-----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, Nx424RUPdzBpM2pUc+XwwcH1ap1oC64IWp25Aia731OOzu8XiqQa7inVI3JEHKVK yMkin0eTGZ+jDKz6xMt4gw== 0000950123-97-006636.txt : 19970812 0000950123-97-006636.hdr.sgml : 19970812 ACCESSION NUMBER: 0000950123-97-006636 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970811 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORPORATE PROPERTY ASSOCIATES 4 CENTRAL INDEX KEY: 0000706005 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 133126150 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11982 FILM NUMBER: 97655784 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 CORPORATE PROPERTY ASSOCIATES 4 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 1997 or [ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-11982 CORPORATE PROPERTY ASSOCIATES 4, A CALIFORNIA LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) CALIFORNIA 13-3126150 (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) (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 2 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership INDEX
Page No. -------- PART I Item 1. - Financial Information* Balance Sheets, December 31, 1996 and June 30, 1997 2 Statements of Operations 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 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- 3 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership PART I Item 1. - FINANCIAL INFORMATION BALANCE SHEETS
December 31, June 30, 1996 1997 ----------- ----------- (Note) (Unaudited) ASSETS: Land and buildings, net of accumulated depreciation of $13,487,845 at December 31, 1996 and $13,909,709 at June 30, 1997 $13,577,116 $13,155,252 Net investment in direct financing leases 18,193,555 6,176,041 Real estate held for sale 9,684,000 Cash and cash equivalents 4,668,645 3,388,952 Other assets 1,628,031 2,347,867 Equity investment 3,999,632 3,982,897 ----------- ----------- Total assets $42,066,979 $38,735,009 =========== =========== LIABILITIES: Mortgage notes payable $10,699,799 $ 7,896,487 Accrued interest payable 82,827 61,585 Accounts payable and accrued expenses 288,509 252,781 Accounts payable to affiliates 146,447 110,962 Prepaid rental income 46,800 46,800 ----------- ----------- Total liabilities 11,264,382 8,368,615 ----------- ----------- PARTNERS' CAPITAL: General Partners 210,626 184,454 Limited Partners (85,528 Limited Partnership Units issued and outstanding at December 31, 1996 and June 30, 1997) 30,591,971 30,181,940 ----------- ----------- Total partners' capital 30,802,597 30,366,394 ----------- ----------- Total liabilities and partners' capital $42,066,979 $38,735,009 =========== ===========
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- 4 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended June 30, 1996 June 30, 1997 June 30, 1996 June 30, 1997 ------------- ------------- ------------- ------------- Revenues: Rental income from operating leases $1,387,643 $ 1,636,623 $2,222,984 $3,273,247 Interest from direct financing leases 827,821 826,426 1,655,955 1,653,220 Other interest income 95,010 28,104 190,366 79,956 Other income 186,395 ---------- ----------- ---------- ---------- 2,310,474 2,491,153 4,069,305 5,192,818 ---------- ----------- ---------- ---------- Expenses: Interest on mortgages 428,939 196,201 864,411 486,040 Depreciation 216,199 210,932 492,814 421,864 General and administrative 160,088 107,947 250,976 262,573 Property expense 134,275 116,488 201,335 230,339 Amortization 25,767 7,759 51,534 15,518 Writedown to net realizable value 2,316,000 2,316,000 ---------- ----------- ---------- ---------- 965,268 2,955,327 1,861,070 3,732,334 ---------- ----------- ---------- ---------- Income (loss) before income from equity investments 1,345,206 (464,174) 2,208,235 1,460,484 Income from equity investment 191,664 338,869 Earnings from hotel operation 374,352 807,145 ---------- ----------- ---------- ---------- Net income (loss) $1,719,558 $ (272,510) $3,015,380 $1,799,353 ========== =========== ========== ========== Net income (loss) allocated to General Partners $ 103,173 $ (16,351) $ 180,923 $ 107,961 ========== =========== ========== ========== Net income (loss) allocated to Limited Partners $1,616,385 $ (256,159) $2,834,457 $1,691,392 ========== =========== ========== ========== Net income (loss) per Unit (85,568 and 85,528 Limited Partnership Units in 1996 and 1997) $ 18.89 $ (2.98) $ 33.13 $ 19.78 ========== =========== ========== ==========
The accompanying notes are an integral part of the financial statements. -3- 5 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30, ------------------------------ 1996 1997 ----------- ----------- Cash flows from operating activities: Net income $ 3,015,380 $ 1,799,353 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 544,348 437,382 Other noncash items (236,864) (704,927) Writedown to net realizable value 2,316,000 Net change in operating assets and liabilities (217,321) (105,368) ----------- ----------- Net cash provided by operating activities 3,105,543 3,742,440 ----------- ----------- Cash flows from investing activities: Additional capitalized costs (7,649) Distributions from equity investment in excess of equity income 16,735 ----------- ----------- Net cash (used in) provided by investing activities (7,649) 16,735 ----------- ----------- Cash flows from financing activities: Distributions to partners (2,220,949) (2,235,556) Payments on mortgage principal (464,357) (398,312) Prepayment of mortgage payable (2,405,000) ----------- ----------- Net cash used in financing activities (2,685,306) (5,038,868) ----------- ----------- Net increase (decrease) in cash and cash equivalents 412,588 (1,279,693) Cash and cash equivalents, beginning of period 7,579,071 4,668,645 ----------- ----------- Cash and cash equivalents, end of period $ 7,991,659 $ 3,388,952 =========== =========== Supplemental disclosure of cash flows information: Interest paid $ 874,349 $ 442,124 =========== ===========
