<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
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or
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 0-17620
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CORPORATE PROPERTY ASSOCIATES 8, L.P., A DELAWARE LIMITED PARTNERSHIP
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3469700
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
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(Address of principal executive offices) (Zip Code)
(212) 492-1100
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(Registrant's telephone number, including area code)
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(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 8, L.P.,
a Delaware limited partnership
INDEX
Page No.
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PART I
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Item 1. - Financial Information*
Balance Sheets, December 31, 1996 and
June 30, 1997 2
Statements of Income for the three and six
months ended June 30, 1996 and 1997 3
Statements of Cash Flows for the six
months ended June 30, 1996 and 1997 4
Notes to Financial Statements 5-7
Item 2. - Management's Discussion of Operations 8-9
PART II
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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> 3
CORPORATE PROPERTY ASSOCIATES 8, L.P.,
a Delaware limited partnership
PART I
Item 1. - FINANCIAL INFORMATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30
1996 1997
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(Note) (Unaudited)
ASSETS:
<S> <C> <C>
Land, buildings and personal property,
net of accumulated depreciation of
$10,293,440 at December 31, 1996 and
$9,570,323 at June 30, 1997 $ 48,699,455 $ 42,364,192
Net investment in direct financing leases 47,095,414 52,723,914
Equity investments 6,513,068 6,328,444
Cash and cash equivalents 4,850,145 6,497,813
Other assets 1,471,121 1,750,756
------------- ------------
Total assets $ 108,629,203 $109,665,119
============= ============
LIABILITIES:
Mortgage notes payable $ 44,139,958 $ 43,598,288
Note payable 5,102,144 5,102,144
Accrued interest payable 473,317 446,081
Accounts payable and accrued expenses 274,822 284,707
Accounts payable to affiliates 209,112 290,837
Prepaid and deferred rental income and
security deposits 698,443 679,690
------------- ------------
Total liabilities 50,897,796 50,401,747
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PARTNERS' CAPITAL:
General Partners (103,774) 49,423
Limited Partners (67,582 Limited
Partnership Units issued and outstanding) 57,835,181 59,213,949
------------- ------------
Total partners' capital 57,731,407 59,263,372
------------- ------------
Total liabilities and
partners' capital $ 108,629,203 $109,665,119
============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
Note: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date.
-2-
<PAGE> 4
CORPORATE PROPERTY ASSOCIATES 8, L.P.,
a Delaware limited partnership
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 $ 2,269,648 $2,326,720 $ 4,493,720 $4,649,957
Interest from direct
financing leases 1,604,118 1,612,771 3,208,587 3,226,819
Other interest income 83,800 73,508 143,373 123,483
Other income 244,342 244,342 213,155
----------- ---------- ----------- ----------
4,201,908 4,012,999 8,090,022 8,213,414
----------- ---------- ----------- ----------
Expenses:
Interest on mortgages
and note payable 1,346,999 1,109,440 2,708,327 2,257,962
Depreciation 354,445 349,346 824,177 706,763
General and administrative 199,443 279,318 345,829 465,011
Property expense 132,988 179,658 210,375 300,097
Amortization 9,277 7,643 18,554 15,287
----------- ---------- ----------- ----------
2,043,152 1,925,405 4,107,262 3,745,120
----------- ---------- ----------- ----------
Income before (loss)
income from
equity investments 2,158,756 2,087,594 3,982,760 4,468,294
(Loss) income from equity
investments (14,104) 209,778 (29,112) 369,182
Earnings from hotel operations 432,738 933,031
----------- ---------- ----------- ----------
Net income $ 2,577,390 $2,297,372 $ 4,886,679 $4,837,476
=========== ========== =========== ==========
Net income allocated
to General Partners $ 257,739 $ 229,738 $ 488,668 $ 483,748
=========== ========== =========== ==========
Net income allocated
to Limited Partners $ 2,319,651 $2,067,634 $ 4,398,011 $4,353,728
=========== ========== =========== ==========
Net income per Unit:
(67,582 Limited
Partnership Units) $ 34.33 $ 30.59 $ 65.08 $ 64.42
=========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE> 5
CORPORATE PROPERTY ASSOCIATES 8, L.P.,
a Delaware limited partnership
STATEMENTS of CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------
1996 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,886,679 $ 4,837,476
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 842,731 722,050
Other noncash items 147,180 90,598
Loss from equity investments 29,112
Net change in operating assets and liabilities (744,352) (282,424)
----------- -----------
Net cash provided by operating activities 5,161,350 5,367,700
----------- -----------
Cash flows from investing activities:
Distributions from equity investments in excess of equity income 142,224 184,624
Additional capitalized costs (153,342)
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Net cash (used in) provided by investing activities (11,118) 184,624
----------- -----------
Cash flows from financing activities:
Distributions to partners (3,257,453) (3,305,511)
Proceeds from issuance of mortgage 4,000,000 4,099,560
Prepayment of mortgage payable (3,901,431) (4,021,244)
Deferred financing costs (57,475)
Payments on mortgage principal (1,174,227) (619,986)
----------- -----------
Net cash used by financing activities (4,333,111) (3,904,656)
----------- -----------
Net increase in cash and cash equivalents 817,121 1,647,668
Cash and cash equivalents, beginning of period 5,119,385 4,850,145
----------- -----------
Cash and cash equivalents, end of period $ 5,936,506 $ 6,497,813
=========== ===========
Supplemental disclosure of cash flows information:
Interest paid $ 2,808,067 $ 2,285,198
=========== ===========
During the six-month period ended June 30, 1997, a lease was reclassified as
follows:
Land and buildings, net of accumulated depreciation of $1,429,880 $(5,628,500)
Net investment in direct financing leases 5,628,500
-----------
--
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-4-
<PAGE> 6
CORPORATE PROPERTY ASSOCIATES 8, L.P.,
a Delaware limited partnership
NOTES TO 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, 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 $165,200 $1,486,804 $22.00
======== ========== ======
March 31, 1997 $165,351 $1,488,156 $22.02
======== ========== ======
</TABLE>
A distribution of $22.04 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 leasing fees of $3,146 and $6,194, respectively, and general and
administrative expense reimbursements of $38,489 and $61,335, respectively,
payable to an affiliate. For the three-month and six-month periods ended June
30, 1997, the Partnership incurred leasing fees of $6,814 and $12,429,
respectively, and general and administrative expense reimbursements of $50,873
and $108,394, respectively, payable to an affiliate.
