-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KrrDBQEiTf79yL/sxqb0pFwkt70/2brXycrWaD6p0GSSaGb02RAL4U1WDHt0y4uC a+lsHu9WAiKmcX1JTfRRoA== 0000950109-96-007256.txt : 19961111 0000950109-96-007256.hdr.sgml : 19961111 ACCESSION NUMBER: 0000950109-96-007256 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961108 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORPORATE PROPERTY ASSOCIATES 3 CENTRAL INDEX KEY: 0000350745 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 942708080 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-10322 FILM NUMBER: 96657019 BUSINESS ADDRESS: STREET 1: 50 ROCKEFELLER PLAZA CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2124921100 MAIL ADDRESS: STREET 1: 50 ROCKEFELLER PLAZA CITY: NEW YORK STATE: NY ZIP: 10020 10-Q 1 FORM 10-Q 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, 1996 -------------------------------------------------- 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 0-10322 ---------------------------------------------------------- CORPORATE PROPERTY ASSOCIATES 3 - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) CALIFORNIA 94-2708080 - -------------------------------------------------------------------------------- (State or other jurisdiction of incorporation (I.R.S. Employer Identification or organization) 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 CORPORATE PROPERTY ASSOCIATES 3 (a California limited partnership) INDEX Page No. -------- PART I ------ Item 1. - Financial Information* Balance Sheets, December 31, 1995 and September 30, 1996 2 Statements of Income for the three and nine months ended September 30, 1995 and 1996 3 Statements of Cash Flows for the nine months ended September 30, 1995 and 1996 4 Notes to Financial Statements 5-6 Item 2. - Management's Discussion of Operations 7 PART II ------- Item 6. - Exhibits and Reports on Form 8-K 8 Signatures 9 *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- CORPORATE PROPERTY ASSOCIATES 3 (a California limited partnership) PART I ------ Item 1. - FINANCIAL INFORMATION ------------------------------- BALANCE SHEETS
December 31, September 30, 1995 1996 ------------- -------------- (Note) (Unaudited) ASSETS: Land and buildings, net of accumulated depreciation of $1,175,202 at December 31, 1995 and $1,317,424 at September 30, 1996 $ 4,594,725 $ 4,452,503 Net investment in direct financing leases 25,291,792 25,584,163 Real estate held for sale 1,853,816 Cash and cash equivalents 1,158,302 1,619,726 Accrued interest and rents receivable 210,362 235,072 Other assets 114,160 264,938 ----------- ----------- Total assets $33,223,157 $32,156,402 =========== =========== LIABILITIES: Note payable to affiliate $ 2,300,000 $ 500,000 Accounts payable and accrued expenses 86,776 53,675 Accounts payable to affiliates 57,298 74,733 ----------- ----------- Total liabilities 2,444,074 628,408 ----------- ----------- PARTNERS' CAPITAL: General Partners 191,606 207,565 Limited Partners (66,000 Limited Partnership Units issued and outstanding) 30,587,477 31,320,429 ----------- ----------- Total partners' capital 30,779,083 31,527,994 ----------- ----------- Total liabilities and partners' capital $33,223,157 $32,156,402 =========== ===========
The accompanying notes are an integral part of the financial statements. Note: The balance sheet at December 31, 1995 has been derived from the audited financial statements at that date. -2- CORPORATE PROPERTY ASSOCIATES 3 (a California limited partnership) STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September September September September 30, 1995 30, 1996 30, 1995 30, 1996 ------------ ----------- ------------ ---------- Revenues: Interest from direct financing leases $ 1,696,972 $ 1,187,332 $ 5,090,924 $3,545,929 Rental income from operating leases 71,945 289,263 215,834 552,511 Other interest income 124,200 16,969 188,402 56,510 Other income 75,000 47,997 75,000 ----------- ----------- ----------- ---------- 1,893,117 1,568,564 5,543,157 4,229,950 ----------- ----------- ----------- ---------- Expenses: Interest 337,081 10,542 1,063,682 64,616 Depreciation 50,124 47,408 150,372 142,222 General and administrative 95,340 72,994 284,441 241,741 Property expense 164,323 204,024 683,516 547,685 Amortization 5,601 16,804 ----------- ----------- ----------- ---------- 652,469 334,968 2,198,815 996,264 ----------- ----------- ----------- ---------- Income before gain on settlement 1,240,648 1,233,596 3,344,342 3,233,686 Gain on settlement 11,499,176 11,499,176 ----------- ----------- ----------- ---------- Net income $12,739,824 $ 1,233,596 $14,843,518 $3,233,686 =========== =========== =========== ========== Net income allocated to General Partners $ 254,796 $ 24,672 $ 296,870 $ 64,674 =========== =========== =========== ========== Net income allocated to Limited Partners $12,485,028 $ 1,208,924 $14,546,648 $3,169,012 =========== =========== =========== ========== Net income per Unit (66,000 Limited Partnership Units) $189.16 $18.32 $220.40 $48.02 ======= ====== ======= ======
