<PAGE> 1
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, 1997
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)
<TABLE>
<CAPTION>
CALIFORNIA 13-3327950
<S> <C>
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
(Address of principal executive offices) (Zip Code)
</TABLE>
(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> 2
CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I
Item 1. - Financial Information*
Consolidated Balance Sheets, December 31, 1996
and June 30, 1997 2
Consolidated Statements of Income for the three and six
months ended June 30, 1996 and 1997 3
Consolidated Statements of Cash Flows for the
six months ended June 30, 1996 and 1997 4
Notes to Consolidated Financial Statements 5-6
Item 2. - Management's Discussion of Operations 7-8
PART II
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.
- 1 -
<PAGE> 3
CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
PART I
Item 1. - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
---- ----
(Note) Unaudited)
<S> <C> <C>
ASSETS:
Land, buildings and personal property,
net of accumulated depreciation of
$11,101,853 at December 31, 1996 and
$11,691,609 at June 30, 1997 $33,276,821 $32,755,005
Net investment in direct financing leases 15,542,368 10,844,344
Cash and cash equivalents 5,591,985 6,065,650
Real estate held for sale 4,698,024
Other assets 1,020,950 1,469,470
----------- -----------
Total assets $55,432,124 $55,832,493
=========== ===========
LIABILITIES:
Mortgage notes payable $10,314,828 $10,118,118
Note payable 9,606,837 9,606,837
Accrued interest payable 324,737 328,478
Accounts payable and accrued expenses 676,737 652,620
Accounts payable to affiliates 113,485 89,132
Prepaid and deferred rental income 371,116 392,375
----------- -----------
Total liabilities 21,407,740 21,187,560
----------- -----------
PARTNERS' CAPITAL:
General Partners 161,740 198,973
Limited Partners (45,209 Limited
Partnership Units issued and outstanding) 33,862,644 34,445,960
----------- -----------
Total partners' capital 34,024,384 34,644,933
----------- -----------
Total liabilities and
partners' capital $55,432,124 $55,832,493
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Note: The balance sheet at December 31, 1996 has been derived from the audited
consolidated financial statements at that date.
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<PAGE> 4
CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1997 June 30, 1996 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income from
operating leases $ 1,077,086 $ 1,113,789 $ 2,128,766 $ 2,225,703
Interest from direct
financing leases 554,596 631,312 1,111,616 1,183,156
Other interest income 68,358 73,801 131,140 139,840
Other income 241,272
Revenue of hotel operations 1,437,277 1,489,766 2,792,618 2,888,115
----------- ----------- ----------- -----------
3,137,317 3,308,668 6,164,140 6,678,086
----------- ----------- ----------- -----------
Expenses:
Interest 487,819 447,975 985,546 911,079
Operating expenses of
hotel operations 1,030,732 1,025,972 2,040,324 2,048,675
Depreciation 287,547 298,554 573,917 589,756
General and administrative 116,089 215,332 220,089 372,459
Property expenses 114,692 173,057 219,804 284,790
Amortization 24,780 14,719 31,996 29,438
----------- ----------- ----------- -----------
2,061,659 2,175,609 4,071,676 4,236,197
----------- ----------- ----------- -----------
Income before loss from equity
investments and gain on
sales of real estate 1,075,658 1,133,059 2,092,464 2,441,889
Loss from equity investments (32,980) (31,658) (65,783) (62,037)
----------- ----------- ----------- -----------
Income before gain on
sales of real estate 1,042,678 1,101,401 2,026,681 2,379,852
Gain on sales of real estate 74,729
----------- ----------- ----------- -----------
Net income $ 1,042,678 $ 1,101,401 $ 2,101,410 $ 2,379,852
=========== =========== =========== ===========
Net income allocated
to General Partners $ 62,561 $ 66,084 $ 122,348 $ 142,791
=========== =========== =========== ===========
Net income allocated
to Limited Partners $ 980,117 $ 1,035,317 $ 1,979,062 $ 2,237,061
=========== =========== =========== ===========
Net income per Unit:
(45,209 Limited
Partnership Units) $ 21.68 $ 22.90 $ 43.78 $ 49.48
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE> 5
CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
CONSOLIDATED STATEMENTS of CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
1996 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,101,410 $ 2,379,852
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 605,913 619,194
Other noncash items 74,566 74,566
Loss from equity investments 65,783 62,037
Gain on sales of real estate (74,729)
Net change in operating assets and liabilities (276,102) (654,956)
----------- -----------
Net cash provided by operating activities 2,496,841 2,480,693
----------- -----------
Cash flows from investing activities:
Additional capitalized costs (109,262) (67,940)
Distributions from equity investments 16,456 16,925
Net proceeds from sales of real estate 617,867
----------- -----------
Net cash by provided by (used in) investing activities 525,061 (51,015)
----------- -----------
Cash flows from financing activities:
Distributions to partners (1,732,367) (1,759,303)
Payments on mortgage principal (448,694) (196,710)
----------- -----------
Net cash used in financing activities (2,181,061) (1,956,013)
----------- -----------
Net increase in cash and cash equivalents 840,841 473,665
Cash and cash equivalents, beginning of period 4,968,410 5,591,985
----------- -----------
Cash and cash equivalents, end of period $ 5,809,251 $ 6,065,650
=========== ===========
Supplemental disclosure of cash flows information:
Interest paid $ 1,003,510 $ 907,338
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE> 6
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 there to
included in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1996.
