<PAGE>
OMB APPROVAL
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OMB Number 3235-0070
Expires October 31, 1995
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hours per response 190.00
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1995
-------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
-------------------------------------------------
Commission file number 0-15778
---------------------------------------------------------
CORPORATE PROPERTY ASSOCIATES 7, a California limited partnership
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 13-3327950
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 492-1100
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[ ] Yes [ ] No
<PAGE>
CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
INDEX
Page No.
--------
PART I
------
Item 1. - Financial Information*
Consolidated Balance Sheets, December 31, 1994
and June 30, 1995 2
Consolidated Statements of Income for the three and
six months ended June 30, 1994 and 1995 3
Consolidated Statements of Cash Flows for the
six months ended June 30, 1994 and 1995 4
Notes to Consolidated Financial Statements 5-7
Item 2. - Management's Discussion of Operations 8-9
PART II
-------
Item 6. - Exhibits and Reports on Form 8-K 10
Signatures 11
*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>
CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
PART I
------
Item 1. - FINANCIAL INFORMATION
-------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1994 1995
----------------- ---------------
(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Land and buildings, net of
accumulated depreciation of
$10,532,608 at December 31, 1994 and
$11,204,046 at June 30, 1995 $38,920,078 $38,319,210
Net investment in direct
financing leases 15,761,594 15,761,594
Cash and cash equivalents 10,525,885 3,605,464
Accrued interest and rents receivable 97,984 24,249
Other assets 1,559,084 1,532,578
----------- -----------
Total assets $66,864,625 $59,243,095
=========== ===========
LIABILITIES:
Mortgage notes payable $17,314,570 $16,579,719
Note payable 9,606,837 9,606,837
Accrued interest payable 403,686 459,303
Accounts payable and accrued expenses 961,073 779,298
Accounts payable to affiliates 69,568 111,768
Prepaid and deferred rental income 450,341 444,822
----------- -----------
Total liabilities 28,806,075 27,981,747
----------- -----------
PARTNERS' CAPITAL:
General Partners 113,032 50,703
Limited Partners (45,274 and 45,209
Limited Partnership Units issued and
outstanding at December 31, 1994 and
June 30, 1995) 37,945,518 31,210,645
----------- -----------
Total partners' capital 38,058,550 31,261,348
----------- -----------
Total liabilities and
partners' capital $66,864,625 $59,243,095
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Note: The balance sheet at December 31, 1994 has been derived from the
audited financial statements at that date.
-2-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1994 June 30, 1995 June 30, 1994 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income from
operating leases $ 851,664 $1,084,413 $1,716,260 $2,161,390
Interest income from
direct financing leases 964,942 561,750 1,907,500 1,120,887
Other interest income 53,426 48,558 84,574 114,139
Revenue of hotel operations 1,245,978 1,427,655 2,347,709 2,649,570
Revenue of restaurant operations,
net of cost of sales 748,954 763,335 1,813,526 1,848,745
Other income 3,500 438,368
---------- ---------- ---------- ----------
3,868,464 3,885,711 8,307,937 7,894,731
---------- ---------- ---------- ----------
Expenses:
Interest on mortgages and
note payable 904,212 637,715 1,743,286 1,297,935
Operating expenses of
hotel operations 948,324 1,034,838 1,375,337 1,960,517
Operating expenses of
restaurant operations 617,824 627,372 1,795,249 1,408,877
Depreciation 408,398 350,390 819,557 671,438
General and administrative 129,146 129,278 217,475 343,251
Property expense 78,445 83,345 143,335 147,760
Writedowns to net realizable
value 641,731 641,731
Amortization 19,759 17,516 39,009 35,033
---------- ---------- ---------- ----------
3,747,839 2,880,454 6,774,979 5,864,811
---------- ---------- ---------- ----------
Net income before loss from
equity investment 120,625 1,005,257 1,532,958 2,029,920
