<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 0-18750
CORPORATE PROPERTY ASSOCIATES 9, L.P., A DELAWARE LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3489133
(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 9, 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
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 9, L.P.,
a Delaware limited partnership
PART I
Item 1. - FINANCIAL INFORMATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ ------------
(NOTE) (UNAUDITED)
ASSETS:
<S> <C> <C>
Land and buildings, net of accumulated
depreciation of $11,169,434 at
December 31, 1996 and
$9,303,772 at September 30, 1997 $ 58,384,238 $ 45,439,812
Net investment in direct
financing leases 31,682,628 43,562,206
Equity investments 5,460,825 5,181,632
Cash and cash equivalents 1,436,555 964,856
Other assets 1,553,739 2,057,596
------------ ------------
Total assets $ 98,517,985 $ 97,206,102
============ ============
LIABILITIES:
Mortgage notes payable $ 57,669,975 $ 56,646,675
Accrued interest payable 347,772 330,483
Accounts payable and accrued expenses 78,500 72,859
Accounts payable to affiliates 1,648,110 1,595,858
Prepaid rental income 10,514 133,744
------------ ------------
Total liabilities 59,754,871 58,779,619
------------ ------------
PARTNERS' CAPITAL:
General Partners (1,273,499) (1,307,162)
Limited Partners (59,918 Limited
Partnership Units issued and
outstanding) 40,036,613 39,733,645
------------ ------------
Total partners' capital 38,763,114 38,426,483
------------ ------------
Total liabilities and
partners' capital $ 98,517,985 $ 97,206,102
============ ============
</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 9, 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 $ 2,084,022 $1,653,966 $6,286,423 $5,779,029
Interest from direct
financing leases 934,615 1,335,660 2,802,728 3,182,855
Other interest income 17,181 10,199 46,387 28,089
----------- ---------- ---------- ----------
3,035,818 2,999,825 9,135,538 8,989,973
----------- ---------- ---------- ----------
Expenses:
Interest on mortgages 1,318,165 1,261,537 4,025,242 3,871,292
Depreciation 417,616 316,008 1,259,634 1,134,310
General and administrative 112,416 154,648 348,575 498,519
Property expenses (25,363) 29,625 48,372 59,430
Amortization 11,197 7,248 34,622 31,138
----------- ---------- ---------- ----------
1,834,031 1,769,066 5,716,445 5,594,689
----------- ---------- ---------- ----------
Income before income from
equity investments and
gain on sale of real estate 1,201,787 1,230,759 3,419,093 3,395,284
Income from equity
investments 165,258 173,567 492,289 510,298
----------- ---------- ---------- ----------
Income before gain on
sale of real estate 1,367,045 1,404,326 3,911,382 3,905,582
Gain on sale of real estate 45,066 45,066
----------- ---------- ---------- ----------
Net income $ 1,412,111 $1,404,326 $3,956,448 $3,905,582
=========== ========== ========== ==========
Net income allocated
to General Partners $ 141,211 $ 140,432 $ 395,645 $ 390,558
=========== ========== ========== ==========
Net income allocated
to Limited Partners $ 1,270,900 $1,263,894 $3,560,803 $3,515,024
=========== ========== ========== ==========
Net income per Unit
(59,918 Limited
Partnership Units) $ 21.21 $ 21.09 $ 59.43 $ 58.66
=========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 5
CORPORATE PROPERTY ASSOCIATES 9, 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 $ 3,956,448 $ 3,905,582
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,294,256 1,165,448
Other noncash items (104,227) (52,971)
Gain on sale of real estate (45,066)
Net change in operating assets and liabilities (220,608) (377,993)
----------- -----------
Net cash provided by operating activities 4,880,803 4,640,066
----------- -----------
Cash flows from investing activities:
Proceeds from sale of real estate 928,310
Distributions received from equity investments
in excess of equity income 292,636 279,193
----------- -----------
Net cash provided by investing activities 1,220,946 279,193
----------- -----------
Cash flows from financing activities:
Distributions to partners (4,229,565) (4,242,213)
Deferred refinancing costs (125,445)
Proceeds from mortgages 8,600,440
Prepayments of mortgages payable (604,184) (8,436,142)
Payments on mortgage principal (1,087,669) (1,187,598)
----------- -----------
Net cash used in financing activities (5,921,418) (5,390,958)
----------- -----------
Net increase (decrease) in cash and cash equivalents 180,331 (471,699)
Cash and cash equivalents, beginning of period 1,657,504 1,436,555
----------- -----------
Cash and cash equivalents, end of period $ 1,837,835 $ 964,856
=========== ===========
Supplemental disclosure of cash flows information:
Interest paid $ 4,046,280 $ 3,888,581
=========== ===========
</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 $2,999,972 $(11,810,116)
Net investment in direct
financing leases 11,810,116
------------
$ -
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 6
CORPORATE PROPERTY ASSOCIATES 9, 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 or payable to partners during the nine months
ended September 30, 1997 are as follows:
<TABLE>
<CAPTION>
Quarter Ended General Partners Limited Partners Per Limited Partner Unit
------------- ---------------- ---------------- ------------------------
<S> <C> <C> <C>
December 31, 1996 $141,407 $1,272,664 $21.24
======== ========== ======
March 31, 1997 $141,407 $1,272,664 $21.24
======== ========== ======
June 30, 1997 $141,407 $1,272,664 $21.24
======== ========== ======
</TABLE>
A distribution of $21.24 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 $333 and $7,353, respectively, and general
and administrative expense reimbursements of $29,942 and $78,835, respectively.