Note 2. Distributions to Partners:
Distributions declared and paid to partners during the six months ended June 30,
1997 are summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended General Partners Limited Partners Per Limited Partner Unit
------------- ---------------- ---------------- ------------------------
<S> <C> <C> <C>
December 31, 1996 $52,750 $826,421 $18.28
======= ======== ======
March 31, 1997 $52,808 $827,324 $18.30
======= ======== ======
</TABLE>
A distribution of $18.32 per Limited Partner Unit for the quarter ended June 30,
1997 was declared and paid in July 1997.
Note 3. Transactions with Related Parties:
For the three-month and six-month periods ended June 30, 1996, the Partnership
incurred property management fees of $25,574 and $49,294, respectively, and
general and administrative expense reimbursements of $30,444 and $67,943,
respectively. For the three-month and six-month periods ended June 30, 1997, the
Partnership incurred property management fees of $28,738 and $57,844,
respectively, and general and administrative expense reimbursements of $35,006
and $87,603, 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, 1996 and 1997 were $40,920 and $30,217, respectively.
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<PAGE> 7
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 hotel business. For
the three and six-month periods ended June 30, 1996 and 1997, the Partnership
earned its lease revenues (rental income plus interest income from financing
leases) from the following lease obligors:
<TABLE>
<CAPTION>
1996 % 1997 %
---- ---- ---- --
<S> <C> <C> <C> <C>
Advanced System Applications, Inc. $ 780,090 24% $ 762,221 22%
KSG, Inc. 410,842 13 486,687 14
The Gap, Inc. 463,784 14 463,784 14
Sybron Acquisition Company 409,581 13 409,581 12
Swiss M-Tex, L.P. 265,496 8 260,677 8
AutoZone, Inc. 203,594 6 196,800 6
Other 154,242 5 195,306 6
Northern Automotive, Inc. 194,415 6 194,415 6
NVRyan L.P. 145,778 5 145,778 4
United States Postal Service 40,525 1 121,575 4
NYNEX Corporation 107,800 3 107,800 3
Winn-Dixie Stores, Inc. 64,235 2 64,235 1
---------- ---- ---------- ---
$3,240,382 100% $3,408,859 100%
========== ==== ========== ====
</TABLE>
Results for the Partnership's hotel operations of a Holiday Inn in Livonia,
Michigan for the six-month periods ended June 30, 1996 and 1997 are summarized
as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Revenues $ 2,792,618 $ 2,888,115
Fees paid to hotel management company (74,065) (86,940)
Other operating expenses (1,966,259) (1,961,735
----------- -----------
Hotel operating income $ 752,294 $ 839,440
=========== ===========
</TABLE>
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<PAGE> 8
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, 1997
increased by $59,000 and $278,000, respectively, as compared with the similar
periods ended June 30, 1996. Excluding the gain from sales of real estate of
$75,000 in 1996 and nonrecurring other income of $241,000 in 1997, representing
a distribution from a bankruptcy claim, income for the six-month period would
have reflected an increase of $112,000. The increases in income were due to
higher earnings from the hotel operation, decreases in interest expense and
increases in lease revenues. These benefits were partially offset by increases
in property and general and administrative expenses.