Loss from equity investment 38,439 31,276 76,234 67,772
---------- ---------- ---------- ----------
Net income $ 82,186 $ 973,981 $1,456,724 $1,962,148
========== ========== ========== ==========
Net income allocated
to General Partners $ 4,931 $ 58,439 $ 87,403 $ 117,729
========== ========== ========== ==========
Net income allocated
to Limited Partners $ 77,255 $ 915,542 $1,369,321 $1,844,419
========== ========== ========== ==========
Net income per Unit $1.71 $20.24 $30.25 $40.76
========== ========== ========== ==========
Weighted Average Limited Partner
Units 45,274 45,242 45,274 45,252
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
CONSOLIDATED STATEMENTS of CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,456,724 $ 1,962,148
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 858,566 706,471
Other noncash items (77,308) 74,566
Loss from equity investment 76,234 67,772
Distributions from equity investment 9,158 5,716
Writedowns to net realizable value 641,731
Restructuring fees received in connection
with lease modification 481,481
Note receivable received in connection
with bankruptcy settlement (327,586)
Net change in operating assets and liabilities (791,471) (172,323)
----------- -----------
Net cash provided by operating activities 2,327,529 2,644,350
----------- -----------
Cash flows from investing activities:
Additional capitalized costs (38,375) (70,570)
Net proceeds from sale of real estate 444,444
----------- -----------
Net cash provided (used in) by investing activities 406,069 (70,570)
----------- -----------
Cash flows from financing activities:
Distributions to partners (1,499,340) (8,717,376)
Payments on mortgage principal (335,754) (734,851)
Retirement of Limited Partner Units (41,974)
Deferred financing costs (11,643)
----------- -----------
Net cash used in financing activities (1,846,737) (9,494,201)
----------- ----------
Net increase (decrease) in cash and
cash equivalents 886,861 (6,920,421)
Cash and cash equivalents, beginning of period 3,260,303 10,525,885
----------- ----------
Cash and cash equivalents, end of period $ 4,147,164 $ 3,605,464
=========== ===========
Supplemental disclosure of cash flows information:
Interest paid $ 1,580,67 $ 1,242,318
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-4-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Presentation:
---------------------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the financial statements and
footnotes thereto included in the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1994. Certain 1994 amounts have been reclassified
to conform to the 1995 financial statement presentation.
Note 2. Distributions to Partners:
-------------------------
Distributions declared and paid to partners during the six months ended
June 30, 1995 are summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended General Partners Limited Partners Per Limited Partner Unit
------------- ---------------- ---------------- ------------------------
<S> <C> <C> <C>
December 31, 1994 $60,195 $ 943,057 $ 20.83
======= ========== =======
March 31, 1995 $51,266 $ 803,161 $ 17.74
======= ========== =======
Special distribution -
January, 1995 $68,597 $6,791,100 $150.00
======= ========== =======
</TABLE>
A distribution of $17.81 per Limited Partner Unit for the quarter ended June
30, 1995 was declared and paid in July 1995.
Note 3. Transactions with Related Parties:
---------------------------------
For the three-month and six-month periods ended June 30, 1994, the Partnership
incurred management fees of $32,261 and $63,388, respectively, and general and
administrative expense reimbursements of $36,639 and $74,499, respectively.
For the three-month and six-month periods ended June 30, 1995, the Partnership
incurred management fees of $26,500 and $53,739, respectively, and general and
administrative expense reimbursements of $31,146 and $57,472, respectively.
The Partnership, in conjunction with certain affiliates, is a participant
in a cost sharing agreement for the purpose of renting and occupying office
space. Under the agreement, the Partnership pays its proportionate share
of rent and other costs of occupancy. Net expenses incurred for the six
months ended June 30, 1994 and 1995 were $23,043 and $49,369, respectively.
