<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 SEPTEMBER 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 0-17620
CORPORATE PROPERTY ASSOCIATES 8, L.P., A DELAWARE LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
DELAWARE 13-3469700
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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> 2
CORPORATE PROPERTY ASSOCIATES 8, L.P.,
a Delaware limited partnership
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I
Item 1. - Financial Information(*)
Balance Sheets, December 31, 1996 and
September 30, 1997 2
Statements of Income for the three and nine
months ended September 30, 1996 and 1997 3
Statements of Cash Flows for the nine
months ended September 30, 1996 and 1997 4
Notes to 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
</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 8, L.P.,
a Delaware limited partnership
PART I
Item 1. - FINANCIAL INFORMATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------------- ------------
(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Land and buildings,
net of accumulated depreciation of
$10,293,440 at December 31, 1996 and
$9,879,307 at September 30, 1997 $ 48,699,455 $ 42,055,208
Net investment in direct financing leases 47,095,414 52,723,914
Equity investments 6,513,068 6,280,889
Cash and cash equivalents 4,850,145 6,637,410
Other assets 1,471,121 1,839,613
------------- ------------
Total assets $ 108,629,203 $109,537,034
============= ============
LIABILITIES:
Mortgage notes payable $ 44,139,958 $ 43,285,653
Note payable 5,102,144 5,102,144
Accrued interest payable 473,317 493,103
Accounts payable and accrued expenses 274,822 455,704
Accounts payable to affiliates 209,112 335,111
Prepaid and deferred rental income and
security deposits 698,443 712,260
------------- ------------
Total liabilities 50,897,796 50,383,975
------------- ------------
PARTNERS' CAPITAL:
General Partners (103,774) 38,390
Limited Partners (67,582 Limited
Partnership Units issued and outstanding) 57,835,181 59,114,669
------------- ------------
Total partners' capital 57,731,407 59,153,059
------------- ------------
Total liabilities and
partners' capital $ 108,629,203 $109,537,034
============= ============
</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 Nine Months Ended
September 30, 1996 September 30, 1997 September 30, 1996 September 30, 1997
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income from
operating leases $2,289,688 $ 1,455,340 $ 6,783,408 $ 6,105,297
Interest from direct
financing leases 1,654,333 1,803,731 4,862,920 5,030,550
Other interest income 53,733 82,773 197,106 206,256
Other income 109,059 10,011 353,401 223,166
---------- ----------- ----------- -----------
4,106,813 3,351,855 12,196,835 11,565,269
---------- ----------- ----------- -----------
Expenses:
Interest 1,251,324 1,119,276 3,959,651 3,377,238
Depreciation 358,141 308,984 1,182,318 1,015,747
General and administrative 192,506 145,733 538,335 610,744
Property expense 39,137 434,766 249,512 734,863
Amortization 9,277 10,632 27,831 25,919
---------- ----------- ----------- -----------
1,850,385 2,019,391 5,957,647 5,764,511
---------- ----------- ----------- -----------
Income before income from
equity investments and
gain on sale of real estate 2,256,428 1,332,464 6,239,188 5,800,758
Income from equity
investments 129,865 212,240 100,753 581,422
Earnings from hotel operations 70,269 1,003,300
---------- ----------- ----------- -----------
Income before gain on
sale of real estate 2,456,562 1,544,704 7,343,241 6,382,180
Gain on sale of real estate 21,697 21,697
---------- ----------- ----------- -----------
Net income $2,478,259 $ 1,544,704 $ 7,364,938 $ 6,382,180
========== =========== =========== ===========
Net income allocated
to General Partners $ 247,826 $ 154,470 $ 736,494 $ 638,218
========== =========== =========== ===========
Net income allocated
to Limited Partners $2,230,433 $ 1,390,234 $ 6,628,444 $ 5,743,962
========== =========== =========== ===========
Net income per Unit:
(67,582 Limited
Partnership Units) $ 33.00 $ 20.57 $ 98.08 $ 84.99
========== =========== =========== ===========
</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>
Nine Months Ended
September 30,
-----------------------------------
1996 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,364,938 $ 6,382,180
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,210,149 1,041,666
Other noncash items 166,952 (17,201)
Gain on sale (21,697)
Net change in operating assets and liabilities (227,641) 25,389
----------- -----------
Net cash provided by operating activities 8,492,701 7,432,034
----------- -----------
Cash flows from investing activities:
Proceeds from sale of real estate 442,496
