<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended SEPTEMBER 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 November
10, 2000.
CPA(R):10 has 7,621,656 shares of common stock, $.001 Par
Value outstanding at November 10, 2000.
<PAGE> 2
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I
------
Item 1. - Financial Information*
Condensed Consolidated Balance Sheets, as of December 31, 1999
and September 30, 2000 2
Condensed Consolidated Statements of Income for the three and
nine months ended September 30, 1999 and 2000 3
Condensed Consolidated Statements of Comprehensive Income
for the three and nine months ended September 30, 1999 and 2000 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 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 8-9
PART II - Other Information
-------
Item 3. - Quantitative and Qualitative Disclosures About Market Risk 10
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
AND SUBSIDIARIES
PART I
Item 1. - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1999 September 30, 2000
---------------------- -----------------------
(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Land and buildings,
net of accumulated depreciation of
$15,453,482 at December 31, 1999 and
$17,152,081 at September 30, 2000 $ 83,093,967 $ 80,504,784
Net investment in direct financing leases 16,758,447 16,758,447
Equity investment 13,195,370 13,891,944
Assets held for sale - 625,000
Cash and cash equivalents 3,293,827 2,464,671
Other assets 242,561 268,982
------------------ -------------------
Total assets $116,584,172 $114,513,828
================== ===================
LIABILITIES:
Mortgage notes payable $ 56,040,773 $ 54,389,649
Accrued interest 346,858 436,035
Accounts payable and accrued expenses 373,139 309,448
Accounts payable to affiliates 2,809,276 3,338,746
Dividends payable 1,354,369 1,358,941
Prepaid rental income 59,301 21,965
------------------ -------------------
Total liabilities 60,983,716 59,854,784
------------------ -------------------
Minority interest 3,517,296 3,382,094
------------------ -------------------
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 September 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) (15,163,311)
------------------ -------------------
52,180,940 51,374,730
Less, common stock in treasury, at cost, 11,902
shares at December 31, 1999 and September 30, 2000 (97,780) (97,780)
------------------ -------------------
Total shareholders' equity 52,083,160 51,276,950
------------------ -------------------
Total liabilities and shareholders' equity $116,584,172 $114,513,828
================== ===================
</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.
- 2 -
<PAGE> 4
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1999 2000 1999 2000
------------------ ------------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $2,811,810 $2,855,694 $ 9,068,794 $9,068,624
Interest from direct
financing leases 547,720 564,440 1,642,498 1,684,715
Other interest and
miscellaneous income 27,258 39,075 85,179 127,918
Lease termination income 1,250,000 - 1,250,000 -
------------------ ------------------- -------------------- ------------------
4,636,788 3,459,209 12,046,471 10,881,257
------------------ ------------------- -------------------- ------------------
Expenses:
Interest 1,447,127 1,377,628 4,348,595 4,158,914
Depreciation and amortization 514,693 597,459 1,556,146 1,785,572
General and administrative 289,646 323,735 1,081,496 1,159,141
Property expenses 554,338 500,941 1,669,718 1,447,642
Writedown to fair value 404,625 225,798 899,590 225,798
------------------ ------------------- -------------------- ------------------
3,210,429 3,025,561 9,555,545 8,777,067
------------------ ------------------- -------------------- ------------------
Income before minority
interest, income from equity
investment and gain on sale 1,426,359 433,648 2,490,926 2,104,190
Minority interest in income (163,253) (171,116) (487,520) (503,040)
------------------ ------------------- -------------------- ------------------
Income before income from
equity investment and
gain on sale 1,263,106 262,532 2,003,406 1,601,150
Income from equity investment 439,695 459,517 1,578,042 1,644,841
------------------ ------------------- -------------------- ------------------
Income before gain on sale 1,702,801 722,049 3,581,448 3,245,991
Gain on sale of securities and real
estate - - 223,272 22,750
------------------ ------------------- -------------------- ------------------
Net income $1,702,801 $ 722,049 $3,804,720 $3,268,741
================== =================== ==================== ==================
Basic earnings per common share
(7,621,686 weighted average shares
outstanding, basic and diluted) $.22 $.09 $.50 $.43
================== =================== ==================== ==================
</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 September 30, Nine Months Ended September 30,
1999 2000 1999 2000
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Net income $1,702,801 $722,049 $3,804,720 $3,268,741
Other comprehensive income:
Change in unrealized gains on
securities during the period 262,556 - 690,424 -
------------------- ------------------- ------------------- -------------------
Comprehensive income $1,965,357 $722,049 $4,495,144 $3,268,741
=================== =================== =================== ===================
</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,
1999 2000
------------------- ---------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $3,804,720 $3,268,741
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,556,146 1,785,572
Income from equity investment
in excess of dividends received (602,971) (696,574)
Minority interest in income 487,520 503,040
Straight-line rent adjustments 3,928 8,633
Writedown to fair value 899,590 225,798
Provision for uncollected rents 80,336 -
Gain on sale of securities and real estate (223,272) (22,750)
Net change in operating assets and liabilities 581,439 454,066
------------------- ---------------------
Net cash provided by operating activities 6,587,436 5,526,526
------------------- ---------------------
Cash flows from investing activities:
Proceeds from sale of securities and real estate 441,522 22,750
Additional capital costs - (18,687)
------------------- ---------------------
Net cash provided by investing activities 441,522 4,063
------------------- ---------------------
Cash flows from financing activities:
Dividends paid (4,049,582) (4,070,379)
Distributions paid to minority partner (615,423) (638,242)
Prepayment of mortgage payable - (594,916)
Payments of mortgage principal (1,047,495) (1,056,208)
------------------- ---------------------
Net cash used in financing activities (5,712,500) (6,359,745)
------------------- ---------------------
Net increase (decrease) in cash and cash equivalents 1,316,458 (829,156)
Cash and cash equivalents, beginning of period 1,770,478 3,293,827
------------------- ---------------------
Cash and cash equivalents, end of period $3,086,936 $2,464,671
=================== =====================
</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.