-5-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 4. Industry Segment Information:
----------------------------
The Partnership's operations consist of the investment in and the leasing
of industrial and commercial real estate and the operation of a food
service facility and a hotel business. For the six-month periods ended
June 30, 1994 and 1995, the Partnership earned its lease revenues (rental
income plus interest income from financing leases) from the following lease
obligors:
<TABLE>
<CAPTION>
1994 % 1995 %
---------- ---- ---------- ----
<S> <C> <C> <C> <C>
Advanced System Applications, Inc. $ 355,687 10% $ 789,316 24%
The Gap, Inc. 463,784 13 463,784 14
KSG, Inc. 382,511 11 411,503 13
Sybron Acquisition Company 409,581 11 409,581 13
Swiss M-Tex, L.P. 253,611 7 274,168 8
AutoZone, Inc. 217,183 6 217,183 7
Other 213,637 6 204,514 6
Northern Automotive, Inc. 194,348 5 194,415 6
NVRyan L.P. 152,300 4 145,778 4
NYNEX Corporation 107,800 3 107,800 3
Winn-Dixie Stores, Inc. 64,235 2 64,235 2
Mid Continent Bottlers, Inc. 809,083 22
---------- --- ---------- ---
$3,623,760 100% $3,282,277 100%
========== === ========== ===
</TABLE>
Operating results for the food service business for the six-month periods
ended June 30, 1994 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Net sales $ 2,554,536 $ 2,601,269
Cost of goods sold (741,010) (752,524)
Other operating expenses (1,375,337) (1,408,877)
----------- -----------
Food service operating income $ 438,189 $ 439,868
=========== ===========
</TABLE>
-6-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Operating results for the hotel business for the six-month periods ended
June 30, 1994 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Revenues $ 2,347,709 $ 2,649,570
Fees paid to hotel management company (44,921) (67,084)
Other operating expenses (1,750,328) (1,893,433)
----------- -----------
Income from hotel operations $ 552,460 $ 689,053
=========== ===========
</TABLE>
Note 5. Equity Investment:
-----------------
The Partnership and Corporate Property Associates 8, an affiliate, own 50%
interests in a limited partnership which owns a hotel property in Topeka,
Kansas leased to Hotel Corporation of America. The Partnership's carrying
value in its investment at June 30, 1995 is included in Other assets.
Summarized financial information of the limited partnership is as follows:
<TABLE>
<CAPTION>
(in thousands)
December 31, June 30,
1994 1995
------------ --------
<S> <C> <C>
Assets, net of accumulated depreciation $8,395 $8,153
Mortgage notes and bonds payable 8,866 8,782
Other liabilities 14 15
Partners' capital (485) (644)
<CAPTION>
Six Months Ended
June 30, 1994 June 30, 1995
------------- -------------
<S> <C> <C>
Revenues $ 422 $ 433
Interest expense (321) (315)
Other operating expenses (253) (253)
----- -----
Net loss $(152) $(135)
===== =====
</TABLE>
-7-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
-----------------------------------------------
Results of Operations:
---------------------
Net income for the three-month and six-month periods ended June 30,
1995 increased by $892,000 and $505,000, respectively, as compared with net
income for the three-month and six-month periods ended June 30, 1994. The
results for the six-month period ended June 30, 1994 included $435,000 of
other income from nonrecurring sources and $642,000 of writedowns of
property held for sale to net realizable value. The writedowns also
affected earnings for the three-month period ended June 30, 1994. The
nonrecurring other income in the six-month period ended June 30, 1994
represented amounts received in a settlement from an affiliate of the
former lessee of the Partnership's hotel property and the writedowns
related to properties held for sale in 1994.
Net of the effects of the above-mentioned nonrecurring items, income
for the three-month and six-month periods ended June 30, 1995 would have
reflected increases of $250,000 and $302,000, respectively. For both the
three-month and the six-month periods ended June 30, 1995, the increase in
income, net of the effect of nonrecurring items, was due to an increase in
earnings from the hotel operations and decreases in interest and
depreciation expenses. This was partially offset by a decrease in lease
revenues and, for the six-month period only, an increase in general and
administrative expenses. The decrease in lease revenues of $342,000 was
attributable to the sale in November 1994 of properties leased to Mid-
Continent Bottlers, Inc. ("Mid-Continent") which had contributed 22% of
lease revenues for the comparable 1994 period. Lease revenues benefited
from the July 1, 1994 lease modification with Advanced Systems
Applications, Inc. ("ASA") which contributed an additional $217,000 and
$434,000 to lease revenues for the current three-month and six-month
periods. Interest expense decreased due to the satisfaction of the Mid-
Continent mortgage loan in connection with the sale of the properties, the
payoff of the mortgage loans on the KSG, Inc., AutoZone, Inc., NYNEX
Corporation and The Gap Inc. properties and the partial prepayment of the
ASA mortgage loan during the fourth quarter of 1994. Depreciation
decreased due to the full depreciation in the fourth quarter of 1994 of
certain furniture, fixtures and equipment at the hotel property. General
and administrative expenses increased for the six-month period as a result
of the increase in partnership level taxes for several states.
