in
1999. TO the extent that it is necessary to fund tenant improvements at any of
the three vacant properties, CPA(R):10 will fund such capital costs.
CPA(R):10 has recommenced negotiations 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 March 31,2000, the
outstanding loan balance was $6,738,000. 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. The Company expects to refinance the loan.
- 7 -
<PAGE> 9
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
AND SUBSIDIARIES
PART II
Item 3A. - Quantitative and Qualitative Disclosures about Market Risk:
Approximately $54,579,000 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 March 31,
2000 ranged from the lenders 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 $29,269 $7,356 $ 996 $8,829 $2,589 $5,540 $54,579 $55,531
Weighted
average
interest
rate 8.22% 8.89% 9.89% 9.77% 10.00% 9.91%
Variable rate 343 805 - - - - 1,148 1,148
</TABLE>
As of March 31, 2000, the Company had no other material exposure to
market risk.
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended March 31, 2000, 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, 2000, the Company was not
required to file any reports on Form 8-K.
- 8 -
<PAGE> 10
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
<TABLE>
<S> <C>
5/16/00 By: /s/ John J. Park
------- -------------------------------------
Date John J. Park
Executive Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
5/16/00 By: /s/ Claude Fernandez
------- -------------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
</TABLE>
- 9 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,317,796
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,317,796
<PP&E> 115,305,896
<DEPRECIATION> 16,758,447
<TOTAL-ASSETS> 116,575,088
<CURRENT-LIABILITIES> 5,113,828
<BONDS> 55,726,589
0
0
<COMMON> 7,633
<OTHER-SE> 52,269,128
<TOTAL-LIABILITY-AND-EQUITY> 116,575,088
<SALES> 0
<TOTAL-REVENUES> 3,850,568
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,496,948
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,394,564
<INCOME-PRETAX> 1,550,120
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,550,120
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,550,120
<EPS-BASIC> .20
<EPS-DILUTED> .20
</TABLE>