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 $80,163 and $64,937, respectively.
-5-
<PAGE> 7
CORPORATE PROPERTY ASSOCIATES 8, L.P.,
a Delaware limited partnership
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 4. Industry Segment Information:
The Partnership's operations consist of the direct and indirect investment in
and the leasing of industrial and commercial real estate. For the six-month
periods ended June 30, 1996 and 1997, the Partnership earned its real estate
leasing revenues (rental income plus interest income from financing leases) from
its directly owned real estate investments as follows:
<TABLE>
<CAPTION>
1996 % 1997 %
---- --- ---- ---
<S> <C> <C> <C> <C>
Lease Obligor:
- --------------
Advanced System Applications, Inc. $1,539,547 20% $1,504,547 19%
Sybron Acquisition Company 1,245,960 16 1,245,960 16
Dr Pepper Bottling Company of Texas 999,500 13 999,500 13
Amerisig, Inc. 697,187 9 756,709 10
High Voltage Engineering Corporation 591,623 8 587,291 7
Orbital Sciences Corporation 488,689 6 488,689 6
United Stationers Supply Co. 406,354 5 406,354 5
Furon Company 416,283 6 389,950 5
Detroit Diesel Corporation 364,539 5 364,539 5
AutoZone, Inc. 262,195 3 262,195 3
NVRyan L.P. 229,536 3 247,759 3
U.S. Postal Service 79,942 1 239,825 3
Mayfair Molded Products Corporation 230,377 3 230,377 3
Winn-Dixie Stores, Inc. 67,250 1 67,250 1
Other 54,975 1 57,481 1
Federal Express Corporation 28,350 28,350
---------- --- ---------- ---
$7,702,307 100% $7,876,776 100%
========== === ========== ===
</TABLE>
Note 5. Investment in Operating Partnership:
The Partnership owns 493,664 limited partnership units in American General
Hospitality Operating Partnership, L.P., the operating partnership of American
General Hospitality Corporation ("AGH"), a publicly-traded real estate
investment trust. The Partnership's investment in the operating partnership is
accounted for under the equity method. As of August 1, 1997, the Partnership has
the right to convert the limited partnership units on a one-for-one basis to
shares of common stock in AGH.
AGH's audited financial statements reported total assets of $369,974,000 and
shareholders' equity of $279,960,000 as of March 31, 1997 and total revenues of
$9,903,000 and net income of $4,053,000 for the three months ended March 31,
1997.
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<PAGE> 8
CORPORATE PROPERTY ASSOCIATES 8, L.P.,
a Delaware limited partnership
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 6. Properties Leased to Furon Company:
The Partnership and CPA(R):9, an affiliate, own properties leased to Furon
Company ("Furon") with 32.28% and 67.72% interests, respectively. On June 20,
1997, the Furon lease was restated and amended in connection with a transaction
which resulted in the Partnership and CPA(R):9 relinquishing ownership of
properties in Mt. Pleasant, Texas and Milwaukee, Wisconsin in exchange for a
property in Aurora, Ohio. No cash was paid or received in connection with the
exchange. As amended, the initial lease was extended by five years from July
2007 to July 2012. The Partnership's share of annual rent of $779,900 was
unchanged with the next rent increase scheduled for February 1999.
In connection with the exchange, the Partnership and CPA(R):9 refinanced an
existing limited recourse loan of $4,021,244 collateralized by the Furon
properties which bore interest at an annual interest rate of 10.40% and obtained
a new limited recourse loan of $4,099,600. The new loan will initially require
monthly payments of interest and principal of $78,403 at an annual interest rate
of 8.42% and is based on a 17-1/2 year amortization schedule. If Furon's credit
rating is downgraded, the annual interest rate on the loan may be increased to
9.02%. In July 2002, the interest rate is scheduled to be reset to the Treasury
Yield Percentage plus 5%, subject to certain adjustments. The loan will mature
in July 2012, at which time a balloon payment will be due. The mortgage lenders
have the right to exercise a put option in July 2002 which would, if exercised,
require the Partnership and CPA(R):9 to purchase the loan. The Partnership and
CPA(R):9 may prepay the loan without any prepayment premium at the interest
reset date.