For the three-month and nine-month periods ended September 30, 1997, the
Partnership incurred general and administrative expense reimbursements of
$65,767 and $166,060, respectively. No leasing fees were incurred in 1997.
Management believes that ultimate payment of a preferred return to the General
Partners of $29,830, 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 $73,251 and $66,236, respectively.
5
<PAGE> 7
CORPORATE PROPERTY ASSOCIATES 9, 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. The financial
reporting sources of leasing revenues for the nine-month periods ended September
30, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Per Statements of Income:
Rental income from operating leases $ 6,286,423 $ 5,779,029
Interest from direct financing leases 2,802,728 3,182,855
Adjustments:
Share of rental income from equity
investments' operating leases 1,711,942 1,716,202
----------- -----------
$10,801,093 $10,678,086
=========== ===========
</TABLE>
For the nine-month periods ended September 30, 1996 and 1997, the Partnership
earned its proportionate net leasing revenues from its investments from the
following lease obligors:
<TABLE>
<CAPTION>
1996 % 1997 %
----------- ---- ----------- ----
<S> <C> <C> <C> <C>
Lease Obligor:
Detroit Diesel Corporation $ 2,187,230 20% $2,187,230 21%
Dr Pepper Bottling Company of Texas 1,499,250 14 1,499,250 14
Furon Company 1,303,299 12 1,227,111 12
Information Resources, Inc. (a) 1,093,341 10 1,093,341 10
Red Bank Distribution, Inc. 1,050,425 10 1,050,425 10
Orbital Sciences Corporation 882,271 8 882,271 8
Amerisig, Inc. 849,681 8 828,290 8
NVRyan L.P. 824,253 8 772,997 7
The Titan Corporation (a) 344,643 3 348,903 3
Childtime Childcare, Inc. 285,965 3 307,533 3
General Electric Company (a) 273,958 3 273,958 3
Federal Express Corporation 133,118 1 133,118 1
PepsiCo, Inc. 73,659 73,659
----------- ---- ----------- ----
$10,801,093 100% $10,678,086 100%
=========== ==== =========== ====
</TABLE>
(a) Represents the Partnership's proportionate share of rental revenue from
an equity investment in which the above named company is the lease
obligor.
Note 5. Equity Investments :
Summarized financial information of the Partnership's equity investments in two
limited partnerships and a joint venture is as follows:
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31, SEPTEMBER 30,
1996 1997
----------- ------------
<S> <C> <C>
Assets $55,073 $53,882
Liabilities 36,932 36,479
Partners' capital 18,141 17,403
</TABLE>
6
<PAGE> 8
CORPORATE PROPERTY ASSOCIATES 9, L.P.,
a Delaware limited partnership
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
Revenue $ 5,687 $ 5,710
Interest, depreciation, amortization
and other expenses (3,925) (3,878)
------- -------
Net income $ 1,762 $ 1,832
======= =======
</TABLE>
Note 6. Property Leased to Red Bank Distribution, Inc.:
In May 1997, the Partnership declared Red Bank Distribution, Inc. ("Red Bank")
in default of its lease obligations as a result of Red Bank's continued failure
to pay its rent in a timely manner. In June 1997, the Partnership filed suit
against Red Bank in the Court of Common Pleas of Hamilton County, Ohio (the
"Court") seeking its remedies against Red Bank as provided for in the Red Bank
lease. Such possible remedies included, but were not limited to, an acceleration
of all future rents for the remainder of the lease term or requiring Red Bank to
make an irrevocable offer to purchase its leased property. In September 1997,
the Court issued a default judgement which would allow the Partnership to
proceed with eviction.
As a result of the lease default, an outstanding limited recourse mortgage loan
of $2,623,803 is in default and subject to acceleration. Such loan has been
subject to various short-term extensions and has already matured. The lender has
continued to accept monthly payments and has not given any notice of demand for
the Partnership to make a balloon payment for the outstanding balance. There is
no assurance; however, that the lender will not demand full payment of the loan.