Hotel operating income increased by 25% as the result of a strong
occupancy rate, which increased to 79% from 75%, and an 8% increase in the
average room rate, partially as a result of the strong economic conditions
in the Detroit metropolitan area. Earnings from the food service operation
were relatively stable from the prior period, maintaining the substantial
increase that was attained in 1994 as a result of the reconfiguration of a
portion of the food service facility in the first quarter of 1994.
Although the earnings from the food service operation are seasonal in
nature with the highest proportion of earnings realized in the first
quarter, the 1994 reconfiguration appears to have reversed the trend of
operating losses in the second quarter. Management expects to either break
even or incur a moderate loss in the third quarter.
Financial Condition:
-------------------
There has been no material change in the Partnership's financial
condition since December 31, 1994. The Partnership distributed $6,860,000
of proceeds from the sale in 1994 of the properties leased to Mid-Continent
to partners during the first quarter. This distribution of $150 per
Limited Partner Unit represented a return of capital. The amount of this
special distribution to Limited Partners represented 15% of the amount
raised under the Partnership's public offering. With its current cash
balance of $3,605,000 and its cash flow from operations, the Partnership
has sufficient liquidity to pay its quarterly distributions to partners,
meet scheduled debt service installment obligations and fund replacement of
fixtures, furniture and equipment in the ordinary course of operating the
hotel and food service facility.
-8-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS, Continued
----------------------------------------------------------
Financial Condition, continued:
------------------------------
As a result of successful discussions with Holiday Inn, the
Partnership's hotel property will not be subject to Holiday Inn's core
modernization plan. The Partnership is currently committed to retaining
the hotel's affiliation with Holiday Inn as a franchisee. Included in
other assets on the accompanying consolidated balance sheet at June 30,
1995, is a furniture, fixture and equipment reserve account of $218,000
which is available to partially fund any necessary improvements or
purchases of furniture, fixtures and equipment. The reserve account is
funded by allocating 3% of hotel revenues to the reserve account and the
Partnership does not anticipate utilizing any funds in excess of amounts
set aside in the reserve amount to fund any such improvements or purchases
within the next 12 months.
A balloon payment of $3,871,000 will be due in December 1995 on two
mortgage loans collateralized by the food service facility. The
Partnership has the option of extending one of the loans if it elects to
make a partial prepayment of $600,000, in which event the entire $1,083,000
principal balance of the second loan and accrued interest thereon would be
forgiven. If the Partnership is not able to fully fund the balloon payment
from cash reserves, Management believes that the Partnership currently has
the ability to leverage several of its properties in the event that the
current loan cannot be extended or refinanced. Accordingly, this balloon
payment commitment should not have a significant impact on the
Partnership's liquidity. The tenant in the Monte Vista, Colorado property
formerly leased to Yellow Front Stores, Inc. has informed the Partnership
of their intent to exercise its purchase option available under the lease.
The purchase price for the property is currently being negotiated. As
annual rent from the property is $20,000, it is not expected that the sale
of the property, if it occurs, nor any reduction in operating cash
subsequent to a sale will have any significant effect on the Partnership's
cash balances or cash flow.
-9-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
PART II
-------
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
------------------------------------------
(a) Exhibits:
None
(b) Reports on Form 8-K:
During the quarter ended June 30, 1995 the Partnership was
not required to file any reports on Form 8-K.
-10-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
By: SEVENTH CAREY CORPORATE PROPERTY, INC.
08/9/95 By: /s/ Claude Fernandez
------------- ------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
08/9/95 By: /s/ Michael D. Roberts
------------- -------------------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
-11-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 3,605,464
<SECURITIES> 0
<RECEIVABLES> 24,249
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,532,578
<PP&E> 65,284,850
<DEPRECIATION> 11,204,046
<TOTAL-ASSETS> 59,243,095
<CURRENT-LIABILITIES> 1,795,191
<BONDS> 26,186,556
<COMMON> 0
0
0
<OTHER-SE> 31,261,348
<TOTAL-LIABILITY-AND-EQUITY> 59,243,095
<SALES> 0
<TOTAL-REVENUES> 7,894,731
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,197,482
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,297,935
<INCOME-PRETAX> 1,962,148
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,962,148
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,962,148
<EPS-PRIMARY> 40.76
<EPS-DILUTED> 40.76
</TABLE>