As a result of the refinancing, annual cash flow will increase by $26,067. As
the exchange of properties is a nonmonetary transaction for financial reporting
purposes, no gain or loss has been recognized.
-7-
<PAGE> 9
CORPORATE PROPERTY ASSOCIATES 8, L.P.,
a Delaware 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
decreased as compared with the similar periods ended June 30, 1996. After
adjusting for nonrecurring income items which are presented in the accompanying
financial statements as other income, the decreases in income for the current
year's three-month and six-month periods were approximately 1%. The decrease was
primarily due to lower income as a result of the effect of exchanging the
Partnership's hotel property for an equity investment in the operating
partnership of a real estate investment trust in July 1996, and, to a lesser
extent, increases in property and general and administrative expenses. These
factors were partially offset by an increase in lease revenues and a decrease in
interest expense.
Approximately $392,000 of the increase in equity income was due to the
July 1996 exchange of the Partnership's ownership interest in the Holiday Inn
New Orleans Airport for limited partnership units in the operating partnership
of a publicly-traded real estate investment trust, American General Hospitality
Corporation. For the comparable six-month periods income from the investment in
American General Hospitality was $237,000 less than the earnings from the hotel
operations after the effects of depreciation and interest expenses on the hotel
property and related mortgage loan are considered. Such comparison of the equity
investment and the former hotel operation does not include the substantial cash
resources that were used by the Partnership to maintain and upgrade the hotel's
physical plant in order for the hotel operation to remain competitive. If direct
ownership of the hotel had been retained, periodic capital expenditures would
have continued to be required. As of August 6, 1997, the quoted market value of
American General Hospitality common stock was $27 1/8 per share. Since the
limited partnership units are convertible to shares of common stock on a
one-for-one basis, the underlying fair market value of the Partnership's
investment is approximately $13,391,000.
The increase in general and administrative expenses was due to an increase
in partnership level state taxes and administrative reimbursements to an
affiliate. The increase in property expenses was due to the carrying costs of a
property in Bloomingdale, Illinois which has not been subject to a net lease
since the second quarter of 1996. The decrease in interest expense was due to
the satisfaction of the mortgage loan on the hotel property in connection with
the aforementioned exchange transaction and the December 1996 prepayment of the
mortgage loan on the AutoZone, Inc. properties.
The Partnership's lease revenues will decrease by approximately $3,000,000
as the result of the June 30, 1997 expiration of the Partnership's lease with
Advanced System Applications, Inc. at the Partnership's property in
Bloomingdale. 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 $2,223,000 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 United Postal Service at an annual rent of
$480,000. 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
$240,000 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 of the 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.
-8-
<PAGE> 10
CORPORATE PROPERTY ASSOCIATES 8, L.P.,
a Delaware limited partnership
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
Financial Condition:
There has not been any material change in the Partnership's financial
condition since December 31, 1996. Cash provided from operating activities and
equity investments of $5,552,000 was sufficient to fund distributions to
partners of $3,305,000 and scheduled mortgage principal installments of
$620,000. Although cash flow will decrease as a result of the expiration of the
Advanced System Applications lease, Management believes that the Partnership
should have sufficient operating cash flow and cash reserves to sustain the
current distribution rate. In spite of the anticipated decrease in cash flow,
Management expects the Partnership to remain in compliance with the covenants of
its note payable including those provisions relating to cash flow ratios.
In June 1997, the Partnership refinanced an existing mortgage loan on the
Furon Company properties which had matured with a new limited recourse mortgage
loan. As a result of refinancing the existing loan at a lower rate of interest,
annual cash flow will increase by approximately $26,000.
The General Partners are continuing to investigate ways to provide
liquidity for limited partners on a tax-effective basis.
-9-
<PAGE> 11
CORPORATE PROPERTY ASSOCIATES 8, L.P.,
a Delaware 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.
-10-
<PAGE> 12
CORPORATE PROPERTY ASSOCIATES 8, L.P.,
a Delaware 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 8, L.P.,
a Delaware limited partnership
By: EIGHTH 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
-11-
<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> 6,497,813
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,497,813
<PP&E> 104,658,429
<DEPRECIATION> 9,570,323
<TOTAL-ASSETS> 109,665,119
<CURRENT-LIABILITIES> 1,701,315
<BONDS> 48,700,432
0
0
<COMMON> 0
<OTHER-SE> 59,263,372
<TOTAL-LIABILITY-AND-EQUITY> 109,665,119
<SALES> 0
<TOTAL-REVENUES> 8,213,414
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,487,158
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,257,962
<INCOME-PRETAX> 4,837,476
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,837,476
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,837,476
<EPS-PRIMARY> 64.42
<EPS-DILUTED> 64.42
</TABLE>