Distributions from equity investments in excess of equity income 109,886 232,179
Additional capitalized costs (414,256)
Purchase of interest in operating partnership and related costs (230,000)
----------- -----------
Net cash (used in) provided by investing activities (91,874) 232,179
----------- -----------
Cash flows from financing activities:
Distributions to partners (4,900,453) (4,960,528)
Proceeds from issuance of mortgage 4,000,000 4,099,560
Prepayment of mortgage payable (4,189,427) (4,021,244)
Deferred financing costs (62,115)
Payments on mortgage principal (1,481,456) (932,621)
----------- -----------
Net cash used in financing activities (6,571,336) (5,876,948)
----------- -----------
Net increase in cash and cash equivalents 1,829,491 1,787,265
Cash and cash equivalents, beginning of period 5,119,385 4,850,145
----------- -----------
Cash and cash equivalents, end of period $ 6,948,876 $ 6,637,410
=========== ===========
Supplemental disclosure of cash flows information:
Interest paid $ 4,072,537 $ 3,357,452
=========== ===========
</TABLE>
During the nine-month period ended September 30, 1997, a lease was reclassified
as follows:
<TABLE>
<S> <C>
Land and buildings, net of accumulated depreciation of $1,429,880 $(5,628,500)
Net investment in direct financing leases 5,628,500
-----------
$ -
===========
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
In July 1996, the Partnership exchanged its interest in a hotel property and
related assets and liabilities for 493,664 units in the operating partnership of
a publicly-traded real estate investment trust. The assets and liabilities
transferred are as follows:
<TABLE>
<S> <C>
Real estate, net of accumulated depreciation $ 9,116,767
Mortgage note payable (3,915,439)
Other assets and liabilities transferred, net 26,465
-----------
$ 5,227,793
===========
</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 nine months ended
September 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
======== ========== ======
June 30, 1997 $165,503 $1,489,514 $22.04
======== ========== ======
</TABLE>
A distribution of $22.06 per Limited Partner Unit for the quarter ended
September 30, 1997 was declared and paid in October 1997.
Note 3. Transactions with Related Parties:
For the three-month and nine-month periods ended September 30, 1996, the
Partnership incurred leasing fees of $3,046 and $9,240, respectively, and
general and administrative expense reimbursements of $25,375 and $86,710,
respectively, payable to an affiliate. For the three-month and nine-month
periods ended September 30, 1997, the Partnership incurred leasing fees of
$6,706 and $19,135, respectively, and general and administrative expense
reimbursements of $74,393 and $182,787, respectively, payable to an affiliate.
Management believes that ultimate payment of a preferred return to the General
Partners of $53,055, based upon cumulative proceeds of sales of assets, is
reasonably possible but not probable, as defined in Statement of Financial
Accounting Standards No. 5, and no accrual for such preferred return has been
reflected in the accompanying Financial Statements.
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 nine months ended
September 30, 1996 and 1997 were $122,345 and $91,873, 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 nine-month
periods ended September 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:
Sybron Acquisition Company $ 1,868,940 16% $ 1,868,940 17%
Advanced System Applications, Inc. 2,290,961 20 1,504,547 14
Dr Pepper Bottling Company of Texas 1,499,250 13 1,499,250 13
Amerisig, Inc. 1,052,667 9 1,136,658 10
High Voltage Engineering Corporation 887,435 8 880,868 8
Orbital Sciences Corporation 733,034 6 733,034 7
United Stationers Supply Co. 609,427 5 609,427 5
Furon Company 621,239 5 584,919 5
Detroit Diesel Corporation 546,808 5 546,808 5
U.S. Postal Service 199,854 2 416,681 4
AutoZone, Inc. 393,293 3 393,293 4
NVRyan L.P. 371,638 3 371,638 3
Mayfair Molded Products Corporation 345,566 3 345,566 3
Winn-Dixie Stores, Inc. 100,875 1 100,875 1
Other 82,816 1 100,818 1
Federal Express Corporation 42,525 42,525
----------- --- ----------- ---
$11,646,328 100% $11,135,847 100%
=========== === =========== ===
</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. The Partnership has the right to convert
the limited partnership units on a one-for-one basis to shares of common stock
in AGH at any time. On September 22, 1997, AGH filed a registration statement
with the United States Securities and Exchange Commission which would allow
shares of AGH converted from units to be freely transferred. As of November 4,
1997, the quoted market value of AGH common stock was 27 15/16 per share.