The accompanying notes are an integral part of the financial statements. -4- 6 CORPORATE PROPERTY ASSOCIATES 4, 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, 1996. Note 2. Distributions to Partners: Distributions declared and paid to partners during the six months ended June 30, 1997 are summarized as follows:
Quarter Ended General Partners Limited Partners Per Limited Partner Unit December 31, 1996 $67,039 $1,050,284 $12.28 ======= ========== ====== March 31, 1997 $67,094 $1,051,139 $12.29 ======= ========== ======
A distribution of $12.30 per Limited Partner Unit for the quarter ended June 30, 1997 was declared and paid in July 1997. Note 3. Transactions with Related Parties: For the three-month and six-month periods ended June 30, 1996, the Partnership incurred property management fees of $59,049 and $81,073, respectively, and general and administrative expense reimbursements of $56,390 and $79,331, respectively. For the three-month and six-month periods ended June 30, 1997, the Partnership incurred property management fees of $67,954 and $134,591, respectively, and general and administrative expense reimbursements of $35,247 and $100,080, respectively. The Partnership, in conjunction with certain affiliates, is a participant in a cost sharing agreement for the purpose of renting and occupying office space. Under the agreement, the Partnership pays its proportionate share of rent and other costs of occupancy. Net expenses incurred for the six months ended June 30, 1996 and 1997 were $35,508 and $33,459, respectively. -5- 7 CORPORATE PROPERTY ASSOCIATES 4, 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 six-month periods ended June 30, 1996 and 1997, the Partnership earned its total lease revenues (rental income plus interest income from financing leases) from the following lease obligors:
1996 % 1997 % ---------- --- ---------- --- Hughes Markets, Inc. $1,307,494 34% $2,407,297 49% Simplicity Manufacturing, Inc. 998,356 25 998,356 18 Brodart Co. 657,600 17 654,864 14 Continental Casualty Company 379,924 10 379,924 8 Family Dollar Stores, Inc. 276,000 7 280,800 6 Petrocon Engineering, Inc. 187,209 5 132,870 3 Winn-Dixie Stores, Inc. 72,356 2 72,356 2 ---------- --- ---------- --- $3,878,939 100% $4,926,467 100% ========== === ========== ===
Note 5. Equity Investment: The Partnership owns 427,008 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-month period ended March 31, 1997. Note 6. Writedown to Net Realizable Value: On March 25, 1997, Simplicity Manufacturing, Inc. ("Simplicity") notified the Partnership that it was exercising its option to purchase the property it leases from the Partnership in Port Washington, Wisconsin on April 1, 1998. The lease provides that the option price will be the greater of $9,684,000 or the fair market value of the property as unencumbered by the lease, capped at $12,000,000. Although the appraisal process has not yet been completed, Management has concluded that it is not likely that the agreed-upon exercise price will be in excess of the minimum exercise price of $9,684,000. Accordingly, the Partnership has recognized a noncash charge of $2,316,000 on the writedown of the property to its estimated net realizable value of $9,684,000. After paying the limited recourse mortgage loan, the Partnership will realize cash proceeds of no less than $5,362,000, before any selling costs, if the property is sold at the minimum exercise price. Annual cash flow from the property (rent less mortgage debt service on the property) is $934,000. -6- 8 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) Note 7. Property in Los Angeles, California: The Partnership and Corporate Property Associates 3 ("CPA(R):3"), an affiliate, own a dairy processing facility in Los Angeles, California as tenants-in-common with 83.24% and 16.76% ownership interests, respectively. In May 1996, the Partnership and CPA(R):3 entered into an agreement with Hughes Markets, Inc. ("Hughes") to extend the term of a lease which was expiring from April 30, 1996 to April 30, 1998. Under the agreement, Hughes' annual rent increased from $1,820,000 to $4,034,000 (of which the Partnership's share is approximately $3,358,000) and Hughes is required to pay a lump sum payment of $3,500,000 (of which the Partnership's share will be $2,913,000) at the end of the two-year extension. Hughes was required to provide the Partnership and CPA(R):3 with a letter of credit in an amount equal to the lump sum payment. Hughes may extend the lease on a month-to-month basis through October 1998. On June 20, 1997, the Partnership and CPA(R):3 entered into a net lease agreement for the Los Angeles property with Copeland Beverage Group, Inc. ("Copeland"). Copeland's right of possession of the property and the date which it will be required to commence paying rent shall be the date on or after April 30, 1998 that Hughes vacates the property. The Copeland lease provides for an initial term of nine years and two five-year renewals at the option of the lessee. The lease provides for annual rent of $1,800,000 (of which the Partnership's share will be $1,498,320) with rent increases every three years based on a formula indexed to increases in the Consumer Price Index. Prior to taking occupancy of the property, Copeland will be required to provide the Partnership and CPA(R):3 with an irrevocable letter of credit of $1,800,000 as a security deposit. -7- 9 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS Results of Operations: As a result of a noncash charge of $2,316,000 on the writedown of a property subject to a purchase option and held for sale to the anticipated purchase price, earnings for the three-month and