The accompanying notes are an integral part of the financial statements. -3- CORPORATE PROPERTY ASSOCIATES 3 (a California limited partnership) STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, --------------------------- 1995 1996 ------------- ------------ Cash flows from operating activities: Net income $ 14,843,518 $ 3,233,686 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 167,176 142,222 Interest income on direct financing leases in excess of (less than) scheduled rents 450 (292,371) Scheduled rents on operating leases less than straight-line adjustments (122,208) Gain on settlement, net (11,499,176) Net change in operating assets and liabilities 18,992 (68,946) ------------ ----------- Net cash provided by operating activities 3,530,960 2,892,383 ------------ ----------- Cash flows from investing activities: Proceeds from settlement, net 4,850,869 Proceeds from sale of real estate 1,853,816 Payments received in connection with exercise of purchase option 585,000 ------------ ----------- Net cash provided by investing activities 5,435,869 1,853,816 ------------ ----------- Cash flows from financing activities: Distributions to partners (3,522,918) (2,484,775) Payments on mortgage principal (917,179) Partial prepayment of note payable to affiliate (1,800,000) Prepayment on mortgage notes payable (1,320,347) ------------ ----------- Net cash used in financing activities (5,760,444) (4,284,775) ------------ ----------- Net increase in cash and cash equivalents 3,206,385 461,424 Cash and cash equivalents, beginning of period 8,851,419 1,158,302 ------------ ----------- Cash and cash equivalents, end of period $ 12,057,804 $ 1,619,726 ============ =========== Supplemental disclosure of cash flows information: Interest paid $ 1,080,275 $ 86,765 ============ ===========
The accompanying notes are an integral part of the financial statements. -4- CORPORATE PROPERTY ASSOCIATES 3 (a California 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, 1995. Note 2. Distributions to Partners: ------------------------- Distributions declared and paid to partners during the nine months ended September 30, 1996 are summarized as follows:
Quarter Ended General Partners Limited Partners Per Limited Partner Unit ------------- ---------------- ---------------- ------------------------ December 31, 1995 $15,598 $804,540 $12.19 ======= ======== ====== March 31, 1996 $16,442 $814,440 $12.34 ======= ======== ====== June 30, 1996 $16,675 $817,080 $12.38 ======= ======== ======
A distribution of $12.39 per Limited Partner Unit for the quarter ended September 30, 1996 was declared and paid in October 1996. Note 3. Transactions with Related Parties: --------------------------------- For the three-month and nine-month periods ended September 30, 1995, the Partnership incurred management fees of $407,817 and $487,940, respectively, and general and administrative expense reimbursements of $26,452 and $71,937, respectively. For the three-month and nine-month periods ended September 30, 1996, the Partnership incurred management fees of $51,632 and $166,964 respectively, and general and administrative expense reimbursements of $23,971 and $64,865, 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 nine months ended September 30, 1995 and 1996 were $71,514 and $51,977, respectively. -5- CORPORATE PROPERTY ASSOCIATES 3 (a California limited partnership) NOTES TO 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. For the nine-month periods ended September 30, 1995 and 1996, the Partnership earned its total operating revenues (rental income plus interest income from financing leases) from the following lease obligors:
1995 % 1996 % ---- ---- ---- ---- Gibson Greetings, Inc. $4,471,567 84% $1,917,936 47% Cleo, Inc. 1,008,674 25 Hughes Markets, Inc. 215,834 4 505,597 12 AT&T 343,657 7 344,053 8 New Valley Corporation 275,700 5 275,266 7 Other 46,914 1 ---------- ---- ---------- ---- $5,306,758 100% $4,098,440 100% ========== ==== ========== ====
Note 5. Property in Reno, Nevada: ------------------------ The Partnership and Corporate Property Associates 2 ("CPA(R):2"), an affiliate, own a property in Reno, Nevada as tenants-in-common with 61% and 39% interests, respectively. The property has been vacant since December 1994 when a lease with New Valley Corporation was terminated pursuant to an order of the bankruptcy court. On August 28, 1996, the Partnership and CPA(R):2 entered into a net lease agreement for the Reno property with Excel Teleservices, Inc. ("Excel"). The lease obligations of Excel have been guaranteed by its parent company, Excel Communications, Inc. Under the lease, the Partnership and CPA(R):2 are obligated to fund an allowance for tenant improvements to the facility of up to $1,341,600. In addition, the lease requires the Partnership and CPA(R):2 to repair and/or replace the HVAC system and roof; such repair costs are estimated to amount to $228,000. The Partnership's share of allowance and repair costs amount to approximately $958,000. The initial lease term of ten years will commence at the earlier of December 26, 1996 or the date on which Excel commences operations at the facility. Rent will be $532,800 during the first five years and increase to $580,800 for the remainder of the initial term (of which the Partnership's share will be $325,000 and $354,000, respectively). The lease also provides Excel with two five-year renewal options with the rent during such renewal terms based on the then prevailing market rate. Excel has the right to terminate the lease at the end of the sixth lease year. -6- CORPORATE PROPERTY ASSOCIATES 3 (a California limited partnership) Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS ----------------------------------------------- Results of Operations: - --------------------- The results of operations for the three-month and nine-month periods ended September 