Red Bank has continued to pay the portion of rent applicable to this mortgage
debt in a timely manner. As of September 30, 1997, Red Bank's rent arrearage was
$336,766. Of such arrearage, Red Bank paid $288,744 on October 28, 1997. As a
result of such payment from Red Bank, the Partnership is considering whether to
try to reach an agreement with Red Bank. There is no assurance that any
agreement will be reached in which event, the Partnership will proceed with
evicting Red Bank.
Note 7. 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 9, L.P.,
a Delaware limited partnership
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
Results of Operations:
Excluding the $45,000 gain on the sale of real estate in September 30,
1996, there was a 3% increase in income for the comparable three-month periods
and income for the comparable nine-month periods was substantially unchanged.
Income before gain on sale benefited from decreases in interest and depreciation
expenses and were offset by a decrease in lease revenues and an increase in
general and administrative expenses.
The decrease in interest expense was due to a partial prepayment of the
mortgage loan on the properties leased to Furon Company at the time of the sale
of two Furon properties in September 1996, the refinancing of the Furon mortgage
loan at a lower rate of interest in June 1997 and the continuing amortization of
the Partnership's other limited recourse mortgage loans. The decrease in
depreciation was primarily due to the reclassification of the Furon lease from
the operating method to the direct financing method in June 1997. The decrease
in lease revenues was due to the reduction in annual rent from Furon which
resulted from the sale of the two Furon properties. Lease revenues are expected
to remain stable in the coming year unless there are adverse developments in
connection with the Red Bank Distribution, Inc. lease default. The increase in
general and administrative expense was due to the increase in costs incurred in
structuring the proposed transaction described in Note 7 to the Financial
Statements.
The Partnership and an affiliate each own a 50% interest in joint venture
that leases a property to General Electric Company. The initial term of the
General Electric lease expires in July 1998. General Electric has not yet
indicated whether it will exercise its option to renew the lease for an
additional five-year term. The Partnership's annual share of distributions from
the joint venture is $252,000. In addition, the limited recourse mortgage loan
on the General Electric property is scheduled to mature in May 1998, at which
time a balloon payment will be due.
Financial Condition:
Cash provided from operations and equity investments of $4,919,000 was not
sufficient to pay quarterly distributions of $4,242,000 and scheduled mortgage
principal installments of $1,188,000. As a result, the Partnership's cash
balances have decreased by $472,000 since December 31, 1996. The decrease was
partially due to the failure of Red Bank to pay rent when due. Since September
30, 1997, Red Bank has paid $289,000 of overdue rents, reducing its rent
arrearage to $48,000. Even with such payment, cash flow from operations and
equity investments would not have been sufficient to fully fund payment of
distributions and mortgage principal payments. Management will continue to
monitor the Partnership's cash flow to determine whether the current
distribution rate can be sustained.
The Partnership's cash position has benefited from the Corporate General
Partner's continuing voluntary, temporary deferral of the collection of
$1,510,000 of accrued leasing fees. A limited recourse loan collateralized by
the Red Bank property of $2,624,000 is subject to acceleration; however, the
lender continues to accept monthly debt service installments. The ability to
maintain cash balances at current levels is dependent on the Corporate General
Partner's forbearance in the collection of fees incurred and the Red Bank
mortgage lender continuing to accept monthly debt service installments in lieu
of seeking acceleration of the mortgage loan. The Partnership's cash flow could
also be adversely affected if General Electric does not renew its lease.
As more fully described in Note 7 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.
8
<PAGE> 10
CORPORATE PROPERTY ASSOCIATES 9, 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.
9
<PAGE> 11
CORPORATE PROPERTY ASSOCIATES 9, L.P.,
a Delaware limited partnership
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Partnership has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORPORATE PROPERTY ASSOCIATES 9, L.P.,
a Delaware limited partnership
By: NINTH 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)
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q 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> 964,856
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 964,856
<PP&E> 98,305,790
<DEPRECIATION> 9,303,772
<TOTAL-ASSETS> 97,206,102
<CURRENT-LIABILITIES> 2,132,944
<BONDS> 56,646,675
0
0
<COMMON> 0
<OTHER-SE> 38,426,483
<TOTAL-LIABILITY-AND-EQUITY> 97,206,102
<SALES> 0
<TOTAL-REVENUES> 8,989,973
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,692,259
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,871,292
<INCOME-PRETAX> 3,905,582
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,905,582
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,905,582
<EPS-PRIMARY> 58.66
<EPS-DILUTED> 0
</TABLE>