AGH's unaudited financial statements reported total assets of $547,398,000 and
shareholders' equity of $281,728,000 as of June 30, 1997, and total revenues of
$23,515,000 and net income of $10,472,000 for the six-month period ended June
30, 1997.
-6-
<PAGE> 8
CORPORATE PROPERTY ASSOCIATES 8, L.P.,
a Delaware limited partnership
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 6. Consent Solicitation:
On October 15, 1997, Carey Diversified LLC ("CD(SM)") filed a Consent
Solicitation Statement/Prospectus ("consent solicitation") with the United
States Securities and Exchange Commission. The General Partners are proposing
that the Limited Partners of the nine CPA(R) limited partnerships approve a
transaction in which each CPA(R) limited partnership would be merged with a
subsidiary partnership of CD(SM), of which CD(SM) is the general partner. As
described in the consent solicitation, each limited partner would have the
option of either exchanging his or her limited partnership units for an interest
in CD(SM) ("Listed Shares") or to retain a limited partnership interest in the
subsidiary partnership ("Subsidiary Partnership Units"). If the holders of a
majority of the outstanding limited partnership units of the Partnership consent
to the transaction, the merger of the Partnership with the corresponding
subsidiary partnership of CD(SM) may be consummated. If the transaction is
consummated, the General Partners will exchange a portion of their general
partnership interests in exchange for Listed Shares. The transaction will not
occur unless the CPA(R) Partnerships approving the transaction represent at
least $200,000,000 in Total Exchange Value, as defined. There is no assurance
that the holders of limited partnership units of the Partnership will consent to
the transaction or that the transaction will occur.
If the transaction is completed, the Listed Shares will be listed and publicly
traded on the New York Stock Exchange. Subsidiary Partnership Units will provide
substantially the same economic interest and legal rights as those of a limited
partnership unit in the Partnership, but will not be listed on a securities
exchange. Conversion of limited partnership units to Listed Shares or Subsidiary
Partnership Units will not result in a taxable event to the limited partners.
The risk factors and benefits relating to the proposed transaction are described
in the consent solicitation. The General Partners, as well as all the Directors
of the Corporate General Partners of the CPA(R) Partnerships, have unanimously
approved the proposed transaction.
-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 nine-month periods ended September 30,
1997 decreased by $934,000 and $983,000, respectively, as compared with the
similar periods ended September 30, 1996. The decreases were due to lower lease
revenues and lower income as the result of the effect of exchanging the
Partnership's hotel property for an equity investment in the operating
partnership of American General Hospitality Corporation, a publicly-traded real
estate investment trust, in July 1996. The decrease in income was also affected
by an increase in property expenses.
The decrease in lease revenues is attributable to the June 30, 1997
expiration of the Partnership's lease with Advanced System Applications, Inc. at
the Partnership's property in Bloomingdale, Illinois. In 1994, the Partnership
and Advanced System Applications agreed to a termination of the lease in 1997
rather than 2003 in consideration for an increase in annual rents of $2,223,000.
Accordingly, the rents earned over the final three lease years were
substantially in excess of market rents. To obtain the consent from the mortgage
lender on the Bloomingdale property for the 1994 lease modification, the
Partnership agreed to accelerate mortgage payments in order to amortize fully
the Bloomingdale mortgage loan before the end of the lease term. As a result,
the mortgage loan was paid off in March 1996. Had the Partnership not entered
into these agreements, the Partnership would have had to refinance a scheduled
balloon payment of $4,654,000 in 1995. In July 1997, the United States Postal
Service increased its occupancy of the property from 34% to 52% of the leasable
space. Annual rentals from the Postal Service lease have increased to
approximately $720,000, with the Partnership retaining the obligation to pay
property costs. The Partnership is actively remarketing the remaining leasable
space. Prior to the modification agreements, the Partnership's annual cash flow
from the Bloomingdale property was $700,000. If the Partnership is successful in
leasing the unoccupied space, future annual cash flow after operating costs
could potentially reach or exceed the cash flow levels achieved prior to the
modification agreement. The increase in property expenses was primarily due to
the costs of operating the Bloomingdale property. Prior to 1996, Advanced System
Applications had the obligation to pay the operating costs of the property.