six-month periods ended June 30, 1997 decreased by $1,992,000 and $1,216,000 as compared with earnings for the three-month and six-month periods ended June 30, 1996, respectively. Excluding the writedown, income, as adjusted, for the three-month and six-month periods would have increased by $324,000 and $1,100,000, respectively. The increases in income, as adjusted, were due to an increase in lease revenues and a decrease in interest expense. The six-month period also benefited from nonrecurring other income of $186,000 which was received in connection with a bankruptcy claim against a former lessee. Income from the Partnership's equity investment in the operating partnership of a real estate investment trust, which was acquired in exchange for a hotel property, was less than the 1996 earnings from the hotel operations. The increase in lease revenues was due to the May 1996 extension agreement with Hughes Markets, Inc. for the Partnership's dairy processing facility in Los Angeles, California, which extended the Hughes lease term from April 1996 to April 1998. Under the agreement, the Partnership's share of Hughes' monthly rent increased by approximately $153,500 and Hughes is required to pay a lump sum rental payment of $2,913,000 to the Partnership in April 1998. As a result of the increased monthly rent and recognition of the lump sum rental payment on straight-line basis over the extension term, revenues from Hughes increased by approximately $929,000 and $1,100,000 as compared with the three-month and six-month periods ended June 30, 1996. Of such increases, for the current three-month and six-month periods approximately $243,000 and $728,000, respectively, were due to the pro rata recognition of the scheduled lump sum payment from Hughes. Interest expense decreased due to the satisfaction of the mortgage loan on the Holiday Inn New Orleans Airport in connection with the exchange of the interest in the hotel for limited partnership units in the operating partnership of a publicly-traded real estate investment trust, American General Hospitality Corporation, in July 1996, and the prepayment of a mortgage loan which had been collateralized by three Partnership properties in March 1997. For the comparable six-month periods, income from the investment in American General Hospitality was $258,000 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 does not include the substantial 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 value of the Company's investment is approximately $11,583,000. Simplicity Manufacturing, Inc. has exercised its option to purchase the property it leases from the Partnership on or before April 1, 1998. After paying off the limited recourse mortgage loan encumbered by the property, the Partnership anticipates that it will receive cash of $5,362,000, less any costs of sale. Annual cash flow from the Simplicity Manufacturing property (rent less mortgage debt service) is $934,000. As a result of the new lease with Copeland Beverage Group, which will take effect when Hughes vacates the dairy processing facility in Los Angeles, California, annual cash flow will decrease by $1,860,000. Cash flow from the Copeland lease will approximate the Partnership's cash flow from the property for the period which preceded the Hughes extension agreement. As a result of the agreement with Copeland, the Partnership does not expect to incur costs to maintain the property during any period of vacancy nor use any proceeds from the scheduled lump sum payment to retrofit the property for alternative uses. -8- 10 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS, Continued Financial Condition: There has been no change in the Partnership's financial condition since December 31, 1996. Cash provided from operating activities and the equity investment in the operating partnership of American General Hospitality of $3,759,000 was sufficient to fund distributions to partners of $2,236,000 and scheduled mortgage principal installments of $398,000. Although operating cash flow will decrease as a result of the sale of the Simplicity Manufacturing property and the scheduled termination of the Hughes lease, the Partnership expects to have sufficient cash flow and cash reserves to sustain the current distribution rate. In March 1997, the Partnership paid off an existing mortgage loan of $2,405,000 collateralized by three Partnership properties, and, solely as a result of paying off the loan, annual cash flow will increase by approximately $360,000. The Partnership's two remaining mortgage loans have a combined balance of $7,896,000. The loan collateralized by property leased to Simplicity Manufacturing, with a balance of $4,759,000 will be retired upon the sale of the property. The remaining loan is scheduled to mature in January 2004. Accordingly, Management believes that the Partnership has significant borrowing capacity. The General Partners are currently investigating ways to provide liquidity to limited partners on a tax-effective basis. -9- 11 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership PART II Item 6. - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: None (b) Reports on Form 8-K: During the quarter ended June 30, 1997, the Partnership was not required to file any reports on Form 8-K. -10- 12 CORPORATE PROPERTY ASSOCIATES 4, 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 4, a California limited partnership By: 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- EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1979 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 3,388,952 0 0 0 0 3,388,952 33,241,002 13,909,709 38,735,009 472,128 7,896,487 0 0 0 30,366,394 38,735,009 0 5,192,818 0 0 930,294 2,316,000 486,040 1,799,353 0 1,799,353 0 0 0 1,799,353 19.78 19.78
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