30, 1996 are not directly comparable to the same periods ended September 30, 1995 as the Partnership recognized a nonrecurring gain of $11,499,000 on the settlement of its dispute with The Leslie Fay Company ("Leslie Fay") in 1995. Excluding the effect of the gain on settlement, earnings for the current three-month and nine-month periods decreased by $7,000 and $111,000, respectively. For both current periods, the decreases in earnings are due to decreases in lease revenues and other interest income and, for the current three-month period, an increase in property expense. These effects were significantly offset by a decrease in interest expense. The decrease in lease revenues resulted from the lease restructuring transaction in the fourth quarter of 1995 with Gibson Greetings, Inc. ("Gibson"). In connection with the restructuring, the Partnership received a substantial lump sum payment in consideration for severing one of the properties from the Gibson lease, entering into a lease for such property with Cleo, Inc. ("Cleo") and modifying the existing lease with Gibson. The Partnership used the lump sum consideration received from Gibson to retire the mortgage debt on the Gibson and Cleo properties at the time of the restructuring. Although the rent from the Gibson and Cleo properties subsequent to the restructuring was reduced, cash flow (rent less mortgage debt service) from such properties has remained stable due to the retirement of the debt. Rentals from Hughes Markets, Inc. increased primarily as a result of the two-year lease extension agreement which commenced in May 1996 and which increased annual rentals by $371,000 and also provides for a lump sum rental payment of $587,000 at the end of such term. For financial reporting purposes, the lump sum rental payment is being recognized as rental income on a straight-line basis over the extended term. The decrease in other interest income was due to the higher cash balances held in 1995 for the period from which cash was received in connection with the Leslie Fay settlement before payment of a special distribution of $120 per Limited Partnership Unit in October 1995. The decrease in interest expense was due to the satisfaction of all remaining mortgage debt in 1995, including prepayments of three mortgage loans in the first quarter and the aforementioned satisfaction of the Gibson mortgage debt in the fourth quarter. Although property expenses increased during the three-month period, the increase was primarily due to the timing of costs incurred for maintaining the Reno, Nevada and Moorestown, New Jersey properties as costs did not increase for the comparable nine-month periods. Financial Condition: - ------------------- There has been no material change in the Partnership's financial condition since December 31, 1995. Cash flow from operations of $2,892,000 was sufficient to fund distributions to partners of $2,485,000. During the first quarter, the Partnership sold the property formerly leased to Leslie Fay and realized cash proceeds of $1,854,000. The Partnership also reduced its note payable from $2,300,000 to $500,000. With the improvement of the Partnership's cash balances to $1,620,000, the Partnership should have sufficient cash reserves to fully fund its $958,000 share of costs required under the Excel Teleservices, Inc. ("Excel") lease which has been entered into for the Reno property. To the extent that cash reserves are not at an acceptable level after funding the Excel improvements, the Partnership has substantial borrowing capacity as none of the Partnership's properties are encumbered by mortgage debt. As annual cash flow will increase by $325,000 when Excel commences paying rent, the Partnership may have the ability to maintain its cash balances at an acceptable level without needing to borrow any funds. The Partnership received $47,000 during the third quarter for its share of rents from Sports & Recreation, Inc. ("Sports & Recreation") for the Moorestown property and has received all subsequent rents. Sports & Recreation had been in the process of renovating the Moorestown property, but has decided not to occupy the property. The Partnership and Sports & Recreation previously engaged in discussions regarding a settlement of the lease obligation, and the Partnership would consider new settlement proposals. The General Partners are currently investigating ways to provide liquidity for limited partners on a tax-effective basis. -7- CORPORATE PROPERTY ASSOCIATES 3 (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 September 30, 1996, the Partnership was not required to file any reports on form 8-K. -8- CORPORATE PROPERTY ASSOCIATES 3 (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 3 (a California limited partnership) By: W.P. CAREY & CO., INC. 11/8/96 By: /s/ Claude Fernandez - ----------- ----------------------------- Date Claude Fernandez Executive Vice President and Chief Administrative Officer (Principal Financial Officer) 11/8/96 By: /s/ Michael D. Roberts - ----------- ------------------------------ Date Michael D. Roberts First Vice President and Controller (Principal Accounting Officer) -9- EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 1,619,726 0 235,072 0 0 1,845,798 31,354,090 1,317,424 32,156,402 128,408 500,000 0 0 0 31,527,994 32,156,402 0 4,229,950 0 0 931,648 0 64,616 3,233,686 0 3,233,686 0 0 0 3,233,686 48.02 48.02
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