The Company has adopted the provisions of Staff Accounting Bulletin No. 101 -
Revenue Recognition ("SAB 101"). The adoption of SAB 101 has not had a
material effect on the Company's financial position and results of operations.
Note 2. Transactions with Related Parties:
The Company incurred asset management fees of $198,354 and $193,175 for the
three-months ended September 30, 1999 and 2000, respectively, and $599,479 and
$579,500 for the nine-months ended September 30, 1999 and 2000, respectively,
with performance fees in like amount. General and administrative expense
reimbursements were $126,422 and $189,817 for the three-months ended September
30, 1999 and 2000, respectively, and $443,779 and $580,586 for the nine-months
ended September 30, 1999 and 2000, 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,
1999 and 2000 are as follows:
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Per Statements of Income:
Rental income from operating leases $ 9,068,794 $9,068,624
Interest from direct financing leases 1,642,498 1,684,715
Adjustments:
Rental income attributable to minority interests (1,457,154) (1,460,771)
Share of interest income from equity
investment direct financing lease 3,413,630 3,421,006
---------------------- ---------------------
$12,667,768 $12,713,574
====================== =====================
</TABLE>
For the nine-month periods ended September 30, 1999 and 2000, the Company
earned its proportionate net lease revenues from its investments as follows:
<TABLE>
<S> <C> <C> <C> <C>
1999 % 2000 %
---- ----
Marriott International, Inc. (a) $ 3,413,630 27% $3,421,006 27%
Information Resources Incorporated (b) 2,187,010 17 2,187,010 17
The Titan Corporation (b) 1,598,502 13 1,614,391 13
EnviroWorks, Inc. 1,084,717 9 1,111,238 9
New WAI, L.P./Warehouse Associates 1,084,277 9 1,093,559 9
Wal-Mart Stores, Inc. 880,511 7 849,543 7
Kmart Corporation 775,978 6 737,200 6
Childtime Childcare Inc. 604,091 5 637,025 5
Centrobe, Inc. 442,299 3 442,299 3
Other 596,753 4 620,303 4
-------------------- --------- -------------------- ---------
$12,667,768 100% $12,713,574 100%
==================== ========= ==================== =========
</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:
(in thousands)
<TABLE>
<CAPTION>
December 31, 1999 September 30, 2000
------------------------- -------------------------
<S> <C> <C>
Assets (primarily net investment in
direct financing lease) $148,905 $148,786
Liabilities (primarily mortgage notes payable) 95,451 92,355
Shareholders' equity 53,454 56,431
<CAPTION>
Nine Months Ended September 30,
1999 2000
---------------------- ----------------------
<S> <C> <C>
Revenue (primarily interest from $ 14,425 $ 14,456
direct financing lease)
Expenses (primarily interest expense) (7,620) (7,369)
---------------------- ----------------------
Net income $ 6,805 $ 7,087
====================== ======================
</TABLE>
Note 5. Writedown to Fair Value:
The Company and Carey Institutional Properties Incorporated, an affiliate,
which own a property in Texarkana, Arkansas as tenants-in-common, have entered
into an agreement-in-principle to sell the property to an unaffiliated third
party. The Company's share of proceeds, net of costs, is anticipated to be
$625,000. In connection with the proposed sale, the Company has written down
its carrying value in the Texarkana property to an amount equal to its share
of the anticipated net sales proceeds, and has recognized an impairment loss
of $225,798. There is no assurance that the proposed sale will be completed.
The Texarkana property has been vacant since the termination of the Harvest
Foods, Inc. lease in March 1997.