The increases in hotel operating earnings for the Livonia, Michigan
Holiday Inn were due to the Partnership's maintaining its strategy of sustaining
a high average room rate in the favorable economic climate for the Detroit
metropolitan area. Accordingly, for the comparable three-month and six-month
periods, hotel revenues increased by 3% even though the overall year-to-date
occupancy rate decreased by 1% to 75%. In addition, the direct expenses of the
hotel operations were stable. The decreases in interest expense were due to the
payoff of a mortgage loan on the Winn-Dixie Stores, Inc. property in the third
quarter of 1996 and the continuing amortization of the Partnership's limited
recourse mortgage loans. The increase in lease revenues was due to the
commencement of a lease in May 1996 with the United States Postal Service at the
Partnership's property in Bloomingdale, Illinois, new leases commencing in 1996
at two properties formerly leased to Yellow Front Stores, Inc. and a rent
increase on the KSG, Inc. property in 1997. As discussed below, the KSG property
will be sold no later than March 8, 1998, and; therefore, the KSG rent increase
will not provide any significant long-term benefit to the Partnership's
operating cash flow or lease revenues. The increases in property expenses were
due to the carrying costs related to operating the Bloomingdale property, which
has not been subject to a net lease since the second quarter of 1996. The
increase in general and administrative expenses were primarily due to an
increase in partnership level state taxes, particularly for the State of
Michigan as a result of higher taxable earnings related to the Livonia property.
The Partnership's annual lease revenues will decrease by approximately
$1,520,000 as the result of the June 30, 1997 expiration of the Partnership's
lease with Advanced System Applications, Inc. at the Bloomingdale property.
Under a 1994 modification agreement, the Partnership consented to a termination
of the Advanced System Applications lease in 1997 rather than 2003 in
consideration for an increase of $1,120,000 in annual rents. A portion of the
increase was used to accelerate payment on the Bloomingdale property's mortgage
loan so that it fully amortized in March 1996. Since May 1996, 34% of the
property has been leased to the Postal Service at an annual rent of
approximately $243,000. On June 30, 1997, the Postal Service agreed to lease
additional space at the Bloomingdale property, effective July 1, 1997. Under
this lease amendment, the Postal Service's annual rent will increase by
approximately $122,000 with its occupancy of the property increasing to 52% of
the leasable space. The Postal Service lease requires the Partnership, rather
than the lessee, to pay most costs related to maintaining the property. The
Partnership is actively seeking new tenants for the unoccupied space. The Postal
Service has a right of first refusal for any vacant leasable space.
KSG has exercised its purchase option on the property it currently
occupies. The property is expected to be transferred to KSG no later than March
8, 1998. The KSG purchase option provides for an exercise price of the greater
of $4,698,000 or fair market value as encumbered by the lease. An appraisal
process to determine fair market value has commenced. Annual cash flow from the
KSG property is approximately $970,000.
- 7 -
<PAGE> 9
CORPORATE PROPERTY ASSOCIATES 7
- a California limited partnership
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS, Continued
Financial Condition:
There has been no material change in the Partnership's financial condition
since December 31, 1996. Cash flow from operations and equity investments of
$2,497,000 was sufficient to fund distributions of $1,759,000 and scheduled
mortgage principal installments of $197,000. Pursuant to the lease for
additional space with the Postal Service at the Bloomingdale property, the
Partnership is obligated to fund tenant improvements of up to approximately
$110,000. Balloon payments of $1,652,000 and $4,923,000 on the Partnership's
limited recourse mortgage loans on two properties leased to Swiss M-Tex L.P. and
the Livonia, Michigan hotel property, respectively, are scheduled for September
and November 1997, respectively. If necessary, the Partnership has sufficient
funds to pay off the Swiss M-Tex mortgage loan from cash reserves. Based on the
operating performance of the Livonia hotel operation, the Partnership believes
that the prospects for refinancing the loan are favorable.
The General Partners are currently investigating ways to provide liquidity
for limited partners on a tax-effective basis.
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<PAGE> 10
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, 1997 the Partnership was not
required to file any reports on Form 8-K.
- 9 -
<PAGE> 11
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.
08/11/97 By: /s/ Steven M. Berzin
---------------- ------------------------------------------
Date Steven M. Berzin
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
08/11/97 By: /s/ Claude Fernandez
---------------- ------------------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
08/11/97 By: /s/ Michael D. Roberts
---------------- ------------------------------------------
Date Michael D. Roberts
First Vice President and Controller
- 10 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,055,650
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,055,650
<PP&E> 55,290,958
<DEPRECIATION> 11,691,609
<TOTAL-ASSETS> 55,832,493
<CURRENT-LIABILITIES> 1,462,605
<BONDS> 19,724,955
0
0
<COMMON> 0
<OTHER-SE> 34,644,933
<TOTAL-LIABILITY-AND-EQUITY> 55,832,493
<SALES> 0
<TOTAL-REVENUES> 6,678,086
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,325,118
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 911,079
<INCOME-PRETAX> 2,379,852
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,379,852
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,379,852
<EPS-PRIMARY> 49.48
<EPS-DILUTED> 49.48
</TABLE>