Included in property costs is a nonrecurring charge of $64,000 from a litigation
settlement relating to the former hotel property.
For the prior-year's nine-month period, income from the hotel property
including depreciation and interest expense was $740,000 so that the reduction
in earnings resulting from the exchange for the comparable periods was
approximately $225,000. This comparison of results does not reflect the
substantial resources the Partnership used to maintain and upgrade the hotel
property during the period it operated the hotel. If direct ownership of the
hotel had been retained, periodic capital expenditures would have continued to
be required. As of November 4, 1997, the quoted market value of American General
Hospitality common stock was $27 15/16 per share. Since the limited partnership
units in the operating partnership are convertible to American General
Hospitality common stock on a one-for-one basis, the underlying fair value of
the Partnership's investment is approximately $13,792,000.
Two lessees, Sybron Acquisition Company and High Voltage Engineering
Corporation have purchase options which can be exercised in 1998. The options
provide an exercise price for the properties at the greater of fair market value
as encumbered by the leases or the Partnership's purchase price for the
properties. In the event that the options are exercised, the Partnership would
receive proceeds, after paying off the mortgage loans on the properties, of no
less than $14,125,000. Annual cash flow (rent less mortgage debt service) from
the properties is $1,806,000. The Partnership has not received any indication
from Sybron or High Voltage regarding whether they intend to exercise their
options. If the options are not exercised, the initial lease terms of both
leases are scheduled to expire in 2013.
-8-
<PAGE> 10
CORPORATE PROPERTY ASSOCIATES 8, L.P.,
a Delaware limited partnership
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
Financial Condition:
There has been no material change in the Partnership's financial condition
since December 31, 1996. Cash flow provided by operating activities and
distributions received from equity investments of $7,664,000 was sufficient to
fund distributions to partners of $4,961,000 and scheduled mortgage principal
payments installments of $933,000. The General Partners expect that the
Partnership will remain in compliance with the covenants of its note payable
including those provisions relating to cash flow ratios even though cash flow
has decreased subsequent to the expiration of the Advanced System Applications
lease.
The mortgage loan on the High Voltage properties is scheduled to mature in
December 1998, at which time a balloon payment of approximately $4,000,000 is
scheduled. If High Voltage does not exercise its purchase option, the
Partnership could seek to refinance the property. Current cash reserves are
sufficient to pay off the loan.
As more fully described in Note 6 to the Financial Statements, the General
Partners have distributed to Limited Partners a consent solicitation which
proposes an exchange of limited partnership units for securities in a
publicly-traded limited liability company. The exchange would not result in a
taxable event to the limited partners, and the General Partners believe that
this proposed transaction will provide limited partners with liquidity on a
tax-effective basis. There is no assurance that the proposed transaction will be
completed.
-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 September 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.
11/07/97 By: /s/ Steven M. Berzin
------- ---------------------------------------
Date Steven M. Berzin
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
11/07/97 By: /s/ Claude Fernandez
------- ---------------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q FOR
THE QUARTER ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,637,410
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,637,410
<PP&E> 104,658,429
<DEPRECIATION> 9,879,307
<TOTAL-ASSETS> 109,537,034
<CURRENT-LIABILITIES> 1,283,918
<BONDS> 48,387,797
0
0
<COMMON> 0
<OTHER-SE> 59,153,059
<TOTAL-LIABILITY-AND-EQUITY> 109,537,034
<SALES> 0
<TOTAL-REVENUES> 11,565,269
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,361,354
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,377,238
<INCOME-PRETAX> 6,382,180
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,382,180
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,382,180
<EPS-PRIMARY> 84.99
<EPS-DILUTED> 0
</TABLE>