- 7 -
<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 September 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 nine-month periods ended September 30, 2000
reflected decreases of $980,000 and $536,000, respectively, as compared with
the three-month and nine-month periods ended September 30, 1999. Excluding the
effects of lease termination income of $1,250,000 in 1999 and noncash
writedowns of properties to fair value and gains on sales in both 1999 and
2000, income for the comparable three-month and nine-month periods would have
reflected increases of $90,000 and $241,000, respectively.
The increase in income as adjusted for the lease termination and noncash
writedowns was primarily due to decreases in interest expense. This decrease
was the result of the paydown of the mortgage loan on the former Calcomp
Technology, Inc. property in Austin, Texas in October 1999 and its subsequent
payoff in August 2000, as well as the continuing amortization of CPA(R):10's
other mortgage debt. Lease revenues (rental income and interest from direct
financing leases) were stable for the comparable three-month and nine-month
periods, respectively. Property expense decreased due to lower asset
management fees and lower property carrying costs, with the decrease in
property carrying costs due to the sale of vacant properties in 1999 and 2000.
Prior to sale, the costs for maintenance, insurance and taxes were absorbed by
CPA(R):10.
FINANCIAL CONDITION:
During the nine-month period ended September 30, 2000, CPA(R):10's cash
balances decreased by $829,000. Cash flows from operations of $5,527,000 were
not sufficient to fully fund dividends paid to shareholders of $4,070,000,
scheduled mortgage principal payments of $1,056,000 and distributions of
$638,000 to the minority interest in two properties, based on the cash flow of
the underlying partnerships which own the properties. As a result of the uses
of cash and amounts currently provided from operations, management is
evaluating various alternatives to improve CPA(R):10's liquidity. To enhance
liquidity, management is currently assessing potential refinancing and
property disposition possibilities which could enable CPA(R):10 to sustain its
current dividend rate. CPA(R):10 is continuing its efforts to remarket vacant
properties in Hot Springs, Arkansas and Austin, Texas. Cash flow from
operations will benefit if these properties are re-let.
CPA(R):10 has had no significant investing activities during 2000. Sales
proceeds of approximately $625,000 will be realized if the anticipated sale of
a vacant property in Texarkana, Arkansas is completed. There is no assurance
that this proposed sale will be completed.
In addition to paying dividends, scheduled mortgage principal payments and
minority interest distributions, CPA(R):10 made a scheduled balloon payment of
$315,000 to satisfy the outstanding mortgage balance on the former CalComp
property in Austin. CPA(R):10 and Carey Institutional Properties, Incorporated
("CIP(R)"), an affiliate, own six Wal-Mart Stores, Inc. retail properties
which are encumbered by a mortgage loan which initially matured in January
1999. CPA(R):10 and CIP(R) are in the process of finalizing an agreement with
the lender which would extend the maturity through December 31, 2002. Under
the terms of the agreement, the annual interest rate would increase from 9.42%
to 10.42% over the remaining extended term. Monthly debt service installments
of interest and principal will not change from the current amount.
- 8 -
<PAGE> 10
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
However, CPA(R):10 and CIP(R) will be required to direct Wal-Mart's annual
percentage rents to the lender in lieu of an increase in monthly debt service.
If CPA(R):10's share of percentage rents from the Wal-Mart leases is less than
$200,000, CPA(R):10 will be required to pay the difference between its share
of percentage rent and $200,000 annually. In addition, CPA(R):10 and CIP(R)
used $280,000, an amount equal to percentage rents received from the Wal-Mart
properties in 2000, to reduce the outstanding principal balance on the
Wal-Mart loan. As of September 30, 2000, CPA(R):10's share of the outstanding
balance on the Wal-Mart properties mortgage loan was $6,383,000. CPA(R):10's
limited recourse mortgage loan on its properties leased to Information
Resources, Inc. had been scheduled to mature on October 1, 2000. The lender
has agreed to extend the maturity until January 1, 2001 to provide CPA(R):10
additional time to seek refinancing. As of September 30, 2000, the outstanding
balance on the Information Resources properties mortgage loan was $21,618,000.
- 9 -
<PAGE> 11
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
AND SUBSIDIARIES
PART II
Item 3. - Quantitative and Qualitative Disclosures about Market Risk
Approximately $53,573,000 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, 2000 was the lender's prime rate plus 1%. 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 $382 $29,047 $7,187 $8,829 $2,589 $5,539 $53,573 $54,371
Weighted average
interest rate 9.85% 10.24% 10.35% 9.77% 10.01% 9.91%
Variable rate debt $ 11 $ 805 - - - - $ 816 $ 816
</TABLE>
As of September 30, 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 September 30, 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 September 30, 2000 the Company was
not required to file any reports on Form 8-K.
- 10 -
<PAGE> 12
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
11/10/00 By: /s/ John J. Park
-------------- -----------------------------------------
Date John J. Park
Executive Vice President,
Treasurer and
Chief Financial Officer
(Principal Financial Officer)
11/10/00 By: /s/ Claude Fernandez
-------------- -----------------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
- 11 -
